Appeals Court Overturns Earlier Ruling on Chain/OD Relationships in California

SACRAMENTO, Calif.—Last week, a federal appeals court overturned a December 2006 trial court ruling that would have allowed opticians and optical chains to offer—and advertise—eye exams in the same space in which eyewear is sold.

The state regulations against which the case was filed in effect prohibit opticians or optical chains from employing optometrists or ophthalmologists except under strict guidelines that keep eye exams separate from eyewear sales in those locations. The regulations do allow ODs and ophthalmologists to both offer exams and sell eyewear in their own practices, however.

Speaking for the Ninth U.S. Circuit Court of Appeals, Judge Procter Hug said the California statutes which the earlier court rejected “are health regulations designed to provide health-care providers from being unduly affected by commercial interests.”

The case—originally filed by Luxottica Group’s (NYSE: LUX) LensCrafters chain, Highmark’s Eye Care Centers of America chain and the National Association of Optometrists and Opticians as plaintiffs—has wound through the state’s court system for several years. The original complaint dealt with California statutes that prevent opticians and chains “from having specific business relations with or offering services in the same locations as licensed ODs and ophthalmologists” In the late-2006 ruling, a federal judge ruled the relevant provisions of those statutes unconstitutional; the state appealed that ruling.

In their argument during the appeal hearing, the plaintiffs argued that the statutes are “protectionist measures because they favor in-state ODs and ophthalmologists at the expense of opticians and optical companies headquartered out of state,” charging that the current system allows “one-stop shopping” that provides ODs and ophthalmologists a significant business advantage.

But in last week’s decision, Hug said the case was not a question of in-state vs. out-of-state, but of the inherent services provided by and the business models of opticians and chains vs. ODs and MDs. “Because they have different responsibilities, different purposes and different business structures, opticians are not the same as optometrists or ophthalmologists,” he wrote in his decision.

Saying that “we feel strongly that the laws are unconstitutional, and that the trial court’s careful analysis [in its earlier ruling] was correct,” a Luxottica spokesman told VMail, “The Ninth Circuit did not say our claim was invalid. It held that the trial court applied the wrong test for constitutionality to our claim; the appellate court remanded the case back to the trial court to apply a different test.”

The spokesman added, “We intend to continue with our constitutional challenge to the California laws that restrict the ability of national optical companies to conduct business in California…Our goal is to give California consumers more choice and competition in the California eyewear market.”

He stressed that this latest ruling has no immediate impact on Luxottica Retail’s business through its more than 100 stores in the state.