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From Antitrust Law Daily, June 3, 2013

High Court to Consider Lanham Act False Advertising Standing Requirements

By Jeffrey May, J.D.

The U.S. Supreme Court has agreed to review the standing requirements to pursue false advertising claims under the Lanham Act. At issue is a decision of the U.S. Court of Appeals in Cincinnati, holding that Static Control Components, Inc., a company that made components for toner cartridges, had standing to pursue Lanham Act false advertising claims against Lexmark International, Inc., a major producer of laser printers and toner cartridges for its printers. The appellate court ruled that Static Control alleged a cognizable interest in its business reputation and sales to remanufacturers and sufficiently alleged that these interests were harmed by Lexmark’s statements to the remanufacturers that Static Control was engaging in illegal conduct. The Court today granted Lexmark's petition for certiorari, which was filed on January 14, 2013 (Lexmark International, Inc. v. Static Control Components, Inc., Dkt. 12-873).

In its petition, Lexmark asked the Court: whether the appropriate analytic framework for determining a party's standing to maintain an action for false advertising under the Lanham Act is (1) the factors set forth in the Supreme Court's 1983 decision in Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 1983-1 Trade Cases ¶65,226, as adopted by the Third, Fifth, Eighth, and Eleventh Circuits; (2) the categorical test, permitting suits only by an actual competitor, as employed by the Seventh, Ninth, and Tenth Circuits, or (3) a version of the more expansive ‘reasonable interest’ test, either as applied by the Sixth Circuit in the case or as applied by the Second Circuit in prior cases.

According to Lexmark, “the Sixth Circuit panel felt constrained by a prior Sixth Circuit case on the ‘reasonable interest’ test and practically invited intervention by this Court.” Lexmark contends that there is a three-way split among the circuits on standing requirements for Lanham Act false advertising claims, and that Static Control would lack standing to assert its Lanham Act counterclaims if either of the two “narrower approaches” were applied.

Under the categorical test, Static Control’s claim would fail because it was not an actual competitor of Lexmark. If Lanham Act standing was assessed by reference to the AGC factors, then the district court's dismissal of the false advertising counterclaims using that analysis should be affirmed, Lexmark asserts.

The case arises out of efforts by Lexmark to restrict the ability of remanufacturers to resell Lexmark toner cartridges for its printers. Lexmark developed microchips for toner cartridges and printers so that Lexmark printers would reject any toner cartridges not containing a matching microchip, and over time Lexmark patented certain aspects of the cartridges. Static Control identified how to replicate the cartridge microchips and sold the microchips to remanufacturers along with other parts to facilitate the repair and resale of Lexmark toner cartridges. Lexmark sued Static Control for intellectual property violations, and Static Control counterclaimed under antitrust and false advertising laws.

For purposes of its false advertising claims, Static Control alleged that Lexmark falsely informed customers that Static Control's products infringed Lexmark's purported intellectual property and misled Static Control customers into believing that Static Control was engaging in illegal conduct because license agreements prohibited remanufacturing Lexmark toner cartridges. The federal district court dismissed the Lanham Act claim for lack of standing. Static Controls' antitrust claims were also dismissed on standing grounds based on the AGC factors.

In an August 2012 decision (697 F. 3d 387, 2012-2 Trade Cases ¶78,027), the Sixth Circuit reversed dismissal of the Lanham Act claim, but upheld dismissal of the antitrust claims. Static Control was found to have standing to pursue the Lanham Act false advertising claim. The appellate court refused to follow standing requirements imposed by other federal circuits, that a Lanham Act false advertising plaintiff be a competitor of the defendant or that the plaintiff satisfy the AGCfactors used in antitrust cases.

The Court has now granted the petition, as Lexmark states, “to consider the proper approach for determining prudential standing for a plaintiff asserting a false advertising claim under the Lanham Act and to thereby resolve the widening circuit split on this important issue of federal law.”

Attorneys: Steven B. Loy (Stoll, Keenon, Ogden, PLLC) for Lexmark International, Inc. Seth D. Greenstein (Constantine Cannon LLP) for Static Control Components, Inc.

Companies: Lexmark International, Inc.; Static Control Components, Inc.

MainStory: TopStory Advertising

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