Game On: U.S. Supreme Court Relaxes Standards for False Advertising Claims

Jun 25, 2014
Photo of Lexmark Ink Cartridge
Not the Only Game in Town

If a competitor circulates false advertising about your products you can sue under federal law, but what do you do when the person making the false claim is not a competitor? Sue them anyhow.

What’s False Advertising?

Under the typical case, a company sues its competitor for making a false claim about either the competitor’s products or its own products. Remember the viral (and false) rumor that Taco Bell’s beef contained sawdust? If Del Taco ads repeated that rumor, Taco Bell could sue under federal law. Likewise, if Puma falsely claimed its running shoes included tufts of cheetah fur that made you run faster, Nike could sue Puma for false advertising.

Supreme Court Expands Standing

The Supreme Court’s recent decision expands the reach of false advertising claims to advertisers who do not compete with the victim. The Court clarified and expanded the standing requirement for filing such claims for products or services in interstate commerce under the Lanham Act (15 U.S.C. § 1125(a)). This is important because a plaintiff without standing (the right to sue) quickly finds himself knocked out of court.

Anything That’s Fit to Print?

The Court’s decision involved toner cartridges for printers, the ones you always need to replace when you are finally printing something for work, instead of Game of Thrones maps, pictures of kittens or directions to the bowling alley. Defendant Lexmark sells printers and replacement cartridges and sought to control the replacement cartridge market for its printers. Plaintiff Static Control reverse-engineered Lexmark’s microchips, creating functional equivalents without copying/infringing Lexmark’s intellectual property, that effectively replaced the chips on Lexmark cartridges. But Static Control didn’t actually manufacture replacement cartridges. However, Static Control’s chips enabled other companies (Lexmark competitors) to sell generic cartridges, which liberated consumers from purchasing Lexmark’s more expensive replacement cartridges. Unhappy about lost market share, Lexmark sent notices to most of the replacement cartridge manufactures, alleging that using Static Control’s chips was illegal. Static Control sued Lexmark claiming false advertising under the Lanham Act, the trial court dismissed the lawsuit, the Sixth Circuit reinstated the lawsuit and the Supreme Court affirmed, allowing Static Control to continue to prosecute its claims against Lexmark.

New Standing Standard

Prior to this decision, the thirteen federal circuit courts (12 plus the Federal Circuit) had applied a smorgasbord of standing requirements, which generally limited standing to direct competitors. But the Court reviewed the circuits’ standing requirements and unanimously voted “none of the above.” Instead, the Court held that a plaintiff has standing if: (A) it suffers an injury to its commercial interest in reputation or sales, and (B) the injury flows directly from the deception caused by the defendant’s advertising:, which occurs when the deception causes consumers to withhold trade from the plaintiff. In the Lexmark case, Static Control had standing because Lexmark’s (allegedly) false statements influenced Static Control’s customers (Lexmark’s competitors) to stop purchasing Static Control’s chips. The Court reinstated Static Control’s lawsuit, even though Lexmark does not directly compete with Static Control. If Static Control ultimately prevails, the court could force Lexmark to stop making false statements, issue “corrective” advertising and pay damages and attorneys’ fees.

What’s Next?

So, advertisers and other commercial “speakers” beware. If you make false claims that injure companies selling products or services interstate, even if those companies are not your competitors, you’re exposing yourself to liability under the Lanham Act. And if a company makes false claims that impact your business, feel free to make a federal case out of it. Of course, you can also make a state case out of it, as many states have their own false advertising/competition laws, like California’s which begins at Business and Professions Code section 17200.