Wednesday, December 04, 2013

AU’s post-argument panel on Lexmark v. Static Control

Oral argument transcript here: Most of the questions seemed to me more favorable to Static Control, though Kennedy said almost nothing.

Steven B. Loy - Stoll Keenon Ogden PLLC, representing Lexmark

Lexmark makes printers and cartridges: position is that primary competitors are HP etc. Aftermarket developed for depleted cartridges, remanufactured/refilled with toner.  Lexmark does that too.  Static Control provides components to remanufacturers.  This case involved every potential IP claim: patent, patent misuse, antitrust, copyright.  Today was Lanham Act day: Lexmark allegedly made actionable statements: (1) told customers that refilling cartridges would infringe Lexmark’s rights; (2) told remanufacturers that refilling cartridges would infringe Lexmark’s rights and that using Static Control’s products would infringe.

First, Second, and Sixth Circuit used reasonable interest test for standing; categorical rule requiring competition in 7th, 9th, and 10th; AGC antitrust test, 3d Cir., 5th, 11th.  They advocated for AGC.

Seth Greenstein - Constantine Cannon LLC, representing Static Control Components, Inc.

Lexmark has a razors/razorblade model, making money off of supplies instead of printers.  Interested in finding different ways to restrict sources of cartridges for remanufacturers. Following patent exhaustion cases, Lexmark adopted “prebate”—advance discount on price, with a label with an alleged patent license/restriction saying that Lexmark could remanufacture it.  Lexmark adopted a technology—a chip with software that talked to printer—so that as the cartridge was used, the printer wrote data onto the chip. If remanufactured cartridge showed up with chip, printer would stop working.  Static Control’s chips mimicked Lexmark’s, allowing remanufactured cartridges to work.

Initial lawsuit: copyright infringement/DMCA violations.  Preliminary injunction against Static Control was reversed in 2004.  Also patent issues.  Static Control counterclaimed for state and federal false advertising/antitrust claims.  Static Control didn’t have antitrust standing federally, per 6th Cir.

Rebecca Tushnet - Georgetown University Law Center, representing amicus curiae, Law Professors

Why should people who are primarily interested in TM care?  Because the statutory language is the same/hard to distinguish.  Historical note: “unfair competition requires competition” and its disappearance from the case law in trademark.  Does trademark have a fundamentally different basis than false advertising law?  The statutory text is virtually identical, especially as to the relevant concepts.  Lurking issues: “commercial advertising or promotion” and its relationship to the standing arguments here.

Marc A. Goldman - Jenner & Block LLP, representing amicus curiae American Intellectual Property Law Association

AIPLA participates in almost every SCt IP case.  Supported a relatively broad test, given a membership that runs the gamut of positions.  Similar to Law Professors: congressional intent should be the key for assessing standing.  Existing tests are somewhat divorced from that. Language is very broad in the Lanham Act.  Don’t depart without really good reason.  At least congressional purpose.  Categorical test can’t explain prohibition on false association claims. AGC sometimes doesn’t even protect direct competitors. Given that, it’s the wrong test, especially the factors that look to speculativeness/duplicative potential for damages; antitrust is a very different kind of law.  Lanham Act provides injunctive relief, not just damages; factors aimed at damages therefore don’t make sense.  Antitrust is generally designed to protect consumers, while Lanham Act is also designed to protect competitors—antitrust is happy if someone sues, but Lanham Act specifically protects competitors who should get to sue.

Mary Massaron Ross - Immediate Past President of DRI - The Voice of the Defense Bar, representing amicus curiae, DRI

DRI has 22,000 members, representing businesses/individuals in civil litigation.  Experience of lawyers in trenches.  Practical approach.  Categorical test: most restrictive.  We believe a rule-like test is better in practice.  Easier to apply and outcome is more predictable and avoids ideological divergence.  (RT: 9th Circuit experience doesn’t really bear that out.)  Protects against unfair competition.  Narrower standing is good for federalism concerns.  Leave areas of state tort law unsubsumed into federal statutory scheme, which is a good thing.  Overenforcement of Lanham Act chills information available in the marketplace.  Reasonable interest isn’t enough for predictability.

Moderated by: Christine Farley - American University Washington College of Law

Farley: asked lawyers for parties to reflect on amici’s arguments.

Loy: DRI is closest to right.  A number of tests exist; AGC has worked well for 30 years in antitrust, and 15 years in the 3rd Circuit.  The alternative is not to go to a rudderless test, but a categorical test. Reasonable interest test is no more than Article III test, and obviously we need more than Article III standing.  Specific statute with specific statutory purpose: AGC test is specific to that.  Reasonable interest test couldn’t be taken at its word—added components to it that weren’t part of the test: purpose is to protect against unfair competition, but consumers universally don’t have standing.  The 2d Circuit adds a heightened showing if plaintiff is noncompetitor; we don’t know what that heightened showing is, but that’s beyond the test itself.  Zone of interest/reasonable interest requires more work, and AGC has already provided a framework, apart from determining any particular set of facts. 

Greenstein: practicing lawyers who specialized in Lanham Act lined up largely to support reasonable interest/commercial interest: false advertising distorts the marketplace, and the statute decided that private parties should vindicate that right.  Trends exist in case law applying the reasonable interest test that provide useful lessons: consumers don’t have standing, competitors do, and others with strong commercial interests can—not adding components, just jurisprudential development. Unfair competition as actual competition between parties: unfair competition is a rubric applied to various things, not just direct competition.  The language of the statute is “any person,” and Congress knows how to require competition if it wants to; it’s done so in other statutes. RT: on predictability of categorical test: 9th Circuit experience doesn’t really bear that out. Risk of overenforcement: direct competitors are the ones most likely to make chilling claims, because they have the most anticompetitive motives; if you’re concerned about overenforcement the standing test is the wrong place to look.  Claims that AGC is working well: Except where it hasn’t worked well at all, as I’ve detailed elsewhere (in the brief and Running the Gamut). AGC circuits are divided for example on how to evaluate duplicativeness of damages, and they deny standing to direct competitors. 2d Circuit is at least as active as the 3d, and no disaster/rudderlessness.  I’d have a harder time counseling someone in the 5th/11th circuits about the law than the 2d.

Goldman: letting “any person” have standing would also be predictable. In a world where we’re departing from that, we should consider congressional purposes.  2d Circuit has focused on congressional intent, similar to the zone of interest tests as characterized by respondents.  AGC’s rudder doesn’t come from any source within the statute and produces wrong results.

Ross: Breyer asked whether consumers should be able to bring suit; should every other fast food restaurant be able to sue McDonald’s? What about the local health food burger joint?  (Wouldn’t they have standing under the categorical test?  If not, what’s so categorical?)  There’s a wide universe of potential suits and her sense of Justices’ questions was that it was untenable to let everyone in the universe, including consumers, sue; the question then is what’s the test to differentiate those who can sue from those who can’t. Using malleable words like reasonable works well in fact-based tests but that’s not good for a consistent legal determination made to treat similar cases similarly.  Static Control was urging a zone of interest test—even more fluid than many oral arguments in terms of options available to the Court.  Justices might be inclined to develop their own test as opposed to latching on to any one articulated below.

Farley: talk about the argument.

Loy: awe-inspiring. No substitute for preparation for answering questions.  The Justices are debating the issues and you’re there with them.

Greenstein: Surprising that this was the issue in this long-running case that got to the SCt, as opposed to the also interesting DMCA/patent issues.  Static Control argued for a fourth test, the test the Court applies more generally to standing where there’s no specific common law background or statutory standard—zone of interests; see who’s arguably within the zone intended to be protected by Congress. The SCt has the most experience with this, applying it in a number of settings from its birth under the Administrative Procedure Act.  Seemed logical for Lanham Act and potentially any statutory scheme. Wide-ranging conversation about different tests. There were questions about AGC’s flaws and also about the reasonable interest test.  Justice Kagan wanted to know why we didn’t just look at the statute.  Justice Scalia asked what the point of prudential standing was here.  Hypotheticals: any test will pose questions about who’s in and who’s out at the margins.

He thought the court accepted pretty clearly that Static Control had standing for claims made about Static Control’s products themselves, given the 1988 amendments.  But when defendant makes statements about its own products it gets more complicated.  Then-Judge Alito wrote Conte Bros., which should have the same result under reasonable interest test—a class of retailers who didn’t market defendants’ products but claimed injury from statements about defendants’ own products.  But retailers could have standing under some circumstances, he thinks, just as parts suppliers could under some circumstances. Depends on whether the falsity relates to the part supplier’s product.  Statements about Lexmark’s chip is within the zone of interests Static Control has, as chip maker, but not within the zone of interests for the maker of the box that the printer cartridge comes in.

Goldman: most interesting about argument: there were many questions about what prudential standing was doing as a concept.  Congressional intent as touchstone. There’s a real possibility that the Court will look at that. How does that play out?  They do seem to have various prudential concerns—they don’t want everybody to be able to sue, especially not consumers.  It’s fairly straightforward to exclude consumers, he thinks, despite the broad standing provision.

Ross: Justices had this notion about “why do we have the power to set these limits when Congress has spoken?”  Constitutional standing, Article III, is a set test, and it allows standing more readily at the constitutional level than at the prudential level.  When Congress uses broad phrases, it’s a signal but there are always plaintiffs who go too far, and that’s where prudential standing arose from.

RT: you know, why shouldn’t consumers have standing if the statutory language supports it?

Michael Carroll: when plaintiff falsely advertises about its own products, who should have standing, according to the various tests?  Justice Breyer used a hypo about a claim that the chocolate used at a particular shop was poisonous.  Should the shop have standing?

Loy: district courts will have to apply test to given set of facts.  AGC also supports standing for false endorsement cases.  Under reasonable interest test consumers could have standing!

Greenstein: ducking the hypothetical shows the flaws in AGC/categorical tests.  One ice cream maker saying a store’s sauce was poisonous—the entity attacked would lack standing even though it’s the most directly harmed. Even under AGC they should get standing when there’s a direct statement maligning their products.

RT: hypos about disparagement don’t really get to the “false advertising about one’s own products” issue.  Congressional purpose: protect consumers and commercial entities; those two aims don’t have to compete.

Goldman: direct competitors have the most plausible story about how false advertising about one’s own products harms the competitor; multiple people might also be harmed, and further down the line can they sue? These are harder questions even as a matter of background common law; there’s some point at which proximate cause is lacking but it may be several steps down the chain. None of the tests have a great way of answering that question in the abstract.

Ross: rules versus standards scholarship: both have benefits and costs.  How clear you want to be versus how much you want to take hypos into account.  Categorical test has the benefit of focusing Lanham Act on direct competition, as is the purpose thereof.  Sure that leaves some people out, but Lanham Act is directed at protecting competition against false statements.  (Except that “competition” hasn’t meant direct competition in the rest of the Lanham Act for 60 years.  If you give me “unfair competition requires competition” in trademark, I’ll accept it in false advertising.)  State tort causes of action remain available.

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