The Federal Trade Commission has sued online retailer 1-800 Contacts, saying the company illegally restrained competitors from buying search advertisements. It’s a dramatic move that could mold the shape of online trademark law for years to come.
In the administrative complaint (PDF) filed Monday, FTC lawyers say that 1-800 Contacts reached deals with at least 14 competing contact lens sellers, in which they agreed to limit their advertising on search engines like Google and Bing. In the FTC’s view, those agreements constituted unfair competition, because they limited truthful advertising and restrained price competition.
The 14 competitors aren’t named in the FTC’s lawsuit, but some of them are likely to be companies that Utah-based 1-800 Contacts sued in court. In 2008, 1-800 Contacts filed a lawsuit (PDF) LensFast.com, saying their keyword advertising violated trademark law; in 2010, ContactLensKing.com got sued (PDF) on similar grounds.
The FTC complaint is scheduled to be heard by an FTC administrative law judge in April 2017.
In a statement, 1-800 Contacts General Counsel Cindy Williams said her company “strongly disagrees” that its settlement agreements are anticompetitive. “Our settlement agreements were specifically designed to protect our intellectual property rights,” she said. “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.”
The role of trademark law in online search advertising has been contentious since the very inception of online search, although the matter has settled out somewhat in recent years. To understand the importance of the FTC’s claims, it’s worth reviewing a very brief history of the issue.
Search engines like Google and Bing make money from selling ads that are keyed …