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Thursday, March 27, 2014, 10:58 AM

Supreme Court Creates New Standing Test For Asserting False Action Claim Under Lanham Act

On March 25, 2014, the Supreme Court issued a unanimous opinion, authored by Justice Scalia, in Lexmark International, Inc. v. Static Control Components, Inc.  In a previous post, I discussed my involvement in this case at the trial court level.

Supreme Court Justice Scalia
The case involves the standing requirements for asserting a claim for false advertising under the Lanham Act.  There was an existing split among the regional circuits, with some courts limiting standing to direct competitors, other courts adopting the standing analysis from antitrust cases, and other courts applying a broader "reasonable interest" test.  The Supreme Court, however, rejected all of these standards and created a new "zone of interests" test, explaining:
While none of those tests is wholly without merit, we decline to adopt any of them. We hold instead that a direct application of the zone-of-interests test and the proximate-cause requirement supplies the relevant limits on who may sue.
The "zone of interests" test originates from cases interpreting standing to seek judicial review under the Administrate Procedures Act.  The Court, however, held that this test also applies to other statutorily created causes of action, like the Lanham Act.  The Court further stated:
We thus hold that to come within the zone of interests in a suit for false advertising under §1125(a), a plaintiff must allege an injury to a commercial interest in reputation or sales. A consumer who is hoodwinked into purchasing a disappointing product may well have an injury-in-fact cognizable under Article III, but he cannot invoke the protection of the Lanham Act—a conclusion reached by every Circuit to consider the question....  Even a business misled by a supplier into purchasing an inferior product is, like consumers generally,not under the Act’s aegis.
With respect to the proximate cause analysis, the Court held:
that a plaintiff suing under §1125(a) ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising; and that that occurs when deception of consumers causes them to withhold trade from the plaintiff.
The Court's new "zone of interests" test appears to be broader than some of the tests used by lower courts but more narrow that others.

In reaching its decision, the Supreme Court critiqued the various multifaceted tests that lower courts previously had used, noting that these "open-ended balancing tests can yield unpredictable and at times arbitrary results."  It will be interesting to watch if this decision leads to broader changes in the standing requirements for other statutory causes of action.

For example, the traditional standing test for antitrust claims was one of the "open-ended balancing tests" that the Court critiqued.  Does this case forecast a change to standing principles under antitrust law?

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