Search Agreements With Rivals Were Lawful, 1-800 Contacts Argues

1-800 Contacts plans to defend itself in an antitrust lawsuit by arguing that its search-ad agreements with rivals were reasonable and "procompetitive," the company says in new court papers.

The agreements were lawful "because their procompetitive benefits outweigh any alleged anticompetitive effect," the contact lens retailer writes in papers filed Friday with U.S. District Court Judge Tena Campbell in the Central District of Utah.

The company's papers come in response to a lawsuit centering on search ads. A class-action lawsuit alleges that 1-800 Contacts and its rivals -- - including Vision Direct, Walgreens, National Vision and Luxottica -- entered into agreements that required the rivals to restrict the use of "1-800 Contacts" in search campaigns.

National Vision agreed last year to pay $7 million to settle the allegations, but the other companies are still fighting the lawsuit.

The consumers sued soon after the Federal Trade Commission accused 1-800 Contacts of violating antitrust laws by entering into those agreements with competitors. The competitors agreed to the restrictions after 1-800 Contacts either sued or threatened to sue for alleged trademark infringement, according to the FTC. 1-800 Contacts allegedly targeted at least 15 competitors between 2004 and 2013. Of those, only fought the lawsuit; largely prevailed in that case.

While the FTC matter and the suit by consumers are proceeding separately, they are factually intertwined. The FTC contends that the agreements 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.

An FTC administrative judge recently ruled against 1-800 Contacts. The company is appealing that decision, arguing that its settlement agreements were not illegal when formed.

In Utah, Campbell recently rejected 1-800 Contacts' bid to dismiss the civil lawsuit brought by consumers.

On Friday, 1-800 Contacts outlined its defense to the lawsuit. In addition to arguing that its search-ad agreements were reasonable, the company says it plans to argue that it acted "in good faith to advance legitimate business interests and had the effect of promoting, encouraging, and increasing competition."

The retailer also intends to argue that the consumers haven't suffered any injury as a result of the allegations.

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

Federal courts still haven't definitively resolved questions surrounding the use of trademarks in search advertising. Google and Yahoo have won several lawsuits accusing them of wrongly allowing 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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