Supreme Court Creates New Test for Standing for False Advertising Claims

After hearing arguments in December 2013, the Supreme Court has decided a three-way split amongst the United States Courts of Appeal regarding the appropriate test for prudential standing in Lanham Act false advertising claims, affirming a decision from the Sixth Circuit, Lexmark International, Inc. v. Static Control Components, Inc. The case involved a false advertising suit brought against Lexmark by a non-direct competitor. Lexmark created a microchip to be included in all of its printer toner cartridges; without this chip, the printer will reject the cartridge. Static Control created a Lexmark-compatible chip and sold its chip to Lexmark competitors (remanufacturers of toner cartridges). Lexmark responded by directing advertisements to Static Control’s customers, claiming that use of Static Control’s replica chip was illegal. This prompted Static Control to bring a false advertising claim against Lexmark.

Before yesterday’s decision, three different tests were being used to determine standing in false advertising cases: (1) the categorical test, (2) the reasonable interests test, and (3) the AGC test (named after Associated General Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983)). Refusing to adopt any of the previous “prudential standing” tests (and erasing the “prudential standing” concept altogether), the Court articulated a new test: a plaintiff must allege (1) “an injury to a commercial interest in sales or business reputation” (i.e., that it is in the “zone of interest” protected by the Lanham Act) (2) “proximately caused by the defendant’s misrepresentations.” The decision is significant because it holds that Lanham Act false advertising claims are not reserved for defendant’s direct competitors, but are also available to various non-competitors (such as makers of parts, suppliers, etc.) so long as their grievances are in the “zone of interest” and “proximately caused” by the defendant’s false advertising.