1-800 Contacts Suppressed Competition By Restricting Search Ads, FTC Judge Says

Efforts by the contact lens retailer 1-800 Contacts to prevent its trademark from being used by rivals in search ads probably resulted in higher prices for consumers, a Federal Trade Commission administrative law judge said in a decision made public on Monday.

Chief Administrative Law Judge D. Michael Chappell said in the 214-page decision that 1-800 Contacts violated the FTC Act by entering into agreements with rivals that prevented them from using 1-800 Contacts' trademark in search ads. Those agreements "pose significant, unjustified anticompetitive consequences in the relevant market for the sale of contact lenses online," Chappell wrote.

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Chappell's ruling, termed an "initial decision," is still subject to review by the full FTC. 1-800 Contacts said Monday that it is appealing Chappell's decision.

The decision stemmed from an FTC complaint against 1-800 Contacts filed last August. The complaint centers on business practices that allegedly began in 2004 -- when the company first threatened to sue a competitor for allegedly infringing trademark by purchasing the term 1-800 Contacts as a trigger for pay-per-click search ads. From 2004 through 2013, the company allegedly sued or threatened to sue at least 15 competitors over trademark infringement on search engines.  

Fourteen of those companies entered into agreements to restrict the use of the company's trademarks in search ads. Only Lens.com fought the lawsuit, which ended in a ruling largely in Lens.com's favor.

The FTC said the agreements resulted in higher prices for some consumers, arguing in court papers that some people stop searching for other retailers if 1-800 Contacts is the only advertiser in the search results.

Chappell agreed with the agency. "The evidence in this case proves that the challenged agreements significantly restricted advertising and also that at least some consumers have paid, or will pay, prices that are higher than they would otherwise be," he wrote.

1-800 Contacts contended that the agreements prevented ads that probably would have confused consumers. But Chappell found that the company's evidence, including surveys conducted by its experts, didn't support that claim.  

He ordered 1-800 Contacts to stop enforcing any of the agreements, and to refrain from entering into similar ones in the future. But that order won't become effective for at least 30 days, and possibly longer, depending on whether the FTC approves of the decision, and whether 1-800 Contacts appeals.

The company is also facing a class-action antitrust lawsuit by consumers.

1-800 Contacts' general counsel, Cindy Williams, stated Monday that the company believes the settlement agreements were "legitimate, reasonable, and commonplace resolutions of legal disputes."

She added: "1-800 Contacts has invested hundreds of millions of dollars in establishing its brand name and building its reputation with consumers. We are well within our rights to protect against unauthorized use of our trademarks and it is in the interests of consumers for us to do so."

 

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