Lexington firm loses false-advertising case at Supreme Court

03/25/2014 4:59 PM

03/25/2014 4:59 PM

The Lexington, Ky.-based Lexmark International lost a key case Tuesday at the Supreme Court, rendering the laser printer manufacturer vulnerable to a false advertising claim from another company.

In a unanimous decision that punctuates a long-running legal battle, but also sets up more fighting to come, the high court concluded Lexmark could be sued under the federal Lanham Act. The law prohibits false advertising and trademark infringement.

Another firm, the Sanford, N.C.-based Static Control Components, used the law to sue Lexmark over the latter’s claims about Static Control’s products.

“We do not ask whether in our judgment Congress should have authorized Static Control’s suit, but whether Congress in fact did so,” Justice Antonin Scalia wrote.

The answer, Scalia said, is yes.

“Static Control’s alleged injuries, lost sales and damage to its business reputation, are injuries to precisely the sorts of commercial interests the act protects,” Scalia reasoned.

Lexmark manufactures laser printers and toner cartridges. Other companies, known as “remanufacturers,” buy used cartridges from Lexmark customers, refill them and sell them back to owners of Lexmark printers. Static Control Components makes microchips and other parts used by these cartridge remanufacturers.

A Lexmark-made microchip disables certain discounted cartridges once they’ve been used the first time, rendering them useless to other remanufacturers. Static Control, though, made its own microchip that enabled remanufacturers to reuse the Lexmark cartridges.

Lexmark initiated the legal battle by suing Static Control in 2002, seeking to stop the latter company from selling the substitute microchips. Lexmark claimed these infringed on its intellectual property.

Lexmark also sent letters to remanufacturers telling them that if they used Static Control’s products to remanufacture Lexmark toner cartridges, they would “violate the law” and infringe “Lexmark’s intellectual property rights.”

Static Control then sued back, arguing that Lexmark’s assertions led customers to believe Static Control acted unlawfully.

“Lexmark strongly believes that it has not made any false or misleading representations in its commercial advertising or promotion,” company spokesman Jerry Grasso said in a statement Tuesday.

A direct competitor can sue under the Lanham Act. In this case, that would cover the remanufacturers that sell the cartridges that compete directly with Lexmark products. The trickier question in this case was whether a supplier of parts to the direct competitor can likewise claim what’s called the “standing” to sue.

“Wherever the court draws the line on standing, whoever is just on the other side of the line is always going to think that it’s too narrow,” Lexington-based attorney Steven B. Loy told the justices during oral argument last December. “We think the Lanham Act does and should have a narrow standing requirement.”

Lexmark proposed a relatively strict judicial test, including the possibility that only direct competitors can sue. Static Control argued that Congress intended to empower a broader range of potential plaintiffs.

“Although we conclude that Static Control has alleged an adequate basis to proceed,” Scalia noted, “it cannot obtain relief without evidence of injury proximately caused by Lexmark’s alleged misrepresentations. We hold only that Static Control is entitled to a chance to prove its case.”

Grasso said Lexmark “remains confident that it will ultimately prevail in this matter.”

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