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Anticompetitive Practices or Protecting IP? 1-800 Contacts Faces Class Action Lawsuit Over Keyword Advertising Agreements

April 13, 2017
Post by Nicholas J. Krob

Contact lens company 1-800 Contacts is currently facing a class action lawsuit for agreements it allegedly entered into regarding online search advertising as early as 2004.

Earlier this month, a class of consumers who had purchased contact lenses through the 1-800 Contacts website, including Florida resident Kathryn Champion, filed suit in federal court against the highly successful contact lens company, alleging it “restrain[ed] a broad range of truthful, nonmisleading and nonconfusing advertising” by entering into agreements with competitors altering the results of online searches. These consumers allege that this caused “significant anticompetitive effects including restraining or eliminating competition sold directly to U.S. consumers and fixing, raising or maintaining the price of contact lenses sold online at artificially high levels.”

The agreements at issue in this lawsuit, Champion et al. v. 1-800 Contacts Inc., relate to keyword advertising, which is when companies purchase words or phrases (keywords) that trigger the display of an advertisement when entered into a search engine like Google or Bing. This system generally operates through a form of auction, wherein companies can “bid” on a particular keyword, with the highest bid having its advertisement appear first. 

Notably, this system of keyword advertising allows multiple parties to bid on the same keywords—even allowing one company to use another’s trademark (meaning an advertisement for a company could appear when a consumer searches using a trademark of one of that company’s competitors). 1-800 Contacts is alleged to have addressed this issue by forcing competitors, through threats of litigation, to enter into agreements wherein the competitors would agree not to advertise using variations of the “1-800 Contacts” mark. 

This lawsuit follows a similar action filed by the Federal Trade Commission last year, wherein the Commission argued 1-800 Contacts “restricted competition beyond the scope of any property right that 1-800 Contacts may have in its trademarks” by entering into “bidding agreements.” However, 1-800 Contacts contends such agreements were reasonable efforts to protect its intellectual property and amount to trademark litigation settlements.

Whatever the ultimate outcome of these matters, it is clear that companies must walk a fine line when taking steps to actively protect their valuable intellectual property.

Nicholas Krob is an Intellectual Property Attorney in the Litigation Practice Group at McKee, Voorhees & Sease, PLC. For additional information please visit www.ipmvs.com or contact Nick directly via email at nicholas.krob@ipmvs.com .


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