SAN DIEGO — 1-800Contacts is facing action from the U.S. Federal Trade Commission (FTC) and two civil lawsuits stemming from alleged antitrust law violation and unfair business practices.
One suit falls in U.S. District Court for the Southern District of California and was filed by J. Thompson and William Duncanson. The other is in the Northern District of California. Both suits are class-action.
The FTC asserted that the company violated antitrust laws and engaged in unfair business practices by preventing competitors from using trademarks in ads in online search engines, according to reports.
1-800Contacts allegedly threatened legal action against more than a dozen companies using their trademark name, 1-800Contacts (and variants), causing, according to the FTC, artificial volatility and price-fixing in online ad markets for contact lens retailers bidding on search engine ads and keywords. Thompson and Duncanson said in their complaint the company was involved in an "overarching scheme to restrain competition."
The cases mix implications of trademark law with antitrust and consumer law and draw much of their details of fact from the FTC findings. Kim Stone, director of the Civil Justice Association of California, said West Coast class action rules are more clearly favorable for the plaintiffs.
"I'm not a trademark expert, but I do know that California class-action rules are more pro-plaintiff than are the rules of other states and than are the federal rules," Stone told the Northern California Record.
The FTC found that between the years 2004 and 2013, 1-800Contacts sued or threatened to sue several competitors for supposedly purchasing the search keyword term, "1-800Contacts" for pay-per-click (PPC) search ad campaigns. 1-800Contacts argued trademark infringement. Lens.com fought a suit alone, which yielded a ruling mostly in Lens.com's favor, according to reports.
Fourteen other retailers agreed to restrict use of the term in similar ads, the FTC contends. The agreements additionally require them to use "negative" keywords that direct search engines to restrict display ads in response to queries with that particular trademark term. The FTC argues that these agreements distorted prices in search advertising auctions and created artificially higher prices in some instances for consumers.
Duncanson and Thompson mirror this sentiment in their complaint. They called the agreements unlawful because competitors were prevented from advertising against the company, resulting in higher prices for contact lenses. They also said 1-800Contact gave the misleading impression they were providing the lowest possible cost. They allege the company shielded the public from competing prices available from other retailers of the same type of products. The plaintiffs also are suing some of the company's competitors, including Vision Direct, which may have entered into an agreement with 1-800Contacts, according to reports.
Legal counsel for 1-800Contacts, Cindy Williams, said these class action lawsuits lack any merit and said the company disagrees with these allegations and their basis, further asserting trademark protection arguments to dismiss the complaints. 1-800Contacts, through their attorney, have said they look forward to resolving the issue in the courts.
Courts have yet to take a clear position on how to resolve issues involving trademark use in search advertising. Both Google and Yahoo! have been victorious in a variety of suits claiming they wrongly allowed a trademark to trigger PPC ads.
Stone, meanwhile, notes the opportunity exists for attorneys to continue filing suit.
"California is home to hundreds of lawyer-driven class-action lawsuits where the lawyers get millions and the class members get pennies," Stone said. "I just got a check in the mail for one cent for a class-action lawsuit I didn't even know I was a part of."