Contact Lens Purchasers Press Claims Against Retailers Over Search Ads

1-800 Contacts and other retailers harmed consumers by agreeing to limit their search advertising campaigns, a group of contact lens purchasers argue in new court papers.

"Advertising is an important part of the business of any commercial firm, and it is essential to effective distribution ... for contact lens retailers," the purchasers argue in papers filed last week with U.S. District Court Judge Tena Campbell in the Central District of Utah. "By suppressing one of the primary ways in which they compete, defendants purposefully made it more difficult to communicate their goods and services to consumers."

The consumers are asking Campbell to reject the retailers' request to dismiss an antitrust lawsuit centered on search ads. The lawsuit dates to last year, when a group of consumers alleged that 1-800 Contacts and other sellers -- including Vision Direct, Walgreen, National Vision and Luxottica -- violated antitrust laws by entering into agreements that prevented companies other than 1-800 Contacts from using its name to trigger search ads.

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National Vision recently agreed to settle the complaint by paying $7 million and agreeing to provide material to the consumers' lawyers.

The civil lawsuit by consumers came soon after the Federal Trade Commission accused 1-800 Contacts of illegally preventing rivals from using the term "1-800 Contacts" to trigger search ads. The FTC contends that 1-800 Contacts' tactics amounted to a violation of antitrust laws and an unfair business.

The companies entered into the agreements after 1-800 Contacts either sued or threatened to sue competitors for alleged trademark infringement, according to the FTC. 1-800 Contacts allegedly targeted at least 15 competitors between 2004 and 2013. Of those, Lens.com fought the lawsuit, which resulted in a decision that was largely in Lens.com's favor.

The agency argues that the agreements to restrict keyword advertising harmed search engines by distorting their ad auctions and reducing the quality of the search results. The FTC also says the agreements resulted in higher prices for consumers, arguing that 1-800 Contacts charges more than online rivals, but that consumers stop searching and order from 1-800 Contacts if it is the only advertiser in the search results.

The FTC action is still pending before an administrative law judge.

1-800 Contacts and the contact lens sellers argued that the lawsuit should be dismissed for several reasons, including that most of the settlement agreements occurred before August of 2012, putting them beyond the four-year statute of limitations for antitrust violations. The online seller added that even if the settlement agreements are treated as ongoing, the consumers could only obtain monetary damages for activity occurring in the last four years.

1-800 Contacts also argues that the consumers did not present facts to show how the settlement agreements led to price increases.

The lens purchasers ask Campbell to reject those arguments. "Consumers rely on advertising to find out what they can buy, from whom, and on what terms. But because advertising restrictions limit the flow of information to consumers, they increase consumer search costs by preventing consumers from obtaining important information," they argue.

They add that consumers will either "spend more time and money" by searching for cheaper alternatives or will simply stop searching when they don't believe the benefit outweighs the costs of research. "Either way, they pay more," the purchasers argue.

The purchasers also are asking Campbell to rule that their action is timely, arguing that they didn't know about the alleged antitrust violations until the FTC brought charges in 2016.

The civil lawsuit by consumers came soon after the Federal Trade Commission accused 1-800 Contacts of illegally preventing rivals from using the term "1-800 Contacts" to trigger search ads. The FTC contends that 1-800 Contacts' tactics amounted to a violation of antitrust laws and an unfair business.

1-800Contacts' general counsel Cindy Williams previously said the suits against the company "have no merit whatsoever."

Federal judges have not definitively resolved questions surrounding the use of trademarks in search advertising. Google and Yahoo have prevailed in several lawsuits alleging that they wrongly allowed a trademarked term to trigger pay-per-click ads, as have several advertisers. But judges have allowed other lawsuits over the question to proceed.

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