FTC Sues 1-800 Contacts for Anticompetitive Advertising Agreements

the company signed contracts with 14 competing retailers that resulted in reduced competition and higher prices for consumers

FTC Sues 1-800 Contacts for Anticompetitive Advertising Agreements
Image: Pexels
August 9, 2016

1-800 Contacts, the largest online retailer of contact lenses in the United States, has found trouble with the Federal Trade Commission (FTC) due to questionable trade practices.

The FTC is suing the company, alleging that it unlawfully orchestrated and now maintains a web of anticompetitive agreements with rival online contact lens sellers that suppress competition in certain online search advertising auctions and that restrict truthful and non-misleading internet advertising to consumers, resulting in some consumers paying higher retail prices for contact lenses.

According to the agency's complaint, 1-800 Contacts entered into bidding agreements with at least 14 competing online contact lens retailers that eliminate competition in auctions to place advertisements on the search results page generated by online search engines such as Google and Bing. The complaint alleges that these bidding agreements unreasonably restrain price competition, constituting an unfair method of competition in violation of federal law.

1-800 Contacts objected when a computer user entered a search query that included the term "1-800 Contacts," and the user then saw advertisements for both 1-800 Contacts and a competing seller of contact lenses. The company then brought lawsuits against numerous rivals that agreed to sign anticompetitive agreements to cease bidding. The complaint alleges that the bidding agreements are overly broad and not necessary to safeguard any legitimate trademark interest.

All but one of the agreements requires each party to use negative keywords designed to keep search engines from displaying one party's advertisements in response to a search query that includes terms specified by the other party – typically trademarked terms or variations of them. These negative keywords prevent ads from 1-800 Contacts's rivals from appearing if a user enters a query for any phrase that includes "1-800 Contacts."

The bidding agreements harm consumers, according to the FTC's complaint, by restraining competition for, and distorting the prices of, advertising in relevant online auctions, by reducing the number of relevant, useful, truthful and non-misleading ads.