Standing to Sue for False Advertising under the Lanham Act

Over the past few decades, the various U.S. regional circuit courts of appeals have developed no less than three diverse approaches for assessing whether a claimant has standing to bring an action for false advertising under the Lanham Act. On June 3, the Supreme Court issued a writ of certiorari in Lexmark International, Inc. v. Static Control Components, Inc., a case that presents an opportunity for the Court to resolve this split among the circuits.

Within the context of the Lanham Act, a false advertising claim arises out of misrepresentation of goods or services, either one’s own or those of another. The claim often is essentially a claim for product disparagement or defamation. For example, in the Lexmark litigation, Static Control alleges that Lexmark attempted to drive away Static Control’s customers by falsely representing to those customers that a Static Control product infringed a Lexmark patent.

The three gatekeeper tests that the regional circuits are applying to determine standing in these cases produce widely disparate results. One, known as the “categorical” approach, categorically requires a showing that the parties are in direct competition. This approach can deny standing to claimants who appear to meet the Lanham Act standing requirement by alleging to have suffered a commercial injury from commercial false advertising. The litigation in question illustrates this point. Static Control makes and sells replacement chips for Lexmark’s printer ink cartridges. Its customers, third parties who reprocess empty Lexmark cartridges, must replace the chip for the recycled product to function. These recyclers are in direct competition with Lexmark for sale of toner cartridges for Lexmark printers; Static Control is not. Although Static Control clearly alleges a commercial injury from Lexmark’s efforts to drive away Static Control’s customers, the categorical approach would deny it standing.

A second approach applies a multi-factor analysis developed for determining standing under antitrust laws, where the objective is protection of the public interest. This approach can deny access to court to someone who has suffered a direct commercial injury of a nature contemplated in a Lanham Act false advertising action, but who cannot show that the public was also injured.

The ABA-IPL Section believes that it is important that the split among the circuits be resolved to avoid the inevitable forum shopping generated within the current legal landscape. A plaintiff with a claim for false advertising against a defendant that is not a direct competitor will most certainly look to bring suit in a circuit other than the circuits where direct competition is a requirement for standing.

The Section is therefore recommending that the ABA House of Delegates adopt policy urging the Supreme Court to resolve the split among the regional circuits by adopting a uniform approach to determining standing in a Lanham Act false advertising case. That approach applies an analytical analysis known as the “reasonable interest” test, which is applied in three regional circuits.

Under the ABA-IPL recommended approach, standing would be established by an affirmative answer to three questions: (1) Has the claimant suffered or is likely to suffer an actual commercial injury from the alleged false advertising? (2) Is the injury fairly traceable to the false advertising? and (3) Is the injury likely to be redressed by a favorable judicial ruling?

These requirements for standing reflect recognized constitutional requirements for standing under Article III. In determining standing under statutes that address broad social issues and where no individual rights would be vindicated, federal courts, including the Supreme Court, have imposed additional discretionary restrictions on standing. In view of specificity of Lanham Act provisions regarding harm, remedies, and standing, the ABA policy does not call for limitations on standing beyond those demanded by Article III and provided for in the Lanham Act.

Can a USPTO Reexamination Determination Trump an Earlier Court Judgment?

The Supreme Court has already agreed to hear the appeal in the Lexmark case in the October 2013 term of the Court. The other candidate for an ABA-IPL driven amicus brief by the ABA is not quite so far along. On July 2, the U.S. Court of Appeals for the Federal Circuit decided Fresenius USA, Inc. v. Baxter International, Inc. (Fresenius II). The decision raises important questions relating to the finality of judicial decisions and the interplay of those decisions with decisions of quasi-judicial administrative proceedings in which the same issues are addressed. A petition for rehearing in the Federal Circuit has been filed and the ABA-IPL Section has moved ahead to obtain ABA policy to support an ABA brief on the issues involved.

Congress has established a number of quasi-judicial administrative proceedings wherein the validity of issued patents can be challenged. These proceedings in the U.S. Patent and Trademark Office (USPTO) frequently move in parallel with district court litigation, creating an opportunity for conflicting results. A district court can find that the accused infringer had not presented sufficient evidence to invalidate a patent claim. Meanwhile, the USPTO, which applies a lower standard of proof and may consider additional information not introduced in the earlier district court litigation, can find that same patent claim to be invalid notwithstanding the earlier district court determination.

The decade-long sequence of overlapping and contradictory judicial and administrative rulings culminated in the Fresenius II decision, where the most critical issues addressed were ones of finality. When is a district court judgment sufficiently final to be immune from being impacted by a later final administrative decision to cancel patent claims the validity of which is essential to the earlier district court judgment? In Fresenius II, the majority ruled that a district court decision is not final if any issue involved in the suit remains unresolved. The dissent expressed the view that for purposes of litigation concerning validity and infringement of a patent, finality is reached when those issues have been resolved, despite the existence of other unresolved issues such as damages and rights of appeal that have not been exhausted.

The policy proposed to support an ABA amicus brief on these issues first supports the authority of the PTO to cancel patent claims in reexamination proceedings. There should be little controversy regarding this authority, given the express language of the statutes and legislative history establishing these administrative review proceedings. In fact, since the initiation of the Fresenius II litigation, Congress has greatly expanded the availability of PTO administrative proceedings in which patents can be cancelled.

The policy called for in the ABA-IPL proposed resolution provides that an earlier court judgment is immune from being affected by a later USPTO cancellation of a patent claim only if it is final, and that it is final only if there are no issues that are under appeal or subject to appeal. A PTO cancellation must be final in the same manner to serve as authority to dismiss a pending suit concerning the cancelled claims. These policies are consistent with the decision of the Federal Circuit majority in Fresenius II. In its request for adoption of ABA policy to support an amicus brief on these issues, the ABA-IPL Section noted that the 2011 America Invents Act included major expansion of the authority of the PTO to cancel patent claims in administrative review proceedings. In the view of the Section, it would be inconsistent with congressional intent in this expansion to allow a nonfinal court judgment to prevail over a final PTO determination to cancel a patent claim, which determination has been sustained in the courts and/or no further appeal is possible. Giving a nonfinal court judgment sustaining a patent precedence over a later final USPTO determination cancelling the claims involved could result in injunctive relief or award of damages for a patent that no longer exists. Such a result seems to run counter to sound public policy, as well as to invite a very negative public perception.

Postscript

This article was submitted prior to the August 13 meeting of the ABA House of Delegates (HOD) at which the two proposed resolutions that are the subject of the article were considered.

At the HOD meeting, the Fresenius II resolution was unopposed and was adopted by a voice vote.

With more than 350 delegates voting, the Lexmark resolution fell four votes short of those required to defeat a motion to postpone consideration of the measure. Since the deadline for filing an ABA amicus brief in the Supreme Court will be passed before the next meeting of the House of Delegates, the vote to postpone is tantamount to a vote to reject the proposed policy—at least for purposes of participation in the Lexmark appellate proceedings.

Opposition to the adoption of the Lexmark resolution focused mainly on procedural issues rather than on the proposed policy. At the heart of these issues was the fact that the Section’s report was filed after the regular deadline for filing to have a resolution considered at the 2013 Annual Meeting. That deadline was reached almost a month before the June grant of certiorari by the Supreme Court.

In opposing the motion to postpone, the ABA-IPL Section acknowledged concerns regarding filing a late report, thereby limiting the amount of time all delegates had to review and evaluate the proposed policies in the resolution. At the same time, the Section noted that a late report was in reality the only option available, since grant of certiorari occurred after the normal deadline for filing.

As noted in our first article on ABA-IPL amicus activities (see the May/June issue of Landslide magazine), the perquisites for approval to file an ABA amicus brief are numerous and demanding. The Section is now studying steps that might be taken to address similar occasions where the timing of legal developments seems to leave no alternative to that of either filing a late report to develop the required ABA policy or declining to participate in the resolution of important questions of intellectual property law.

Note: The proposed ABA policies and reports explaining them are available at www.americanbar.org/iplaw (under Featured Resources).