WASHINGTON, D.C. - (Mealey's) The question of which
analytic framework applies when assessing prudential standing in Lanham Act
false advertising cases will be taken up by the U.S. Supreme Court, which
granted certiorari June 3 in a longstanding dispute over toner
cartridges (Lexmark International, Inc. v. Static Control Components, Inc.,
No. 12-873, U.S. Sup.; See 5/20/13, Page 41) (lexis.com subscribers may access Supreme Court briefs for this case).
Petitioner Lexmark International Inc. asserts that the
Sixth Circuit U.S. Court of Appeals' application of a "reasonable interest
test" in the instant dispute highlights a "three-way circuit split" concerning
"the proper test for standing to pursue a Lanham Act false advertising claim."
The petition for certiorari, filed in January,
presents the following question: "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 Associated
Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters 459 U.S.
519, 537-45 (1983) [an enhanced version of this opinion is available to lexis.com
subscribers], as adopted by the Third, Fifth, Eighth, and Eleventh
Circuits; (2) the categorical test, permitting suits only by an actual
competitor, 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 this case or as applied by the Second Circuit in prior
Lexmark makes and sells laser printers and replacement
toner cartridges for the printers. As with all computer printers, only
Lexmark-compatible toner cartridges can be used as replacement cartridges.
Companies known as remanufacturers recycle used toner cartridges by replacing
any worn internal parts and replenishing toner. These remanufacturers
then sell refurbished cartridges to printer owners and compete with printer
makers such as Lexmark in the toner cartridge market. Respondent Static Control
Components Inc. is the world's leading maker and seller of replacement parts
for printer cartridges, including parts designed for Lexmark-compatible toner
cartridges. Static Control sells the parts, including microchips and
specialized mechanical parts, to remanufacturers, enabling them to compete with
Lexmark in the market for toner cartridges.
Lexmark sued Static Control in 2002 in the U.S. District
Court for the Eastern District of Kentucky, alleging copyright and patent
infringement related to Static Control's manufacture and sale of microchips
used by remanufacturers of toner cartridges for Lexmark's laser printers.
Static Control then asserted counterclaims under federal and state antitrust
laws and a false advertising claim under the Lanham Act. With regard to
the latter claim, Static Control alleged that Lexmark falsely advertised that
it sold its toner cartridges subject to a single-use patent license - referred
to by Lexmark as the "Prebate" program - and that remanufacturing Lexmark
cartridges represented patent infringement. Static Control also asserted that
Lexmark falsely advertised that the use of Static Control's products would
cause remanufacturers to infringe Lexmark's patent-based restrictions on
Static Control said the advertisements were false because
Lexmark lacked patent rights to impose on the cartridges' post-sale use.
Static Control asserted that Lexmark's false advertising harmed Static
Control's business by causing consumers and people in the printer trade to believe
that Static Control's products are illegal, which diverted sales from Static
Control to Lexmark and caused substantial injury to Static Control's business
reputation. Lexmark sought dismissal of Static Control's state and
federal antitrust and false advertising counterclaims for lack of prudential
standing. In deciding Lexmark's motion, the District Court first
concluded that Static Control lacked antitrust standing under both state and
federal law after applying the five-factor test established in Associated
Gen. Contractors of Cal. Inc. The District Court further found that
Static Control lacked standing under the Lanham Act and the North Carolina
Unfair and Deceptive Trade Practices Act (NCUDTPA) for the same reasons that it
lacks standing to pursue the antitrust claims.
Both parties appealed to the Sixth Circuit, which in
August affirmed the dismissal of Static Control's federal antitrust claims but
reversed dismissal of the Lanham Act and NCUDTPA claims and state law antitrust
claims on grounds that Static Control pleaded sufficient facts to establish
standing under the reasonable interest test set forth in Frisch's Restaurants,
Inc. v. Elby's Big Boy (670 F.2d 642, 649-50 [6th Cir; 1982]) [enhanced version]. "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. This is sufficient to state a claim under the Lanham Act," the
Sixth Circuit held.
In response, Lexmark filed a petition for certiorari,
arguing that "the Sixth Circuit panel . . . felt constrained" by the decision
in Frisch's Restaurants, however, "and practically invited intervention"
by the Supreme Court. In its response brief, Static Control says the
question presented is: "Does a plaintiff have prudential standing, at the
pleading stage, under Section 43(a) of the Lanham Act where the plaintiff
alleges that the defendant directly targeted the plaintiff with false
advertising statements about plaintiff's products that had the effects of
diverting sales from plaintiff to defendant and tarnishing plaintiff's
Lexmark is represented by Steven B. Loy, Anthony J.
Phelps and Christopher L. Thacker of Stoll Keenon Ogden in Lexington, Ky.
Seth D. Greenstein of Constantine Cannon in Washington, Joseph C. Smith Jr. and
Jameson R. Jones of Bartlit Beck Herman Palenchar & Scott in Denver, M. Miller Baker and Stefan M. Meisner of McDermott
Will & Emery in Washington and William L.
London III of Static Control in Sanford,
N.C., represent Static Control.
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