Washington, D.C. – This dispute between printer ink cartridge suppliers has encountered a blotchy area of the law. Lexmark, a laser printer manufacturer, encrypts the ink cartridges it manufactures for use in its printers with a microchip. Static Control Components engineered a microchip that allowed competing ink cartridge manufacturers to have access to Lexmark printers. Lexmark sued Static Control for copyright infringement, among other things, and Static Control countered with a false advertising claim against Lexmark. Lexmark sought summary judgment on the false advertising claim, alleging that Static Control did not have standing to sue under the Lanham Act. On Tuesday, March 25, 2014, a unanimous Supreme Court resolved a split of authority amongst the Circuit Courts over the issue of standing in false advertising claims brought under the Lanham Act, 15 U.S.C. § 1125(a). Who has standing to bring a false advertising claim under the Lanham Act? Justice Scalia’s opinion answers this question by establishing a two-prong test for interpreting the Act to determine whether a particular plaintiff “falls within the class of plaintiffs whom Congress has authorized to sue under §1125(a).” Lexmark at 9. First, a plaintiff’s interests must “fall within the zone of interests protected by the law invoked.” Id at 10. The Court explains that this “Zone of Interest” requirement “applies to all statutorily created causes of action… unless it is expressly negated” by Congress. Id at 10. However, “the breadth of the zone of interests varies according to the provisions of law at issue” for any particular statute. Id at 11. Second, “a statutory cause of action is limited to plaintiffs whose injuries are proximately caused by violations of the statute.” Id at 13. This “Proximate Cause” requirement asks “whether the harm alleged has a sufficiently close connection to the conduct the statute prohibits.” Id at 14. The Court explains that this second requirement “generally bars suits for alleged harm that is ‘too remote’ from the defendant’s unlawful conduct.” Id.
Applying the first prong to a false advertising claim under the Lanham Act, the Court identified the “interests protected by the Lanham Act” by referring to the “’unusual, and extraordinarily helpful,’ detailed statement of the statute’s purposes.”
Section 45 of the Act, codified at 15 U. S. C. §1127, provides:
“The intent of this chapter is to regulate commerce within the control of Congress by making actionable the deceptive and misleading use of marks in such commerce; to protect registered marks used in such commerce from interference by State, or territorial legislation; to protect persons engaged in such commerce against unfair competition; to prevent fraud and deception in such commerce by the use of reproductions, copies, counterfeits, or colorable imitations of registered marks; and to provide rights and remedies stipulated by treaties and conventions respecting trademarks, trade names, and unfair competition entered into between the United States and foreign nations.” Id at 12.
Although “[m]ost of the enumerated purposes are relevant to false association cases,” the Court explains that “a typical false-advertising case will implicate only the Act’s goal of ‘protect[ing] persons engaged in [commerce within the control of Congress] against unfair competition.’” Id. Justice Scalia looks to the common law for the definition of “unfair competition,” stating that it was “understood to be concerned with injuries to business reputation and present and future sales.” Id. Thus, a plaintiff comes within the zone of interests in a suit for false advertising under §1125(a) when that plaintiff “allege[s] an injury to a commercial interest in reputation or sales.” Id at 13.
Applying the second prong, the Court explained that the “[p]roximate cause analysis is controlled by the nature of the statutory cause of action,” and asks “whether the harm alleged has a sufficiently close connection to the conduct [that] the statute prohibits.” Id at 14. The Court held that, when suing for false advertising, a plaintiff “ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising.” Id at 15. This occurs when a defendant’s deception causes “consumers… to withhold trade from the plaintiff.” Id. Several examples include “afford[ing] relief under §1125(a) not only where a defendant denigrates a plaintiff ’s product by name… but also where the defendant damages the product’s reputation by, for example, equating it with an inferior product.” Id at 19. Further, a defendant who “‘seeks to promote his own interests by telling a known falsehood to or about the plaintiff or his product’” may be said to have proximately caused the plaintiff ’s harm. Id at 20.
The Lexmark decision is important in two aspects. Narrowly, in order to have standing under the Lanham Act for a false advertising claim, “a plaintiff must plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.” Id at 25. Broadly, the decision adopts a two-prong test for evaluating standing under any statutorily created cause of action, and provides a rubric for analyzing each prong. It will be interesting to watch the development of the jurisprudence of standing as lower courts apply Zone of Interest and Proximate Causation to false association claims under the Lanham Act and extend this analysis to other federal statutes.
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