1-800 Contacts' Search Agreements Violated Antitrust Law, FTC Tells Court

The Federal Trade Commission is asking an appellate court to uphold a finding that 1-800 Contacts violated antitrust law by preventing rivals from using its trademarked name in search ads.

“Trademark law does not grant carte blanche to destroy competition by restricting legitimate advertising by rivals,” the FTC argues in papers filed Friday with the 2nd Circuit Court of Appeals. The agency is asking the court to reject the contact lens seller's attempt to vacate a finding against it.

The dispute centers on business practices of 1-800 Contacts dating to 2004, when the company first threatened to sue a competitor over search ads. From 2004 through 2013, the company sued or threatened to sue 15 competitors over alleged trademark infringement on search engines. The contact lens retailer's theory was that its trademark was violated when rivals used the phrase “1-800 Contacts” to trigger a pay-per-click search ad.

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Fourteen of the targeted companies entering into agreements with 1-800 Contacts to restrict the use of its name in search advertising. Only Lens.com fought the lawsuit, which ended in a ruling largely in Lens.com's favor.

The FTC ruled 4-1 last year that 1-800 Contacts violated antitrust law by forging agreements to restrict truthful ads. Chairman Joe Simons said in a written opinion that the agreements may have deprived consumers of the ability to compare brands.

1-800 Contacts recently appealed that finding to the 2nd Circuit, where the company is arguing its trademark settlements were valid. Among other arguments, the contact lens company says the FTC's theory will undermine trademark policy and company's investment in their brand names.

On Friday, the FTC urged the 2nd Circuit to reject that position, arguing that trademark rights are not “trump cards against antitrust enforcement.”

The FTC added that trademarks are only supposed to protect companies against uses of their names that could confuse consumers, but that 1-800 Contacts' agreements prohibited the use of its name even without the possibility of confusion.

“Those agreements prevent a consumer searching for '1-800 Contacts' from seeing an ad stating 'We are not 1-800 Contacts but we offer lower prices,'” the FTC wrote. “That ad could confuse no one, but the agreements ban it anyway.”

In addition to the FTC's case, 1-800 Contacts is also facing a class-action complaint by consumers. That lawsuit centers centers on the same activity examined by the FTC, but names additional retailers as defendants, including National Vision, Vision Direct, Luxxotica and Walgreens. Luxxotica recently agreed to pay $5.9 million to resolve that matter. National Vision settled the allegations for $7 million in 2017.

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