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On June 3, the U.S. Supreme Court granted a writ of certiorari in a case over whether a party must be a direct competitor in order to have standing to bring a false advertising claim under the federal trademark statute (Lexmark International Inc. v. Static Control Components Inc., U.S., No. 12-873, review granted 6/3/13).
The petition appealed the most recent determination by the U.S. Court of Appeals for the Sixth Circuit in a long-running dispute over laser printer toner cartridges that has previously made its mark in the arenas of copyright and patent law.
This time, the dispute is over whether the printer manufacturer engaged in false advertising when it told customers that a competitor's products were infringing.
Lexmark International Inc. of Lexington, Ky., is a maker of laser printers for use with computer systems. For certain high-cost printers, Lexmark instituted a discount program called a “prebate.”
Those customers that purchased toner cartridges at the lowered prebate price were required to return used ink cartridges to Lexmark for refilling. Those who purchased the cartridges at the regular price were not subject to this restriction.
In order to enforce the prebate restriction, Lexmark installed two computer programs that managed access to the printer cartridge by the printer.
One program, the Toner Loading Program, a very short piece of code, was designed to measure the amount of toner remaining in the cartridge. This program was located on a chip on the cartridge.
The Printer Engine Program, a longer program installed on the printer itself, controlled a number of printer functions.
Static Control Components Inc. of Sanford, N.C., sells parts and supplies for reusing used printer toner cartridges. Static Control made a chip, the Smartek chip, for sale to makers of third-party replacement toner cartridges. Many such third parties take used toner cartridges and refurbish them for reuse.
Thus, the chip, if used in a refurbished cartridge, would mimic the effect of the chip on the Lexmark cartridges, allowing customers to obtain and use cartridges from sources other than Lexmark. The Smartek chip contained an identical copy of the Toner Loading Program.
In 2002, Lexmark sued Static Control, alleging that Static Control's mimicking of the Toner Loading Program infringed Lexmark's copyright interests.
In February 2003, Judge Karl S. Forester of the U.S. District court for the Eastern District of Kentucky ruled that Static Control's activity was likely to violate the anticircumvention provisions of the Digital Millennium Copyright Act of 1998, 17 U.S.C. §1201, et seq., and imposed a preliminary injunction (41 PTD, 3/3/03).
In February 2004, Static Control filed an action seeking a declaration that its new line of re-engineered toner chips did not infringe Lexmark's copyrights or violate the anticircumvention provisions of the DMCA (43 PTD, 3/5/04).
In that declaratory judgment action, Lexmark filed several counterclaims, including claims of patent infringement. Lexmark also joined as defendants some of Static Control's customers, which used the chip to remanufacture used printer cartridges.
In September 2004, the federal district court ruled that Lexmark could pursue its counterclaims against Static Control in this proceeding (181 PTD, 9/20/04).
In October 2004, the Sixth Circuit vacated the preliminary injunction, ruling that Lexmark's claim might fail because the control measure at issue merely prevented use of the printer without controlling access to the content of the Toner Loading Program. Lexmark International Inc. v. Static Control Components Inc., 387 F.3d 522, 72 U.S.P.Q.2d 1839 (6th Cir. 2004) (209 PTD, 10/29/04).
The Sixth Circuit called into question whether the Toner Loading Program was protected under copyright law. It concluded that Lexmark had failed to demonstrate a likelihood of success on the merits of its infringement and DMCA claims and remanded the matter back to the district court. In October 2005, the Sixth Circuit rejected Lexmark's request for en banc review.
In August 2005, the district court consolidated Lexmark's infringement action with Static Control's declaratory judgment action (164 PTD, 8/25/05).
On remand, Static Control moved for partial summary judgment on the copyright infringement claim and the district court found that the Toner Loading Program was not sufficiently original to be afforded copyright protection (79 PTD, 4/25/07).
Nine mechanical patents held by Lexmark were found valid, and the court granted summary judgment of direct patent infringement against some of the third-party cartridge remanufacturers. However, by this time, they had already settled with Lexmark.
The district court also found valid Lexmark's single-use prebate license, which meant that the sale of a toner cartridge to a user did not exhaust Lexmark's patent rights.
The district court also granted Lexmark's motion for dismissal of Static Control's antitrust, Lanham Act, and state law counterclaims. Thus, when the case went to trial, the jury was presented only with the issues of patent inducement and patent misuse.
The jury handed down a verdict in Static Control's favor on the question of inducement of patent infringement and advised the court that Lexmark had misused its patents.
Lexmark then renewed a motion for judgment as a matter of law and moved for a retrial, arguing that the evidence had been sufficient to establish direct infringement by the cartridge remanufacturers and that evidence of inducement had been erroneously excluded at trial.
Judge Gregory F. Van Tatenhove of the U.S. District Court for the Eastern District of Kentucky, reversing the prior decision that Lexmark had not exhausted its patent rights, denied the motions.
Both parties appealed and the Sixth Circuit determined that Static Control had sufficiently alleged a claim of false advertising under the Lanham Trademark Act of 1946, 15 U.S.C. §1125(a)(1), based on Lexmark's statements to its customers that Static Control's products were infringing.
The appeals court rejected Lexmark's argument that standing in this case should only be granted to direct competitors (177 PTD, 9/13/12). Lexmark argued that Static Control was not a direct competitor because it only made parts for refurbishing printer cartridges. Static Control--unlike its customers--did not actually sell goods that directly competed with Lexmark's goods.
According to Sixth Circuit precedent, standing for a false advertising claim could be based on a showing of a “reasonable interest.” The appeals court also restored Static Control's counterclaims of unfair competition and false advertising under North Carolina state law.
Whether the appropriate analytic framework for determining a party's standing to maintain an action for false advertising under the Lanham Act is (1) the factors set forth in [Associated General Contractors of California Inc. v. California State Council of Carpenters, 459 U.S. 519 (1983)], as adopted by the Third, Fifth, Eighth, and Eleventh Circuits; (2) the categorical test, permitting suits only by an actual competitor, employed by the Seventh, Ninth, and Tenth Circuits; or (3) a version of the more expansive “reasonable interest” test, either as applied by the Sixth Circuit in this case or as applied by the Second Circuit in prior cases
The cert petition was filed Jan. 14.
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