1-800 Contacts Settles Class Action Lawsuit With Roots in FTC Action

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Back in 2016, the Federal Trade Commission (FTC) sued 1-800 Contacts, claiming the online retailer devised an anticompetitive scheme with other online lens retailers to restrict search terms.  The FTC charged that 1-800 Contacts and its competitors entered into agreements which prevented the other online contact lens retailers from bidding for search engine keywords in advertising auctions conducted by internet search engines, such as Google and Yahoo.

Last week, in a separate but related consumer class action, 1-800 Contacts settled with consumer-plaintiffs who brought suit in the Central District of Utah alleging similar facts.  The consumer complaint alleged that 1-800 Contacts forced some of its competitors to implement negative keyword lists so that when a potential consumer typed “1-800 Contacts,” no links to other retailers would appear in the search results and instead would only se links directing to 1-800 Contacts’ website.

According to the consumer complaint, 1-800 Contacts sent various cease-and-desist letters to any competitor that appeared in a search of 1-800 Contacts, claiming trademark infringement (when there was alleged to be no basis for this accusation). The plaintiffs, who already had settled with the other defendants in the action, including Walgreens, Vision Direct and international conglomerate Luxottica, settled with 1-800 Contacts for $15.1 million.  This settlement marks the end of this private consumer litigation.

Meanwhile, the FTC case is still ongoing.  In 2018, the FTC ultimately ruled that agreements between 1-800 Contacts and 14 online sellers of contacts lenses violated Section 5 of the FTC Act and harmed competition in bidding for search engine keywords and by artificially reducing the prices that 1-800 Contacts pays as well as the quality of search engine results delivered to consumers. The FTC found that the agreements suppressed price competition and harmed consumer choice since the agreements prevented other online contact lens retailers from bidding for search terms that would inform consumers that identical products were available at lower prices. The FTC case is currently on appeal to the Second Circuit.

Both the consumer and FTC cases against 1-800 Contacts and other online contact lens retailers explore the interesting area of prohibited agreements between companies to restrict search term advertising to prevent consumers from comparing price information. There are exceptions to these prohibitions, such as when related to trademark enforcement, but when companies limit what ads appear after a search, it may be difficult to show what procompetitive effects that has for a consumer. The Second Circuit’s ruling in the pending FTC case will be closely watched for broader implications for internet search advertising restrictions and trademark protection.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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