April 4, 2014

Supreme Court Inks Decision Regarding Who May Bring Lanham Claims

Seller Beware: Consumer Protection Insights for Industry

Last week, in a unanimous decision, the Supreme Court clarified the standard for who may bring claims pursuant to Section 43(a) of the Lanham Act. The case began when Lexmark, a manufacturer and retailer of printers and toner cartridges, sued Static Control, a company that makes and sells components for use in remanufacturing toner cartridges, alleging claims under the Copyright Act and Digital Millennium Copyright Act. Static Control counterclaimed, asserting that Lexmark had engaged in false advertising by including on the packaging for its printers a notice regarding its "Prebate" program, which offered a discount on new toner cartridges if the consumer agreed to return the used cartridges to Lexmark. The notice advised consumers that opening the package indicated assent to the program terms. This notice, Static Control argued, misled end-users into believing they were legally bound to return the used ink cartridges to Lexmark.

The Court determined that in order to bring a claim under Section 43(a) of the Lanham Act, a plaintiff must demonstrate that a) its alleged injury falls within "the zone of interests" the law was intended to protect, which under this provision means "an injury to a commercial interest in reputation or sales"; and b) the injury was proximately caused by the false advertising alleged. Before this decision, much ink had been spilled among the various Circuit Courts of Appeals, which were split three ways on the appropriate standard. In the end, the Supreme Court declined to adopt any of the three tests, instead adopting its own.

The opinion explained that the question of who could bring a claim under the statute was not a question of prudential standing, as Lexmark argued below, but a question of what class of plaintiffs Congress had authorized to bring such claims under the statute. To answer that question, the Court considered whether the injury Static Control sought to address in its lawsuit was within the scope of injuries Congress meant to address in the statute. The Court stated that the courts "cannot limit a cause of action that Congress has created merely because 'prudence' dictates."

The Court also provided some guidance as to when the two elements are met, i.e., that the plaintiff fit within the "zone of interests", and that the false advertising was the proximate cause of the plaintiff's injury. To establish an injury to a commercial interest in reputation or sales, it is not necessary that the plaintiff be a direct competitor of the defendant, as the Seventh, Ninth and Tenth Circuits had previously held. It remains the case, as before the Lexmark decision, that consumers may not bring claims under Section 43(a) because they lack the requisite commercial interest.

As for proximate cause, the opinion noted that establishing proximate cause might prove to be more difficult for those plaintiffs who are not direct competitors of the parties they seek to sue. The Court, however, specifically stated that "the intervening step of consumer deception is not fatal to the showing of proximate causation required by the statute." A company that has lost business or suffered reputational damages as a result of false advertising to its consumers would be able to meet the proximate cause test.

The effect of the Supreme Court's decision in Lexmark remains to be seen. It will likely allow for more cases pursuant to Section 43(a) of the Lanham Act in those Circuits that previously allowed suits only by direct competitors. It may not have much of an effect on the other Circuits, which relied on either a multifactor test or a "reasonable interest" test. The immediate effect of the decision is to unify the approach among the Circuits, offering clarity to those companies who may sue or be sued under Section 43(a) the Lanham Act.

© Arnold & Porter Kaye Scholer LLP 2014 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

Subscribe Link

Email Disclaimer