In an Initial Decision released on October 30th, Chief Administrative Law Judge D. Michael Chappell has upheld the Federal Trade Commission’s complaint against 1-800 Contacts, Inc. involving trademark use in online keyword advertising.

1-800 Contacts’ competitors had been bidding on 1-800 Contacts’ trademarks on internet search auctions like Google AdWords. So, for example, when a consumer ran a Google search for “1-800 Contacts,” the competitor’s advertisement would appear on the search results page. 1-800 Contacts claimed this was trademark infringement and threatened lawsuits against its competitors. As a result, the competitors entered into settlement agreements with 1-800 Contacts restricting them from further bidding on 1-800 Contacts’ trademarks.

The FTC complaint, filed in August 2016, alleged that these settlement agreements were anticompetitive and harmed consumers. Specifically, the FTC claimed that the agreements restrained price competition, restricted lawful advertising, and ultimately resulted in consumers paying higher prices for contact lenses.

1-800 Contacts asserted that the agreements were legitimate settlements of trademark litigation, did not restrain competition, and were harmless to consumers. Furthermore, 1-800 Contacts claimed that any damaging effects from the agreements were offset by procompetitive benefits, such as preventing customer confusion. Judge Chappell, however, was not persuaded by 1-800 Contacts’ arguments.

1-800 Contacts will appeal the decision.

While the dispute between the FTC and 1-800 Contact is not over, this initial decision is an important reminder of two things. First, that bidding on a competitor’s trademark on an internet search auction is not necessarily trademark infringement. Instead, the trend seems to be that this sort of activity is okay so long as the bidder’s resulting advertisement is not misleading. Second, this decision is a reminder that trademark settlement agreements are not immune from antitrust scrutiny. If a settlement agreement is overly broad, and goes beyond what is necessary to protect legitimate trademark interests, it may be considered anticompetitive.