Supreme Court Grants Certiorari in Dispute over Lanham Act Standing

Supreme Court Grants Certiorari in Dispute over Lanham Act Standing

 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) ( subscribers may access Supreme Court briefs for this case).

3-Way Split

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 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 cases."

Replacement Parts

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 Prebate cartridges.

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.

Intervention 'Invited'

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 goodwill?"

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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