Administrative law judge upholds FTC complaint against 1-800 Contacts; Company is appealing

By Mark Iandolo | Nov 7, 2017

WASHINGTON (Legal Newsline) — The Federal Trade Commission (FTC) announced Oct. 30 that Chief Administrative Law Judge D. Michael Chappell upheld an agency complaint against 1-800 Contacts, which the FTC says created anti-competitive agreements with rival businesses.

“The challenged agreements restricted advertisements for the sale of contact lenses on the Internet by prohibiting competitors from presenting paid advertisements on the search engine results page in response to searches for 1-800 Contacts’ trademarks,” Chappell wrote in the decision. 

“Evidence in this case demonstrates that the advertising restraints imposed by the challenged agreements cause harm to consumers and competition in the market for the sale of contact lenses online.”

According to Chappell, the evidence is sufficient to establish the FTC’s claim that the agreements are anti-competitive. 1-800 Contacts could not provide worthy counter-evidence that the agreements provide any pro-competitive benefits.

“The challenged agreements violate Section 5 of the FTC Act,” Chappell concluded.

In an order approved by Chappell, 1-800 Contacts is banned from entering into an agreement with a marketer or seller of any contact lens that would limit that seller’s participation in advertising. 1-800 Contacts also will be banned from instructing search engines to limit any seller’s use of any keyword.

The company said it was disappointed in the FTC ruling and has appealed. The company issued the following statement:

"Nothing in the initial ruling, however, changes our view that the settlement agreements are lawful and procompetitive and that the company will ultimately prevail once the administrative process runs its course.

"Numerous court decisions involving similar issues are in direct conflict with this initial ruling and we expect any court that examines the facts will agree with our position. We have already filed our appeal to the Commission, which stays all aspects of the judge’s proposed initial order. We will appeal this initial administrative ruling for as long and as far as necessary.

“Consumers were not harmed by the trademark settlement agreements. The FTC staff presented no evidence of actual harm to support its claim. The administrative law judge did not cite, nor are we aware of, any facts to show that contact lens consumers paid higher prices for their contact lenses as a result of the trademark settlement agreements. 

"In fact, 1-800 Contacts has a best price guarantee, prominently displayed on our website and in our advertising, that ensures that our customers have access to the lowest prices in the market.

“The settlement agreements were legitimate, reasonable, and commonplace resolutions of legal disputes that prevented online advertisers from making unauthorized use of our trademarks in paid search advertising. 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. These settlement agreements were designed solely to protect trademark rights and in no way hinder competition for contact lenses.

“1-800 Contacts believes in a fair and competitive contact lens marketplace. Since our founding in 1995, we have provided millions of customers with a simple, convenient way to order contact lenses, and we have always been a champion for consumer rights. We advocated for passage of the Fairness to Contact Lens Consumers Act of 2003. We successfully fought against price fixing policies by the contact lens manufacturers disguised as unilateral pricing policies. 

"Recently, we helped found the Coalition for Contact Lens Consumer Choice, the leading contact lens consumer advocacy group. We are fighting to protect consumer rights to purchase contact lenses at their retailer of choice. We intend to continue to be a leading advocate for providing consumers with more choice, greater convenience, and lower prices.”

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