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FTC Finds Contractual Online Search Advertising Restrictions Unlawful

A recent Federal Trade Commission antitrust opinion (“Opinion”) explains why 1-800 Contacts entered into a number of unlawful anticompetitive agreements by restricting the use of online search advertising auctions, thereby limiting the availability of truthful advertising to consumers.

The Opinion was authored by FTC lawyer and Chairman Joseph J. Simons. The FTC considered 1-800 Contacts’ settlement agreements with horizontal competitors following a slew of trademark lawsuits. In concluding that the agreements constitute unfair methods of competition, in violation of Section 5 of the FTC Act, the Opinion discusses how 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.

See the Opinion, here.

Both the FTC and the U.S. Department of Justice Antitrust Division enforce the federal antitrust laws. Agency policy is that aggressive competition among sellers in an open marketplace gives consumers the benefits of lower prices, higher quality products and services, more choices and greater innovation. The FTC’s competition mission is to enforce the rules of the competitive marketplace. The FTC’s Bureau of Competition, working with the Bureau of Economics, enforces the antitrust laws.

The Commission’s Opinion arises from a 2016 administrative complaint and affirms an Administrative Law Judge’s decision. “The evidence in this case demonstrates that the advertising restraints imposed by the challenged agreements cause harm to consumers and competition in the market for the sale of contact lenses online,” The ALJ stated.

Commissioner Rebecca Kelly Slaughter issued a concurring statement. Commissioner Phillips issued a dissenting opinion. In doing so, Phillips stated that that Opinion is “inherently suspect” and condemns agreements to settle legitimate trademark infringement litigation. He opined that the trademark settlements do not approximate conduct that the Commission or courts have previously found to be inherently suspect, much less per se illegal.

Whether the majority’s rule will ultimately have negative consequences remains to be seen. However Commission Phillips believes that the Opinion will create uncertainty, dilute trademark rights and dampen inter-brand competition. That by adopting an analytical framework without accounting for the intellectual property at issue, the majority produces one of the following rules: either all advertising restrictions are inherently suspect, regardless whether they protect intellectual property rights, or the level of scrutiny applied to a particular restraint will depend on the strength of the trademark holder’s underlying infringement claim.

Richard B. Newman is an advertising lawyer at Hinch Newman LLP. Follow him on Facebook.

 

 

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Richard B. Newman

Richard B. Newman is an Internet Lawyer at Hinch Newman LLP focusing on advertising law, Internet marketing compliance, regulatory defense and digital media matters. His practice involves conducting legal compliance reviews of advertising campaigns across all media channels, regularly representing clients in high-profile investigative proceedings and enforcement actions brought by the Federal Trade Commission and state attorneys general throughout the country, advertising and marketing litigation, advising on email and telemarketing best practice protocol implementation, counseling on eCommerce guidelines and promotional marketing programs, and negotiating and drafting legal agreements.

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