The US Supreme Court has ruled that standing in a federal false advertising case is not limited to the advertiser’s competitors. The court held that it is sufficient for standing if the plaintiff has a commercial injury “flowing directly from the deception wrought by the defendant’s advertising.”
The case arose out of a dispute between Lexmark International Inc., a maker of laser printers and printer cartridges, and Static Control Components Inc., which sells parts and supplies for reusing used printer cartridges (including Lexmark’s).
For certain expensive printers, Lexmark offered a “Prebate” program under which buyers could get print cartridges at a discount if they agreed to return them to Lexmark for refilling.
To prevent users from having the cartridges refilled by third parties at a lower cost, Lexmark included a function on a computer chip on each cartridge. A refurbished cartridge would not work unless Lexmark replaced the chip.
Static made a “Smartek” chip that mimicked the effect of the Lexmark chip and sold it to third parties that refurbished Lexmark cartridges. The Static chip included an exact copy of Lexmark’s Toner Loading Program.
Lexmark first sued Static for copyright infringement in 2002, and in 2003 won a preliminary injunction against Static. In 2004, Static filed an action seeking a declaration that its redesigned chips did not infringe Lexmark’s copyrights. Lexmark responded with counterclaims including claims of patent infringement.
Under the Lanham Act (which governs false advertising and trademark claims), Static alleged that Lexmark had engaged in two types of false or misleading conduct:
- Lexmark “purposely misleads end users” by leading Prebate customers to believe that they are legally required to return cartridges to Lexmark after use, and
- Lexmark “sent letters to most of the companies in the toner cartridge remanufacturing business” falsely alleging that it was illegal to sell refurbished Prebate cartridges and to use Static’s products to refurbish the cartridges.
Static alleged that Lexmark had disparaged its business and products by alleging that Static’s products infringed Lexmark’s patents and that its business was therefore illegal.
The Supreme Court determined that statements like Lexmark’s (given the requisite intent and resulting harm) can be the basis for an action for false advertising even though Static and Lexmark are not competitors in the chip market.
The Supreme Court’s “zone of interest and proximate cause” approach probably expands the scope of federal false advertising claims. This is significant because libel (including trade libel) is still generally covered in CGL insurance policies.
If you have questions about false advertising, copyright infringement, or patent infringement, contact out office to arrange a free initial consultation with one of our intellectual property attorneys.
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Photo Attribution: “Ink-jet printer” by Julo