While the dispute between the FTC and 1-800 Contact is not over, this initial decision is an important reminder of two things. First, that bidding on a competitor’s trademark on an internet search auction is not necessarily trademark infringement. Instead, the trend seems to be that this sort of activity is okay so long as the bidder’s resulting advertisement is not misleading. Second, this decision is a reminder that trademark settlement agreements are not immune from antitrust scrutiny. If a settlement agreement is overly broad, and goes beyond what is necessary to protect legitimate trademark interests, it may be considered anticompetitive.
The FTC filed an administrative complaint charging that 1-800 Contacts, the largest online retailer of contact lenses in the United States, unlawfully orchestrated a web of anticompetitive agreements with rival online contact lens sellers that suppress competition in certain online search advertising auctions and that restrict truthful and non-misleading internet advertising to consumers. According to the administrative complaint, 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.