A recent Supreme Court decision marks a change in false advertising case law. The Lexmark v. Static Control decision further defined Lanham Act parameters and created a consistent national standard for allowable marketing claims.
First, A Little About the Lanham Act as It Relates To Lexmark v. Static Control
Signed into law in the summer of 1946, and updated several times since, the Lanham Act addresses intellectual property – and by extension marketing – issues, including (but not limited to) trademark dilution, infringement and false advertising.
Who Can Sue For Infringement?
The Lanham Act suggests limitations on who can sue for damages in trademark lawsuits, but the language is vague. As a result, over the years, local and appellate courts have used different tests to determine valid false advertising claims under the Lanham Act. Some courts say only direct competitors can use the Lanham Act for redress, while others say anyone in a quasi-supply-chain can do so.
With the new Lexmark ruling, however, there’s now a single test for all cases.
Lexmark v. Static Control: One of the Most Important Tech Lawsuits of Our Time
Lexmark makes printers and print cartridges. Static Control makes parts for “remanufacturers” that recycle parts on Lexmark toners, and then sell the refurbished cartridges (usually for a lower price).
For remanufacturing to be profitable, companies like Static Control need cheap and constant access to used Lexmark printers and parts. So, in an effort to dissuade consumers from returning their old cartridges to Lexmark instead of refurbishing companies, Lexmark instituted a “prebate” program. To enforce the program, Lexmark equipped their toner cartridges with “turn off” chips that were supposed to prevent other parties from refurbishing Lexmark printer cartridges.
Enter Static Control – toner remanufacturer to the stars. Presumably via reverse engineering, Static Control made a chip that worked like Lexmark’s “turn off” chip, allowing remanufacturers to use Lexmark cartridges outfitted with the special Lexmark prebate chip.
Lexmark sued Static Control for trademark infringement over the “turn off copy chip”. Static Control counter-sued for false advertising and trade libel. The parts manufacturer argued it did nothing wrong by making a chip similar to Lexmark’s, and that Lexmark was in the wrong for sending out industry news blasts saying that the Static Control chips wouldn’t work with their cartridges.
TL;DR: Printer toner cartridge company, Lexmark, got upset with another company, Static Control, for allegedly infringing on their territory by way of reverse engineering a chip. So, Lexmark sued Static Control for trademark infringement and Static Control sued back for false advertising and trade libel.
Competitors & Deceptive Marketing
The original plaintiff, Lexmark, was not in direct competition with the defendant, Static Control. Despite the lack of direct competition, Lexmark’s negative assertions allegedly diminished consumer demand for Static Control’s products.
Justice Scalia wrote the Lexmark judgment. In it, he essentially discards existing appellate tests related to competition and trademark cases. In their places, via Lexmark, the Supreme Court produced a new standing rule for false advertising lawsuits: civil trademark plaintiffs and defendants must be inside the same business “zone of interest” for a suit to proceed. To file a false advertising claim under the Lanham Act, the plaintiff must suffer a profit loss caused by either a) a damaged reputation or b) fewer sales as a result of consumer deception.
What Did Lexmark Change About False Advertising Law In The United States?
The Lexmark ruling means more businesses can sue for false advertising using the Lanham Act. However, jurisdictions that had previously permitted wide-ranging tests for such claims may experience a downturn in unfair competition claims.
To prevent the Lanham Act false advertising stipulations from morphing into a universal false marketing law, the Lexmark ruling specifies that some plaintiffs lack standing, including:
- service providers, and
The exclusions are not a major change to the current law. However, the proximately caused injury condition may limit the ability of some parties to sue.
Consult With A False Advertising Attorney
Are you dealing with similar legal issues dealt with in Lexmark? Kelly / Warner has successfully handled countless unfair competition and marketing claims. Not every case turns into a trial – and issues can often be resolved, quickly. If you’re interested in learning more about your false advertising legal options, get in touch with Kelly / Warner Law today.