Yesterday the Supreme Court issued its decision in Lexmark International, Inc. v. Static Control Components, Inc., a case that presented it with a three-way Circuit split on the issue of who has standing to bring a Lanham Act false advertising claim. Before this decision, the law in the Third, Fifth, Eighth and Eleventh Circuits was that the plaintiff had to satisfy the five-factor test articulated in Associated General Contractors, an antitrust case. The Seventh, Ninth and Tenth Circuits used a bright-line test, allowing plaintiffs to bring false advertising suits only against actual competitors. The Second and Sixth Circuits adopted a “reasonable interest” test (an amici favorite) that looked to whether the plaintiff had a reasonable interest to protect and a reasonable basis for believing that interest was being impaired.
Justice Scalia wrote the opinion for a unanimous Court. In typical Scalia style, he applied “traditional principles of statutory interpretation” to discern not “whether Congress should have authorized [the plaintiff’s] suit, but whether Congress in fact did so.” And in another familiar move, Justice Scalia rejected all three tests applied by the Circuits in favor of his own. In a Goldilocks moment, he found the antitrust standing test a “commendable effort” (high praise!) but “slightly off the mark,” the direct-competitor test a “distort[ion] of the statutory language,” and the reasonable interest test vague and “lend[ing] itself to widely divergent application.” What was just right? A test that looks to: (1) whether the plaintiff’s interests fall within the “zone of interests” protected by the Statute; and (2) whether the plaintiff’s injuries were proximately caused by the alleged violations of the Statute.
What is the significance of the opinion? It gives some much needed certainty to who can, and maybe just as importantly, who cannot, sue for false advertising. The courthouse doors are open to a plaintiff who can allege an injury to a commercial interest (such as reputation, or sales), and who can show that the injury flowed directly from the “deception wrought by the defendant’s advertising.” But in describing the “zone of interest” arm of his test, Justice Scalia specifically went out of his way to hold that a consumer “hoodwinked into purchasing a disappointing product” cannot sue under the Lanham Act, an important holding for the consumer class action bar, because his or her interests are not in the zone. Nor can someone more tangentially affected by the plaintiff’s injury, such as (in Scalia’s somewhat far-fetched example) the plaintiff’s landlord, maintain suit. It might seem that by rejecting the direct-competitor test and relying on a “zone of interest” analysis, the Supreme Court widened the scope of Lanham Act standing. But is that really true when that zone is limited to injuries (reputation and sales) that only a direct competitor is likely to suffer?
That remains to be seen.