Supreme Court tackles Kentucky false advertising case

Published: Tuesday, Dec. 3, 2013 - 1:57 pm

Fanciful questions about chocolate sauce confronted a Lexington, Ky., attorney representing a hometown firm Tuesday as the Supreme Court weighed when companies can file false advertising lawsuits.

Making his inaugural appearance before the high court, 44-year-old attorney Steven B. Loy urged justices to constrain when companies can be sued under a federal law banning false or misleading advertising. In a legal fight now entering its second decade, Lexmark International Inc. is defending itself against another firm that sued after claiming Lexmark made false allegations.

The case’s outcome could shape the bottom line of companies nationwide. But as is their wont, Supreme Court justices also conjured some far-out hypothetical scenarios to plumb a fairly technical case and its potential consequences. Most elaborately, Justice Stephen Breyer served up an extended example involving an ice cream parlor that’s selling sundaes made with chocolate sauce disparaged by a competitor.

“We prepared for the hypotheticals,” Loy said after the hour-long oral argument, though “not that precise one.”

A graduate of the University of Kentucky and its law school, Loy has been representing Lexmark in a multi-faceted legal campaign that’s played out in both state and federal courts since 2002.

The tentacle that reached the Supreme Court on Tuesday, called Lexmark International v. Static Control Components, is not one of the term’s more dramatic controversies. It involves “standing,” an important, but often dry legal concept governing when people can sue. There were empty seats in the courtroom, and only two or three reporters present. Only five amicus briefs were filed by outside parties, compared to dozens on higher-profile cases.

The justices themselves did not clearly tip their hands during an argument that featured tough questions for both sides, though reading between the lines could suggest a split decision is on the way. Liberal Justice Ruth Bader Ginsburg sounded somewhat sympathetic to the company challenging Lexmark, while conservative Justices Antonin Scalia and Samuel Alito sounded somewhat sympathetic to tighter restrictions on lawsuits.

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, based in Sanford, N.C., 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. Much legal wrangling has since ensued.

Lexmark wrote companies that they would infringe on Lexmark’s intellectual property if they remanufactured cartridges using Static Control’s products. Static Control sued under the federal Lanham Act, which prohibits false advertising and trademark infringement. The company argued that Lexmark’s assertions led customers to believe Static Control acted unlawfully.

“Here is an entrepreneur that says, ‘We make a product and Lexmark is disparaging our product. It is essentially trying to get us out of this line of business,’” Ginsburg said. “Certainly if you just read the words of the Lanham Act, this is allegedly false advertising.”

Attorney Jameson R. Jones, a former Supreme Court clerk representing Static Control, added that “if any party has standing (to sue) under the Lanham Act, it’s a party whose goods are misrepresented in false advertising.”

Everyone seems to agree that 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. A trickier question in this case is whether a supplier of parts to the direct competitor can likewise 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,” Loy told the justices. “We think the Lanham Act does and should have a narrow standing requirement.”

Lexmark proposes a relatively strict judicial test that could include ensuring a close “proximity” between the defendant’s actions and the injury that’s suffered. Static Control argues in response that Congress intended to empower a broader range of potential plaintiffs.

“The standing question is designed to answer, ‘are you the kind of plaintiff that Congress intended in this statute to protect against the kind of injury that you say you suffered?’” Breyer noted.

Justice Clarence Thomas, as is his practice, was the only one of nine justices not to speak or ask questions during the argument. A decision is expected by June.


Email: mdoyle@mcclatchydc.com; Twitter: @MichaelDoyle10

Read more articles by Michael Doyle



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