U.S. Supreme Court to Hear Lexmark v Static Control

As reported in Forbes, The United States Supreme Court will hear oral arguments in December in the case of Lexmark International v. Static Control Components. The High Nine will rule on who can sue for violations of the federal false advertising statute (in legal terms, who has standing).

This complex and long-lasting case involves the toner cartridge market. Lexmark sells toner cartridges designed for a single use, controlled by a microchip in the cartridge. Lexmark sells these cartridges at a discount it calls a “Prebate.” Static Control sells replacement microchips to cartridge remanufacturers that allow Lexmark cartridges to be reused, thereby undermining Lexmark’s “Prebate” program.

Despite the fact that the parties don’t directly compete, Lexmark has taken many steps to halt the development of a used toner cartridge market, which include lawsuits and public announcements that cartridge remanufacture violates Lexmark’s legal rights. Static Control won a significant copyright ruling in 2004 allowing it to resell its replacement microchips. The parties are now fighting over Lexmark’s allegedly false statements to remanufacturers about the legitimacy of Static Control’s microchips.

According to Forbes, the number of litigants who are eligible (who have standing) to bring Lanham Act false advertising claims should be limited. It believes “non-competitors, especially plaintiffs’ class action lawyers, bring more than enough low-merit, false advertising lawsuits already”.

From its perspective, Lexmark’s “Prebate” program seemingly benefits consumers by reducing their initial price, but it also prevents the development of a used cartridge market that might drive down Lexmark’s prices even more. Forbes doubts if people will challenge Lexmark’s marketing statements without Static Control’s legal tools to keep Lexmark honest. Static Control has shown it will invest a decade’s worth of litigation costs into fighting Lexmark, a heavier investment than many remanufacturers would be willing to make.

Forbes predicts this ruling “could have substantial implications for competition in the printer toner cartridge market, and it could affect how new entrants can use false advertising litigation to crack open a closed market.”