1-800 Contacts Settlement Over Search Ads Moves Forward

A federal judge has granted preliminary approval to a deal requiring 1-800 Contacts to pay around $15 million to settle class-action claims that it unlawfully restricted search advertising.

“The 1-800 Settlement Agreement resulted from arm’s-length negotiations between highly experienced counsel and falls within the range of possible approval,” U.S. District Court Judge Tena Campbell in the Central District of Utah said in a decision issued this week.

She will decide whether to grant final approval to the deal after a hearing in October.

If the deal is finalize, it will resolve a 2016 lawsuit alleging that the 1-800 Contacts entered into agreements with competitors -- including Walgreens, Luxxotica and National Vision -- that aimed to prevent their search ads from appearing when consumers typed the phrase “1-800 Contacts” into a search engine.

The retailers other than 1-800 Contacts previously agreed to settle for $24.9 million total.

The class-action lawsuit against the retailers came shortly after the Federal Trade Commission brought an administrative complaint accusing 1-800 Contacts of violating antitrust laws by entering into agreements that restricted competitors' use of search marketing.

Both the class-action lawsuit and the FTC's complaint focus on the time between 2004 and 2013, when 1-800 Contacts either sued or threatened to sue 15 rivals for trademark infringement, based on their alleged use of the brand-name 1-800 Contacts to trigger search ads.

All of the rivals except Lens.com settled the matter by agreeing to restrictions on search marketing. Lens.com, which fought 1-800 Contacts in court, largely prevailed.

1-800 Contacts fought the FTC's case -- which was brought as an administrative complaint -- but agreed to settle the class-action lawsuit before trial.

An FTC administrative judge ruled against 1-800 Contacts, and the full FTC upheld that decision by a 4-1 vote. Chairman Joe Simons said in a written opinion that the agreements may have deprived consumers of the ability to compare brands.

“When information is withheld from consumers, it frustrates their ability to compare the prices and offerings of competitors,” Simons wrote in a 59-page ruling issued in 2018. “This is as true today, when consumers search for goods online, as it was when people shopped open-air markets for vegetables every evening.”

1-800 Contacts is appealing that ruling to the 2nd Circuit Court of Appeals, which has not yet decided the dispute.

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