FTC sues 1-800 Contacts over reciprocal, ‘anti-competitive’ PPC bidding agreements

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The US Federal Trade Commission (FTC) has sued 1-800 Contacts for allegedly pursuing “anticompetitive agreements with rival online contact lens sellers that suppress competition in certain online search advertising auctions.” According to the FTC:

1-800 Contacts entered into bidding agreements with at least 14 competing online contact lens retailers that eliminate competition in auctions to place advertisements on the search results page generated by online search engines such as Google and Bing. The complaint alleges that these bidding agreements unreasonably restrain price competition in internet search auctions, and restrict truthful and non-misleading advertising to consumers, constituting an unfair method of competition in violation of federal law.

According to a source I spoke to, who asked not to be quoted, these agreements have been in place for nearly a decade. The individual also said the agreements originally were executed to protect trademarks of 1-800 Contacts and other parties. The implication is that these agreements sought to accomplish by contract what the courts wouldn’t permit — prevention of trademark-related bidding.

However, the FTC argues, “[T]he bidding agreements are overly broad and not necessary to safeguard any legitimate trademark interest.” The agency further argues that the bidding agreements hurt competition and reduce “the number of relevant, useful, truthful and non-misleading advertisements, by restraining competition among online sellers of contact lenses, and in some cases, by resulting in consumers paying higher retail prices for contact lenses.”

Given the fact that these agreements have been around for years, it’s unclear why the FTC has chosen to act now. Presumably, the agency only recently became aware of them. The next step is an administrative trail scheduled for April 2017.