FTC slams 1-800-Contacts’ reciprocal PPC bidding agreements with 14 competitors

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The US Federal Trade Commission (FTC) announced that it was suing 1-800 Contacts for allegedly pursuing “anticompetitive agreements with rival online contact lens sellers that suppress competition in certain online search advertising auctions.” The FTC complaint alleges the bidding agreements “unreasonably restrain price competition in internet search auctions, and restrict truthful and non-misleading advertising to consumers . . . ”

According to a source with knowledge of the agreements, they had been in place for roughly a decade. The stated intention was to protect the trademarks of 1-800 Contacts and roughly 14 other sellers, which presumably didn’t want to engage in a bidding war over each other’s brand terms.

The FTC explicitly rejected that notion in its statement about the case: “[T]he bidding agreements are overly broad and not necessary to safeguard any legitimate trademark interest.”

Attorney Eric Goldman offered a lengthy historical and legal analysis of the case, highly critical of 1-800 Contacts and its legal and business practices. There’s an extended discussion of trademark law and the implications of this FTC enforcement action.

Here’s a nugget from Goldman’s excellent and thorough analysis that may the most important from a trademark perspective:

Effectively, the FTC is saying that 1-800 Contacts committed antitrust violations by making overreaching trademark demands. I can’t recall when the FTC last implied that trademark overclaiming could create antitrust problems (nothing comes to mind immediately). Among academics, we’ve frequently discussed how trademark overclaims can hurt competition, so many academics probably think it’s about time the FTC moved in that direction. However, if this lawsuit signals that the FTC plans to pay more attention to trademark owner overreaching, that would be a seismic event for the trademark owner community.

An administrative trial is scheduled for April 2017. Goldman speculates the administrative process is going forward because 1-800 Contacts has already rejected an FTC settlement offer and believes it can beat the FTC here. However, as he points out, “it will take years and lots of money before 1-800 Contacts can tell its story to an adjudicator not employed by the FTC.”