Lexmark Int'l, Inc. v. Static Control Components, Inc.

• Decision Date: 25 March 2014
• Docket Number: No. 12–873.,12–873.
• Citation: 572 U.S. 118,134 S.Ct. 1377,188 L.Ed.2d 392
• Parties: LEXMARK INTERNATIONAL, INC., Petitioner v. STATIC CONTROL COMPONENTS, INC.
• Court: U.S. Supreme Court

572 U.S. 118

134 S.Ct. 1377

188 L.Ed.2d 392

LEXMARK INTERNATIONAL, INC., Petitioner

v.STATIC CONTROL COMPONENTS, INC.

No. 12–873.

Supreme Court of the United States

Argued Dec. 3, 2013.

Decided March 25, 2014.

Steven B. Loy, Lexington, KY, for Petitioner.

Jameson R. Jones, Denver, CO, for Respondent.

Steven B. Loy, Counsel of Record, Anthony J. Phelps, Christopher L. Thacker, Monica H. Braun, Stoll Keenon Ogden PLLC, Lexington, KY, Robert J. Patton, D. Brent Lambert, Lexmark International, Inc., Lexington, KY, Timothy C. Meece, Matthew P. Becker, Banner & Witcoff, Ltd., Chicago, IL, for Petitioner.

M. Miller Baker, Stefan M. Meisner, McDermott Will & Emery LLP, Washington, DC, William L. London III, Static Control Components, Inc., Sanford, NC, Seth D. Greenstein, Counsel of Record, Constantine Cannon LLP, Washington, DC, Joseph C. Smith, Jr., Jameson R. Jones, Bartlit Beck Herman Palenchar & Scott, LLP, Denver, CO, for Respondent.

Justice SCALIA delivered the opinion of the Court.

This case requires us to decide whether respondent, Static Control Components, Inc., may sue petitioner, Lexmark International, Inc., for false advertising under the Lanham Act, 15 U.S.C. § 1125(a).

I. Background

Lexmark manufactures and sells laser printers. It also sells toner cartridges for those printers (toner being the powdery ink that laser printers use to create images on paper). Lexmark designs its printers to work only with its own style of cartridges, and it therefore dominates the market for cartridges compatible with its printers. That market, however, is not devoid of competitors. Other businesses, called "remanufacturers," acquire used Lexmark toner cartridges, refurbish them, and sell them in competition with new and refurbished cartridges sold by Lexmark.

Lexmark would prefer that its customers return their empty cartridges to it for refurbishment and resale, rather than sell those cartridges to a remanufacturer. So Lexmark introduced what it called a "Prebate" program, which enabled customers to purchase new toner cartridges at a 20–percent discount if they would agree to return the cartridge to Lexmark once it was empty. Those terms were communicated to consumers through notices printed on the toner-cartridge boxes, which advised the consumer that opening the box would indicate assent to the terms—a practice commonly known as "shrinkwrap licensing," see, e.g., ProCD, Inc. v. Zeidenberg, 86 F.3d 1447, 1449 (C.A.7 1996). To enforce the Prebate terms, Lexmark included a microchip in each Prebate cartridge that would disable the cartridge after it ran out of toner; for the cartridge to be used again, the microchip would have to be replaced by Lexmark.

Static Control is not itself a manufacturer or remanufacturer of toner cartridges. It is, rather, "the market leader [in] making and selling the components necessary to remanufacture Lexmark cartridges." 697 F.3d 387, 396 (C.A.6 2012) (case below). In addition to supplying remanufacturers with toner and various replacement parts, Static Control developed a microchip that could mimic the microchip in Lexmark's Prebate cartridges. By purchasing Static Control's microchips and using them to replace the Lexmark microchip, remanufacturers were able to refurbish and resell used Prebate cartridges.

Lexmark did not take kindly to that development. In 2002, it sued Static Control, alleging that Static Control's microchips violated both the Copyright Act of 1976, 17 U.S.C. § 101 et seq., and the Digital Millennium Copyright Act, 17 U.S.C. § 1201 et seq. Static Control counterclaimed, alleging, among other things, violations of § 43(a) of the Lanham Act, 60 Stat. 441, codified at 15 U.S.C. § 1125(a). Section 1125 (a) provides:

"(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—

"(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

"(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities,

"shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act."

Section 1125(a) thus creates two distinct bases of liability: false association, § 1125(a)(1)(A), and false advertising, § 1125(a)(1)(B). See Waits v. Frito–Lay, Inc., 978 F.2d 1093, 1108 (C.A.9 1992). Static Control alleged only false advertising.

As relevant to its Lanham Act claim, Static Control alleged two types of false or misleading conduct by Lexmark. First, it alleged that through its Prebate program Lexmark "purposefully misleads end-users" to believe that they are legally bound by the Prebate terms and are thus required to return the Prebate-labeled cartridge to Lexmark after a single use. App. 31, ¶ 39. Second, it alleged that upon introducing the Prebate program, Lexmark "sent letters to most of the companies in the toner cartridge remanufacturing business" falsely advising those companies that it was illegal to sell refurbished Prebate cartridges and, in particular, that it was illegal to use Static Control's products to refurbish those cartridges. Id., at 29, ¶ 35. Static Control asserted that by those statements, Lexmark had materially misrepresented "the nature, characteristics, and qualities" of both its own products and Static Control's products. Id., at 43–44, ¶ 85. It further maintained that Lexmark's misrepresentations had "proximately caused and [we]re likely to cause injury to [Static Control] by diverting sales from [Static Control] to Lexmark," and had "substantially injured [its] business reputation" by "leading consumers and others in the trade to believe that [Static Control] is engaged in illegal conduct." Id., at 44, ¶ 88. Static Control sought trebledamages, attorney's fees and costs, and injunctive relief.¹

The District Court granted Lexmark's motion to dismiss Static Control's Lanham Act claim. It held that Static Control lacked "prudential standing" to bring that claim, App. to Pet. for Cert. 83, relying on a multifactor balancing test it attributed to Associated Gen. Contractors of Cal., Inc. v. Carpenters, 459 U.S. 519, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983). The court emphasized that there were "more direct plaintiffs in the form of remanufacturers of Lexmark's cartridges"; that Static Control's injury was "remot[e]" because it was a mere "byproduct of the supposed manipulation of consumers' relationships with remanufacturers"; and that Lexmark's "alleged intent [was] to dry up spent cartridge supplies at the remanufacturing level, rather than at [Static Control]'s supply level, making remanufacturers Lexmark's alleged intended target." App. to Pet. for Cert. 83.

The Sixth Circuit reversed the dismissal of Static Control's Lanham Act claim. 697 F.3d, at 423. Taking the lay of the land, it identified three competing approaches to determining whether a plaintiff has standing to sue under the Lanham Act. It observed that the Third, Fifth, Eighth, and Eleventh Circuits all refer to "antitrust standing or the [Associated General Contractors ] factors in deciding Lanham Act standing," as the District Court had done. Id., at 410 (citing Conte Bros. Automotive, Inc. v. Quaker State–Slick 50, Inc., 165 F.3d 221, 233–234 (C.A.3 1998) ; Procter & Gamble Co. v. Amway Corp., 242 F.3d 539, 562–563 (C.A.5 2001) ; Gilbert/Robinson, Inc. v. Carrie Beverage–Missouri, Inc., 989 F.2d 985, 990–991 (C.A.8 1993) ; Phoenix of Broward, Inc. v. McDonald's Corp., 489 F.3d 1156, 1162–1164 (C.A.11 2007) ). By contrast, "[t]he Seventh, Ninth, and Tenth [Circuits] use a categorical test, permitting Lanham Act suits only by an actual competitor." 697 F.3d, at 410 (citing L.S. Heath & Son, Inc. v. AT & T Information Systems, Inc., 9 F.3d 561, 575 (C.A.7 1993) ; Waits, supra, at 1108–1109; Stanfield v. Osborne Industries, Inc., 52 F.3d 867, 873 (C.A.10 1995) ). And the Second Circuit applies a " 'reasonable interest' approach," under which a Lanham Act plaintiff "has standing if the claimant can demonstrate '(1) a reasonable interest to be protected against the alleged false advertising and (2) a reasonable basis for believing that the interest is likely to be damaged by the alleged false advertising.' " 697 F.3d, at 410 (quoting Famous Horse, Inc. v. 5th Avenue Photo Inc., 624 F.3d 106, 113 (C.A.2 2010) ). The Sixth Circuit applied the Second Circuit's reasonable-interest test and concluded that Static Control had standing because it "alleged a cognizable interest in its business reputation and sales to remanufacturers and sufficiently alleged that th[o]se interests were harmed by Lexmark's statements to the remanufacturers that Static Control was engaging in illegal conduct." 697 F.3d, at 411.

We granted certiorari to decide "the appropriate analytical framework for determining a party's standing to maintain an action for false advertising under the Lanham Act." Pet. for Cert. i; 569 U.S. ––––, 133 S.Ct. 2766, 186 L.Ed.2d 217 (2013).²

II. "Prudential Standing"

The parties' briefs treat the question on which we granted certiorari as one of "prudential standing." Because we think that label misleading, we begin by clarifying the nature of the question at issue in this case.

From Article III's limitation of the judicial power to resolving "Cases" and "Controversies," and the separation-of-powers principles underlying that limitation, we have deduced a set of requirements that together make up the "irreducible constitutional minimum of standing." Lujan v. Defenders of Wildlife, 504...