Commish: 1-800 Contacts had no right to arrange ad bidding with competitors

Jealous Much?

The Federal Trade Commission offered an opinion in November 2018 that has significant implications for online advertising and commerce.

The central player in the opinion ‒ and the 15-year-old legal drama preceding it ‒ is 1-800 Contacts, a major retailer of contact lenses and related products.

The story begins with a series of bidding agreements allegedly entered into by the company beginning in 2004. According to the Commission, 1-800 Contacts secured the agreements with at least 14 competitors, requiring the parties not to bid against one another in search-advertising auctions held by Google and Bing.

These agreements were the fruit of several trademark infringement lawsuits brought by 1-800 Contacts against the competitors; the company objected to the appearance of competitor ads in the search results yielded by typing in "1-800 Contacts." The agreements required the competitors to refrain from bidding on ad appearances based on searches of each other's trademarked terms; this approach meant that from then on, no other company's trademarked term would appear when a consumer typed "1-800 Contacts" in a search engine.

Out of Sight!

The FTC sued 1-800 Contacts in 2016, claiming that the agreements harmed competition and may have led to increased consumer prices. In late 2017, the chief administrative law judge decided in favor of the Commission. 1-800 Contacts appealed, and the opinion and final order were issued in November of this year.

Commission Chairman Joseph J. Simons wrote the opinion, which ruled that the undisclosed agreements constituted unfair modes of competition under the FTC Act. Because the agreements forbid competing trademarks from appearing side by side, consumers might have missed the fact that products identical to their upcoming purchase were available and cheaper than search results suggest

In the attached order, the FTC demanded that 1-800 Contacts drop the "unlawful" provisions in the agreements and not institute similar agreements in the future.

The Takeaway

While this ruling obviously impacts 1-800 Contacts directly, the opinion will have reverberations throughout the online advertising ecosystem: "The agreements harm competition in bidding for search engine key words, artificially reducing the prices that 1-800 Contacts pays, as well as the quality of search engine results delivered to consumers," the Commission maintains.

It's a major new statement on how the FTC views competition among online advertisers and their clients alike.