No. 35
April 2014
 
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U.S. Supreme Court creates new standard for false advertising claims
(Article by Uli Widmaier, Pattishall, McAuliffe, Newbury, Hilliard & Geraldson LLP, Chicago, USA)
  1. The Law Prior to Lexmark

  2. U.S. courts have long used “three competing approaches to determining whether a plaintiff has standing to sue [for false advertising] under the Lanham Act.” To have "standing" means to have the legal right to bring the claim. If a plaintiff did not have the proper “standing,” it could not bring a false advertising claim. The Supreme Court rejected these approaches. They are no longer valid law.

  3. The New Law

  4. After Lexmark, a plaintiff ability to sue for false advertising is no longer a question of “standing.” Rather, it “presents a straightforward question of statutory interpretation: Does the cause of action in [Section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a)] extend to [the plaintiff]?”

    To answer the question, the Supreme Court considered two factors: (1) the zone of interests protected by the law invoked, and (2) proximate causation.

    1. Zone of Interests
    2. For the zone of interests inquiry, the Supreme Court held that the plaintiff must show “an injury to a commercial interest in reputation or sales.

      This requirement is not met by “a consumer who is hoodwinked into purchasing a disappointing product,” or by “a business misled by a supplier into purchasing an inferior product.”

    3. Proximate Cause

    For the proximate cause inquiry, the Supreme Court held that the plaintiff must show “economic or reputational injury flowing directly from the deception wrought by the defendant's advertising; and that occurs when deception of consumers causes them to withhold trade from the plaintiff.”

    This requirement is not met “when the deception produces injuries to a fellow commercial actor that in turn affect the plaintiff.”

  5. Application of the New Rule to the Facts of the Case

  6. Lexmark manufactures laser printers and sells toner cartridges for these printers. Static Control makes components for remanufacturers of Lexmark printer cartridges.

    Static Control had alleged “lost sales and damage to its business reputation” as a direct result of Lexmark's false, misleading, and derogatory statements about the remanufacturers, who are Static Control's customers. These allegations put Static Control “within the zone of interests protected by [Sec. 1125(a)].”

    Static Control also satisfies the proximate cause requirement because it alleged “that Lexmark disparaged its business and products by asserting that Static Controlís business was illegal.” “[W]hen a party claims reputational injury from disparagement, competition is not required for proximate cause; and that is true even if the defendantís aim was to harm its immediate competitors, and the plaintiff merely suffered collateral damage.”

    The Supreme Court additionally based its finding of proximate cause on Static Control's specific business model. Static Control's products “both (1) were necessary for, and (2) had no other use than, refurbishing Lexmark toner cartridges.” Therefore, any false advertising directed at remanufacturers of Lexmark toner cartridges “necessarily injured Static Control as well.” In these “relatively unique circumstances,” the fact that the “causal chain linking Static Controlís injury to consumer confusion is not direct, but includes the intervening link of injury to the remanufacturers,” is not fatal to a finding of proximate cause.

    The Supreme Court noted in concluding that its approval of Static Control's false advertising claim extends only to Static Control's allegations; Static Control still has to prove both the zones of interest element and the proximate cause element of its Section 43(a) claim with factual evidence.



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