FTC Sues 1-800 Contacts; Beauty Marketers Joust Over Proposed FDA Regs

The Federal Trade Commission last week sued 1-800 Contacts for, it alleges, preventing at least 14 unnamed competitors from buying search advertisements in signed marketing agreements that resulted in “at least some consumers” paying higher retail prices than they would have. 

The FTC “has accused the country's largest online contact lens retailer of manipulating the market and hurting consumers by illegally restricting Internet advertising,” Herb Weisbaum explains for NBC News. It says 1-800 Contacts “unlawfully orchestrated agreements with rival contact lens sellers that ‘unreasonably restrain both price competition in search engine advertising auctions [that determine which ads are displayed] and the availability of truthful and non-misleading advertising.’”



CEO Brian Bethers writes in a release that 1-800 Contacts “strongly disagrees” with the FTC's contention. “The company has been a pioneer for consumer rights, and we are proud to have opened up the contact lens market for increased competition,” he tells NBC. “Our commitment to the consumer and to a fair and competitive marketplace is unwavering.”

“The role of trademark law in online search advertising has been contentious since the very inception of online search, writes Joe Mullen for Ars Technica. “Search engines like Google and Bing make money from selling ads that are keyed to search terms. Some trademark owners have long disliked the fact that when a potential customer types in their trademark company name into Google — say, ‘American Airlines’ or ‘Rosetta Stone’ — the user will see ads from competitors.”

Both of the companies Mullen cites did, in fact, sue. But “no trademark owner has ever convinced a court that selling trademarked keywords violates the law. Not only did Google not back down, it expanded the practice to Europe after winning a court case against luxury brand owners including France's Louis Vuitton.”

“For those of us a little tired of the decade-long competitive keyword advertising battles, the FTC's move offers some tantalizing prospects,” writes Eric Goldman, a professor of Law at Santa Clara University School of Law, on his Technology & Marketing Law Blog

“Because the FTC stacked the litigation deck in its favor, we could get some clean and powerful judicial pronouncements about the legitimacy and pro-competitive nature of competitive keyword advertising. Combined with developments like the Texas ethics opinion greenlighting competitive keyword advertising by lawyers, this case could help push the pendulum so decisively in favor of competitive keyword advertising that it permanently ends the debates,” Goldman continues.

At the end of the piece, Goldman writes that he has “been critical of 1-800 Contacts for over a dozen years,” linking to more than a dozen previous posts about the company. “I don’t wear contacts, but if I did, I’d still not deal with 1-800 Contacts to protest against their overreaching IP positions,” he concludes.

Meanwhile, the New York Times has a comprehensive, front-page article this morning about the conflict between small companies and major marketers in the beauty products industry over a proposed federal law that would allow the Food and Drug Administration “to test ingredients used in cosmetics and issue mandatory recalls for products found to be unsafe.”

The Feinstein-Collins bill in the Senate “would, for the first time, require that cosmetics manufacturers report ‘serious adverse’ reactions to their products to the FDA as they come in, as well as create an annual report of all ‘adverse events,’” write Eric Lipton and Rachel Abrams. “It would also give the agency the power to order companies to recall products found to be dangerous.”

Big companies including Estée Lauder, Johnson & Johnson and Procter & Gamble support the legislation. “Industry officials said they decided to embrace the legislation after becoming increasingly concerned that a decline in consumer confidence could hurt their sales,” Lipton and Abram write.

Smaller firms such as Mary Kay, as well as the Independent Cosmetic Manufacturers and Distributors trade group, are fighting the recall provisions of the bill through a bill in the House introduced by Rep. Pete Sessions (R-Tex.) “backed and largely drafted by Mary Kay and the independent companies.”

They support the reporting of adverse effects but oppose giving the FDA the ability to recall products. They also reject a proposal to collect about $20 million in fees from beauty companies annually to help cover the cost of the program.

The FDA would not comment on either of the bills.

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