FTC Rules Against 1-800 Contacts In Battle Over Search Ads

Contact lens retailer 1-800 Contacts violated the law by entering into agreements with rivals that prevented them from using the trademarked term “1-800 Contacts” to trigger search ads, the Federal Trade Commission said Wednesday in a 4-1 decision.

“As this agency has explained time and again, robust, accurate, and intelligible price competition among those who compete for consumers’ dollars is one of the cornerstones of our vibrant market economy,” FTC Chair Joseph Simons wrote in the 59-page ruling. “When information is withheld from consumers, it frustrates their ability to compare the prices and offerings of competitors. This is as true today, when consumers search for goods online, as it was when people shopped open-air markets for vegetables every evening.”

The FTC said the agreements unlawfully limited the information provided to consumers who searched for 1-800 Contacts' trademark terms.

“Consumers could have used that withheld information to compare and evaluate the prices and other features of competing online sellers,” Simons wrote. “Ultimately, the effect of the advertising restrictions is to make information enabling consumer comparisons more difficult and costly to obtain.”

The FTC prohibited 1-800 Contacts from attempting to enforce the agreements, and from entering into similar arrangements in the future.

The decision upheld a finding issued last year by FTC Chief Administrative Judge D. Michael Chappell. The ruling stemmed from an FTC administrative complaint against 1-800 Contacts filed in 2016. That complaint centered on business practices dating to 2004, when 1-800 Contacts 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.

800 Contacts argued the search-ad agreements helped the company protect its trademark, but the FTC said the agreements went too far because they restricted ads that may not have proven confusing to consumers.

“When an agreement limits truthful price advertising on the basis of trademark protection, it must be narrowly tailored to protecting the asserted trademark right,” Simons wrote. “The agreements here are not -- they restrict advertising regardless of whether the ads are likely to be confusing.”

1-800 Contacts is also facing a class-action antitrust lawsuit by consumers.

The company says it will appeal today's decision. “We have the legal right to stop others from unlawfully using our trademarks that protect our brand name and from free-riding on our investment,” general counsel Roy Montclair said in a statement. “The settlement agreements were a standard way to resolve such trademark claims and were not a means to hinder competition for contact lenses.”

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