U.S. Supreme Court Settles Lanham Act Standing Conflict

On March 25, 2014, the U.S. Supreme Court ruled that Static Control Components, Inc. had the right to sue Lexmark International Inc. under the Lanham Act's false advertising prong. In doing so, the Court established a new Lanham Act standing test, rejecting several different tests circuit courts have used to evaluate standing under the Lanham act's false advertising provisions.

In a long-running litigation, Static sued Lexmark for telling customers that Static's chips - which are used by third-party companies to enable empty Lexmark printer cartridges to be refilled and resold - were illegal. Static challenged Lexmark's practices under the Lanham Act, arguing that it constituted false advertising. The Sixth Circuit had ruled that Static had standing to sue under the Lanham Act, relying on the "reasonable interest" standing test enunciated by the Second Circuit. See Famous Horse, Inc. v. Fifth Avenue Photo, Inc., 624 F.3d 106, 113 (2d Cir. 2010).

The Supreme Court reversed and rejected the three distinct approaches different circuit courts have taken for weighing whether a company can sue for false advertising: the broad "reasonable interest" test relied upon by the Sixth Circuit; the bright-line "direct competitor" test; and a five-part balancing test originally derived from antitrust law.

In an opinion authored by Justice Scalia, the Court used a "straightforward . . . statutory interpretation" based on the basic rules of the road for evaluating standing under a statutory cause of action, namely, whether the plaintiff falls "within the zone of interests protected by the law invoked" and suffered an injury "proximately caused" by the alleged wrongdoing.

Addressing the existing Lanham Act standing tests, Justice Scalia explained "While none of those tests is wholly without merit, we decline to adopt any of them. We hold instead that a direct application of the zone-of-interests test and the proximate-cause requirement supplies the relevant limits on who may sue."

Applying these tests to the "extraordinarily helpful" language of the Lanham Act, the Court announced a standing test that required a plaintiff to "show economic or reputational injury flowing directly from the deception wrought by the defendant's advertising." It explained that this occurs when deception of consumers causes them to withhold trade from the plaintiff.

The ruling resolved a wide rift among the circuits in the standards adopted to determine standing to sue for federal...