Settlement Proposed in Lawsuit Related to 1-800 Contacts and Keyword Search Advertising

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SALT LAKE CITY— The plaintiffs in an antitrust lawsuit against 1-800 Contacts and several other online contact lens sellers have requested a federal court here approve a $7 million settlement agreement with two of the defendants.

The plaintiffs are a class of consumers who purchased contact lenses online at various times between 2004 and 2013, according to a court filing this week.

The lawsuit is related to a series of written agreements between 1-800 Contacts and “at least 13 other online sellers of contact lenses” that allegedly outlined a plan under which the online retailers “committed not to compete against one another in certain, critical online advertising,” according to court documents.

This week’s proposed settlement agreement, which was submitted to U.S. District Court here, involves two of the defendants in the lawsuit, Arlington Contact Lens Service (AC Lens) and National Vision Inc., which is listed in the court filing as the owner of AC Lens. In addition to paying the $7 million settlement, the two companies have agreed to cooperate with the plaintiffs’ attorneys in the case, according to the court documents.

Scott Gant, an attorney with Boies, Schiller Flexner of Washington, D.C., who represents the consumer class, told VMail he viewed the settlement favorably since it would provide significant financial compensation and included the cooperation agreement.

The core of the lawsuit is centered upon the purchase of search engine keywords by the online sellers of contact lenses and agreements among these companies that resulted in competition being stifled, according to the court papers. These agreements first became public in mid-2016 when the Federal Trade Commission (FTC) announced an administrative action against 1-800 Contacts in which the agency challenged “the legality of the previously concealed agreements” that addressed the keyword purchases by the online retailers, as VMail reported.

At the time of the FTC action, however, the agency redacted the identity of the other online contact lens sellers involved (other than 1-800 Contacts) and their identities “only became public later during the FTC proceedings,” according to the court documents in the civil complaint. The FTC charged that 1-800 Contacts unlawfully orchestrated and maintained “a web of anticompetitive agreements with rival online contact lens sellers that suppress competition in certain online search advertising auctions.” As a result, consumers only saw limited online advertising for contact lenses and may have paid higher retail prices than if the advertising agreements were not in place, the FTC said.

In the settlement filing this week, the consumer group’s attorneys note that they “have reached a settlement consisting of (a) a substantial monetary component, and (b) extensive cooperation from the settling defendants that will result in the production of evidence for plaintiffs’ use in the continued prosecution of this action against the non-settling defendants.”

The “cooperation” component of the proposed settlement, according to the filing, includes the stipulation that National Vision and AC Lens have agreed to provide a sworn declaration from Peter Clarkson, chief executive officer of AC Lens. In the declaration, “Clarkson will state, among other things, that ‘AC Lens currently believes that these settlement agreements [between 1-800 and other ecommerce competitors in the online sale of contact lenses] likely prevented consumers from seeing ads for companies, including AC Lens, that typically sold contact lenses online for prices below the prices charged by 1-800 Contacts,’” according to the filing.

The filing added, “He will also state that the ‘agreements also likely enabled 1-800 Contacts to charge prices higher than it would have been able to charge absent the agreements.’”

A spokeswoman for National Vision told VMail that “National Vision and its subsidiary Arlington Contact Lens Service, Inc. (AC Lens) have agreed to a monetary settlement in the amount of $7 million. National Vision and AC Lens have agreed to certain cooperation obligations set forth in the settlement agreement.”

Representatives for 1-800 Contacts could not be reached for comment at VMail’s presstime.

In the past, however, an attorney for 1-800 Contacts has said the lawsuit has no merit. In 2016, following the FTC’s complaint, 1-800 Contacts issued a statement in which it said it “strongly disagrees with the FTC’s contention that settlement agreements designed to protect its trademark hinder competition,” and that it intended to “vigorously defend its intellectual property rights.”

According to the court filing, 1-800 Contacts and the other defendants “control about 80 percent of the online retail market for contact lens sales,” with 1-800 Contacts alone accounting for more than 50 percent of the online market.

Other defendants listed in the civil class-action suit include: Vision Direct Inc., Walgreens Boots Alliance Inc. and Walgreen Co. (collectively Walgreens), and Luxottica Retail North America Inc.