The FTC sued 1800Contacts for entering into a series of agreements with competitors that limited the competitors’ ability to bid on certain trademarked terms as search terms in online search term auctions.

Search engines like Google sell search terms. An advertiser will bid for a search term. If it wins, its advertisement will be listed as an “advertisement” above the search results whenever someone types that search term into the search engine. Google allows companies to bid for search terms that are trademarked by others. So, a company that is not 1800Contacts that sells contacts on line bids for and wins the search term “1800Contacts.” When someone searches for that term, the company’s ad will appear first in the list of results before the results from the search. The mere acquisition of an AdWord that is trademarked by another company is not a trademark violation, according to the courts. How the acquiring entity uses that trademarked name in the advertisement that appears in the search results can be, however.

Key to this case is going to be the relevant product market and what role advertising placement in response to online search plays in the acquisition of contacts. Do customers buy online and from bricks-and-mortar stores? Is search, and in fact is ad placement first in the list responses, key to how consumers locate and purchase contacts, or is it one of many ways? Absent isolating online sales as a relevant market, and proving that the majority of customers locate contact vendors through search and do so by clicking on the first ad they see, the Commission is going to have a hard time proving the agreements have negatively affected competition. Intuitively, there appears to be many ways to acquire contacts. I can call 1800Contacts. I can go to Costco. I believe my ophthalmologist and optometrist sells them as well. I might also search for “contacts” online. I doubt I would search for “1800Contacts” unless I specifically wanted to buy from them. The more avenues I have, the lesser the influence of search on my product acquisition. And if I can recognize that the first selection is an advertisement, the role of AdWords acquisition plays an even more attenuated role in my decision making. Ultimately, the Commission has to show an effect in a relevant market. For there to be that effect, search as well as ad click through has to be the critical method by which consumers acquire contact lenses. Otherwise, these agreements have no effect on competition.

The other way the Commission could back into liability would be for them to claim that there is no procompetitive rationale for the restraint. Since there is no procompetitive value and potential anticompetitive effect, the restraint should be condemned. The way they win there is the general notion that simply buying a competitor’s trademark as an AdWord is not infringement, and therefore not a protectable interest. Absent that interest, the restraint is naked and condemnable.

But just because there is no trademark violation doesn’t mean that there is no commercial harm or protectable business interest. If I enter “1800Contacts” into a search engine, at least intuitively, it seems like I would be looking for that company. Even though there is a graphic that says “ad,” if I weren’t a sophisticated user of the Internet, I might very well think I’m getting service from that company where I might not in fact be. Moreover, Google’s process of selling trademarked AdWords to anyone who wants to buy them may in fact be diluting the marks. A person who searches 1800Contacts and is shown a variety of different competitors might come to think that that term is generic and will pick up any contact seller. It would be improper of an antitrust court to conclude that because a trademark holder does not suffer trademark infringement it cannot be otherwise harmed. Protecting its brand from become generic in the minds of users and ensuring that folks who want to buy on line can find their products could very well have value to a company, value that it is entitled to protect. Given the ostensibly inconsequent role search plays in the ability of purchases to locate contacts, that benefit may very well be sufficient to support legality.

This case is a solution in search of a problem.