Okay, I thought Lanham Act standing couldn’t get further
bollixed. My mistake! Copyright folks know this long-running
dispute as the source of one limit on the use of the DMCA to protect against
aftermarket competition. But there are
patent, antitrust, and advertising law pieces as well; I’m only going to talk
about the Lanham Act and design patent claims.
Lexmark makes laser printers and toner cartridges for
them. Other companies buy used
cartridges, refill them, and sell them to owners of Lexmark printers. Static Control sells the microchips used in
the cartridges, along with other parts, to these remanufacturers, but it is not
a remanufacturer; Lexmark sells cartridges but not parts.
After many years, the only issues submitted to a jury were
Lexmark’s claim of inducement of patent infringement against Static Control and
Static Control’s defense of patent misuse, though the jury’s findings on misuse
were advisory. The jury found no
inducement and misuse by Lexmark.
Among the issues on appeal were the court’s dismissal of
Static Control’s false advertising claims.
Static Control argued that Lexmark falsely advertised by telling
customers that Static Control’s products infringed Lexmark’s IP and misled
customers into thinking that Lexmark’s licenses prohibited
remanufacturing. The district court
dismissed this counterclaim because Static Control, in the court of appeal’s
words, “lacked antitrust standing.” Though
I don’t like Conte Bros., the
district court at least described it more closely: the factors for antitrust standing are the same as for Lanham Act
standing. Now, this isn’t actually true
either, as I’ve written; Conte Bros.
already involved a bit of sleight-of-hand performed on the antitrust standing
test. But at least the district court’s
description suggests that we will look at the types of plaintiffs and conduct
that the Lanham Act was designed to address in applying the factors, rather
than at whether the Lanham Act plaintiff would have antitrust standing.
In the Sixth Circuit, the most recent precedent was Frisch's
Rests., Inc. v. Elby's Big Boy of Steubenville, Inc., 670 F.2d 642 (6th Cir.
1982), which held that a Lanham Act claimant need not demonstrate actual losses
as a result of the defendant's misleading use of the claimant's trademarks in
its advertisements, only a “‘likelihood of injury and causation,’” aka the
Second Circuit’s “reasonable interest” approach. Lexmark argued for the adoption of a
categorical competitors-only test, as adopted by some circuits distinguishing
between §43(a)(1)(A) and (a)(1)(B).
Other circuits use Conte Bros.
(which, again, distinguishes between trademark and false advertising standing,
though the court of appeals here pointed out that the Third Circuit purports to
reject any distinction between the two but simultaneously applies the
five-factor antitrust-derived test to false advertising claims). The court of appeals quoted, without
explicitly approving, the Second Circuit’s observation that Conte Bros. unnecessarily complicates
the standing inquiry.
So, following the Third Circuit’s “reasoned analysis
rejecting a distinction between these two types of claims for purposes of
standing,” the panel was bound by Frisch’s. As a result, Static Control sufficiently
alleged a Lanham Act claim: its business reputation and sales to
remanufacturers were harmed by Lexmark’s statements to those remanufacturers. Reversed and remanded. In a footnote, the court commented that even
if it did adopt the Conte Bros. test,
Static Control might still have standing.
Static Control’s allegations went beyond conduct alleged to violate the
Sherman Act (as to which the claim had been dismissed), particularly the allegation that Lexmark falsely advertised that
Static Control was a patent infringer.
The district court also dismissed Static Control’s state-law
counterclaims for unfair competition and false advertising under North Carolina
law for lack of standing, on the theory that the test was identical. The North Carolina courts hadn’t addressed
the issue of standing under the state’s UDTPA statute, the state-law equivalent
of the Sherman, Clayton, and Lanham Acts, but the district court applied “North
Carolina's general rule that federal case law is persuasive and instructive in
construing North Carolina's own antitrust statutes.” However, a North Carolina case has held that
the federal antitrust standing test doesn’t apply to the question of which
indirect purchasers have standing under North Carolina statutes; though Static
Control was a supplier, it argued that the case supported the general idea that
it could have standing. The court of
appeals decided that it had to “closely examine North Carolina's departure from
federal law on the question of standing for indirect purchasers to determine
whether North Carolina would similarly depart on the question of standing for
suppliers.”
Comment: For the false advertising counterclaim, which is
apparently encompassed by this analysis, the whole journey is a frolic and
detour. We should (also) be asking how
North Carolina treats false advertising
claims under the UDTPA. Absent some
consideration of false advertising, this discussion is like asking whether the
plaintiff in a malpractice case has standing to sue her doctor by evaluating
whether the doctor defamed her.
Anyway, after extensive analysis of antitrust law at the
state and federal level over time, the court of appeals held that North
Carolina wouldn’t apply the federal antitrust standing factors to cases like
this one. So the counterclaims go back
to the district court too—apparently both state antitrust and state false
advertising.
The court then denied Static Control’s request to treat the
advisory jury findings of patent misuse as binding on a subsequent factfinder; this would be relevant to the false advertising claims.
The district court had invalidated two of Lexmark’s design
patents, and the court of appeals affirmed.
Functionality will invalidate a design patent, which must be
ornamental. “An article is less likely
to be ornamental if it is not observed, and the Federal Circuit looks not just
to whether the article is ever seen but whether the appearance of the article
may become a ‘matter of concern’ at any point during the article's ‘normal and
intended use.’” The district court held
that the design of the cartridges was primarily functional because the design
of the printer dictated the exact design of the cartridge, relying on a Federal
Circuit case finding a key not patentable because its shape was dictated by its
function of fitting in the corresponding lock, which indeed seems to be on all
fours with the situation here. Also, “even
though the cartridges may be seen at some point during their lifetime, at no
point was their appearance a matter of concern to the end-user.”
Lexmark argued that the district court improperly shifted
the burden of proof onto Lexmark to show validity. In particular, Lexmark objected to the lack
of survey evidence showing that consumers didn’t consider the cartridge’s
appearance to be a matter of concern, and argued that it showed pictures of the
cartridges on its website and on the boxes, creating a genuine issue of
material fact. The court of appeals disagreed. “Lexmark itself explained that the
advertisements containing photographs were primarily to assist the customer in
selecting the cartridge that was compatible with the printer they owned.” Their appearance had no other role in the
purchase decision. Lexmark wanted more
evidence, but photos of the product weren’t enough to create a material issue
of fact; Static Control’s evidence of functionality was undisputed and clear
and convincing evidence of validity.
2 comments:
Do you know where I could find the dismissal of anti-trust claims in the North Carolina Court? I am looking for the citation, but can'teven find it on Westlaw.
I would try either PACER or asking the parties' lawyers.
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