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Friday, July 12, 2024 | Back issues
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False Advertising Claims Facing Lexmark Revived

WASHINGTON (CN) - Static Control Components should have been allowed to sue printing giant Lexmark International for false advertising, the Supreme Court ruled Tuesday.

The companies have been embroiled in litigation since 2002 over replicate microchips that Static sold to Lexmark's competitors.

Lexmark had developed a certain microchip for its laser printers and toner cartridges so that its printers would reject unaffiliated toner cartridges, but so-called remanufacturers can outfit used Lexmark toner cartridges with the replicate microchips, refill them and sell them to owners of Lexmark printers at a lower cost.

On the way to trial, a federal judge barred Static Control from asserting counterclaims under federal and state antitrust and false-advertising laws.

These counterclaims took issue with a Lexmark prebate program that gives customers a discount on new toner cartridges if they agree to send Lexmark back the empty cartridge.

Static Control claimed that the Prebate program "purposefully misleads end-users" to believe that the discount legally requires them to return a Prebate-labeled cartridge to Lexmark after a single use.

It also said that Lexmark "sent letters to most of the companies in the toner cartridge remanufacturing business" with the false warning that it was illegal to sell refurbished Prebate cartridges and that it was illegal to refurbish those cartridges with Static Control's products.

A jury in Lexington, Ky., sided with Static Control, however, finding that it did not induce patent infringement and that Lexmark had misused its patents.

Though the 6th Circuit upheld dismissal of Static Control's antitrust claims in 2012, the court revived claims under the Lanham Act and various state laws against Lexmark.

The unanimous Supreme Court affirmed Tuesday that Static Control has a case against Lexmark for false advertising under Section 1125(a) of the Lanham Act.

Most of the 25-page ruling looks at Static Control's standing as neither a manufacturer nor remanufacturer of toner cartridges.

"To be sure, a plaintiff who does not compete with the defendant will often have a harder time establishing proximate causation," Justice Antonin Scalia wrote for the court. "But a rule categorically prohibiting all suits by noncompetitors would read too much into the act's reference to 'unfair competition' in §1127. ... It is thus a mistake to infer that because the Lanham Act treats false advertising as a form of unfair competition, it can protect only the false-advertiser's direct competitors. ...

"Applying those principles to Static Control's false­advertising claim, we conclude that Static Control comes within the class of plaintiffs whom Congress authorized to sue under §1125(a)."

In addition to claiming lost sales and damage to its business reputation, Static Control is suing "as a 'perso[n] engaged in' 'commerce within the control of Congress' whose position in the marketplace has been damaged by Lexmark's false advertising," the ruling states.

As to proximate causation, Static Control has alleged that Lexmark disparaged its business and products by asserting that Static Control's business was illegal, the court found.

"When a party claims reputational injury from disparagement, competition is not required for proximate cause; and that is true even if the defendant's aim was to harm its immediate competitors, and the plaintiff merely suffered collateral damage," Scalia wrote.

Now it is up for Static Control to prove evidence of injury, the court found.

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