Lexmark v. Static Control – 12 Years and Still Going Strong

by Lee Gesmer on March 31, 2014

Jarndyce and Jarndyce drones on. This scarecrow of a suit has, in course of time, become so complicated, that no man alive knows what it means. The parties to it understand it least; but it has been observed that no two Chancery lawyers can talk about it for five minutes, without coming to a total disagreement as to all the premises. Innumerable children have been born into the cause; innumerable young people have married into it; innumerable old people have died out of it.  . . . Bleak House, Charles Dickens

We were writing about Lexmark v. Static Control 9 years ago. (2005 article). The case itself dates back to 2002. And, after the Supreme Court decision on March 25, 2014, it is not yet over. Lovers of Bleak House may want to shift their gaze in the direction of this case.

At its outset this case involved allegations of copyright infringement and violation of the DMCA’s anti-circumvention provisions. Those issues were resolved by court decisions, but one issue lingered on: whether Static Control could proceed with its false advertising counterclaim against Lexmark under Section 43(a) of the Lanham Act, even though the parties are not direct competitors.  The Sixth Circuit held it could not, but the Supreme Court reversed, holding that it could. The Court ruled that a plaintiff who alleges injury to a commercial interest in reputation or sales flowing directly from the defendant’s actions in violation of the statute falls within the “zone of interests” Section 43(a) was designed to protect, even if the plaintiff and defendant are not direct competitors.

The short background on this case is as follows. Lexmark , a producer of toner cartridges for its laser printers, developed microchips for it toner cartridges and printers so that Lexmark printers would reject toner cartridges not containing a matching microchip. The goal, of course, was to frustrate remanufacturers of Lexmark printer cartridges, who had created a secondary market for used cartridges. Static Control replicated the cartridge microchips and sold them to the remanufacturers to enable the resale of Lexmark toner cartridges. Lexmark sued Static Control for copyright violations related to its source code in making the duplicate microchips, but Static Control won against that charge, leaving in place Static Control’s counterclaim that Lexmark had engaged in false advertising when it told remanufacturers that using Static Control’s products would constitute intellectual property infringement.*

*[note] This summary is oversimplified.  See the Sixth Circuit’s decision for full details.

The Sixth Circuit held that Static Control could not maintain its false advertising claim since, technically speaking, Static Control and Lexmark are not actual competitors – Static Control sells microchips, while Lexmark sells toner cartridges.

In the view of the Sixth Circuit, this distinction was fatal to Static Control’s false advertising counterclaim. However, the Supreme Court rejected a potpourri of different legal tests applied by the various federal circuit courts (including the Sixth Circuit), concluding that the issue was whether a false advertising plaintiff such as Static Control falls within the class of plaintiffs whom Congress has authorized to sue under the federal false advertsing statute, Section 43(a) of the Lanham Act. Using this approach, the Court created a two-part test: (1) whether the claim is within the “zone of interests” protected by the Lanham Act and (2) whether the alleged conduct proximately caused the alleged injury. The Court held that to meet part one of this test a plaintiff must plead “an injury to a commercial interest in reputation or sales.” To meet the second part a plaintiff must plead “economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising” and that the deception causes consumers to withhold business from the plaintiff.

The Court found that Static Control’s allegations satisfied both components of this test. Having liberalized the test for standing in Lanham Act Section 43(a) false advertising cases, the Court sent the case back to the federal district court for the Eastern District of Kentucky, where Static Control will have an opportunity to attempt to prove that it suffered injury proximately caused by Lexmark’s alleged misrepresentations and where the case will resume, perhaps to someday challenge the longevity of Jarndyce v. Jarndyce.

Lexmark Int’l v. Static Components, Inc. (U.S. Supreme Court, March 25, 2014)

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