WASHINGTON—The Federal Trade Commission (FTC) has sued 1-800 Contacts, the largest online retailer of contact lenses in the U.S., 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 FTC’s administrative 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 in internet search auctions, and restrict truthful and non-misleading advertising to consumers, constituting an unfair method of competition in violation of federal law. The FTC files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest.

The FTC said in a statement that 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 agreements stemmed from lawsuits that 1-800 Contacts brought or threatened against numerous rivals, which accused rivals of infringing its trademarks. In almost all cases, 1-800 Contacts’ rivals agreed to sign the 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 14 bidding agreements bar both 1-800 Contacts and each of its affected rivals from bidding for each others’ trademarked terms. Moreover, all but one also 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 complaint alleges that the reciprocal bidding agreements harm competition in the U.S. for the sale of search advertising by auction, and for the retail sale of contact lenses. The bidding agreements harm consumers, according to the 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 advertisements, by restraining competition among online sellers of contact lenses, and in some cases, by resulting in consumers paying higher retail prices for contact lenses.

Responding the FTC suit, Cindy Williams, general counsel for 1-800 Contacts, said, “1-800 Contacts strongly disagrees with the Federal Trade Commission’s (FTC) contention that agreements designed to protect its trademark hinder competition. 1-800 Contacts is confident in its legal position and will vigorously defend its intellectual property rights in response to the administrative complaint filed today by the FTC.

“1-800 Contacts has a long history of advocating for increased competition and consumer rights, including championing the passage of the landmark Fairness to Contact Lens Consumers Act of 2003 that increased convenience and lowered prices for consumers, and opposing recent price fixing by manufacturers. 1-800 Contacts strongly believes in a competitive contact lens marketplace and will continue to be a leading advocate for providing consumers with more choice, greater convenience and lower prices.”

1-800 Contacts complained to the FTC in April, 2016 that it was the victim of unfair business practices. As VMail reported, the contact lens seller alleged that nearly 28,000 optometrists and other eyecare providers were in violation of the Fairness to Contact Lens Consumers Act of 2004 (FCLCA). The Act requires ECPs to provide patients with a copy of their contact lens prescription.

According to 1-800 Contacts, “These violations reveal a pattern of improper and illegal behavior by many optometrists who consistently put their own profits ahead of patient choice.”

The American Optometric Association (AOA), which is at odds with 1-800 Contacts over the issue of contact lens prescription release, said it supports the FTC’s move. The organization released a statement saying that it has been a long-time advocate against what it characterized as “the abusive and illegal practices internet contact lens sellers use, especially those that can lead to patient harm and result in added health care costs.”

In its statement, the AOA noted that “The FTC accuses 1-800 Contacts of maintaining a “web of anticompetitive agreements” to suppress competition—agreements that harm patients by restricting internet advertising by competing sellers, resulting in some consumers paying higher retail prices for contact lenses. AOA and our coalition partners will continue to fight against these retailers and hold sellers accountable, including supporting the Contact Lens Consumer Health Protection Act (S.2777) which aims to strengthen the patient health safeguards in existing federal law that have been undermined, and in certain cases even ignored.”

The FTC vote to issue the administrative complaint was 3 to 0. An administrative trial is scheduled to begin on April 11, 2017.