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More Ad Lawsuits Possible After Supreme Court Decision

2 Apr, 2014 By: Doug McPherson

WASHINGTON – A Supreme Court decision last week could mean more false-advertising lawsuits.

“Ultimately it will lead to more lawsuits because, historically, there has been this question of whether use of the Lanham Act was limited to direct competitors,” Linda Goldstein, a partner with Manatt Phelps & Phillips told AdAge. “This really opens up the field to a wider spectrum of plaintiffs.”

And Randy Miller, an ad lawyer at Venable LLP, says by simply weighing in on the Lanham Act (which relates to false advertising), the Supreme Court has raised the profile of the law and that by itself could spark more company vs. company lawsuits.

Miller told AdAge the new attention the court gave “makes clear that not only is it available … but it’s actually broader than people thought.”

The case involved Lexmark Intl., a printer cartridge maker, at odds with a company called Static Control, a microchips maker that let other companies remake used Lexmark cartridges so that they could be used again. Lexmark wanted consumers to return cartridges for a “prebate” that could be used for discounts on new cartridges.

Using the Lanham Act, Static Control alleged that Lexmark “purposefully misleads end-users” to be¬lieve 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, according to court documents. A district court ruled that Static lacked standing to sue, but an appellate court reversed that decision.

The Supreme Court decision allowed Static Control’s claim to proceed, even though Static is not a direct competitor of Lexmark. By doing that, the court set new rules for who can sue in such cases. The opinion, authored by Justice Antonin Scalia, stated that “to invoke the Lanham Act’s cause of action for false advertising, a plaintiff must plead (and ultimately prove) an injury to a commercial interest in sales or business reputation proximately caused by the defendant’s misrepresentations.”

Goldstein says the opinion will not alter typical “brand war” cases in which one company sues a direct competitor for false advertising. Rather, the ruling opens the door for suppliers and other interested parties to sue.

As a result, marketers crafting ad campaigns should give “a little more thought to who might sue you,” says Peter Raymond, a litigation partner with Reed Smith who specializes in false advertising cases.

“Sometimes for one reason or another you kind of know your direct competitor may not assert a claim,” he says. “But now you have to think about more remote injuries and people who you didn’t even think about who might sue you if you are not careful about what you say in your advertising.”

He noted that the Lanham Act is still not available for consumers or consumer groups, which typically must rely on state consumer protection statutes.

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