US: FTC finds that 1-800 Contacts unlawfully harmed competition in online advertising

On Wednesday, November 14, the Federal Trade Commission (FTC) held that 1-800 Contacts, the nation’s largest online retailer of contact lenses, unlawfully entered into a web of anticompetitive agreements with rival online contact lens sellers.

A Commission Opinion, authored by Chairman Joseph Simons, ruled that the agreements between 1-800 Contacts and fourteen online sellers of contact lenses constitute unfair methods of competition, in violation of Section 5 of the FTC Act. The agreements prevent online contact lens retailers from bidding for search engine result ads that would inform consumers that identical products are available at lower prices.

The Commission Opinion held that the agreements harm competition in bidding for search engine keywords, artificially reducing the prices that 1-800 Contacts pays, as well as the quality of search engine results delivered to consumers. Although the Opinion directly addresses restraints to search engine advertising for contact lenses, it carries broader implications for preserving competition through online advertising.

The Commission’s Order requires 1-800 Contacts to cease and desist from enforcing the unlawful provisions in its existing agreements and from entering into similar agreements in the future. It prohibits 1-800 Contacts from agreeing with other contact lens retailers to restrict search advertising or to limit participation in search advertising auctions.