United States: The FTC Sees Red Over 1-800 Contacts' Advertising Agreements With Competitors

A recent challenge by the Federal Trade Commission's (FTC) Bureau of Competition to agreements that 1-800 Contacts entered into with its competitors concerning how those competitors would advertise provides useful insight into the nuts and bolts of Internet advertising, as well as important reminders about how not to deal with your competitors. While agreements to limit advertising competition are not per se illegal, if you are thinking of coming to this sort of agreement, you had better have a really good (i.e., pro-competitive) reason for it.


On August 8, 2016, the FTC alleged in an administrative complaint that 1-800 Contacts, one of the largest online retailers of contact lenses, engaged in anti-competitive practices through its agreements with competitors settling trademark suits. The agreements restricted competitors from showing up when consumers searched for 1-800 Contacts. In early November 2017, Chief Administrative Law Judge D. Michael Chappell upheld the FTC's complaint and ordered 1-800 Contacts to cease and desist enforcing anti-competitive provisions from the settlement agreements, among other remedies.

Many Google searches return two types of results: (1) "organic" and (2) paid advertisements. Organic results return websites the search engine determines to be the most relevant for the user. Paid advertisements are those that Google's algorithm selects, taking into consideration the amount an advertiser bids for a particular key word in the search. One of the main factors incorporated into the algorithm is "cost-per-click," which is how much a company will pay when a consumer clicks on its advertised web-link. Companies bid their cost-per-click amounts on Google AdWords. A company can bid on "broad matches," which matches advertisements for searches of relevant variations of the key words, or "exact matches," which show the website only if the consumer searches for the exact key word. When a consumer enters a search, Google runs its algorithm and determines the placement of the paid advertisements. The algorithm also factors ad relevancy, geographic location, search history, landing page experience, and ad format. Consequently, two consumers could submit the exact same Google search and receive different paid search advertising results. At times, an advertiser will use "negative key words" to stop their advertisement from matching when a consumer searches for those chosen words. For example, to prevent an eyeglasses advertisement displaying when a consumer searches for "wine glasses," the company would use a negative key word when setting up its AdWords campaign.

Prior to 2004, Google restricted bidding on other companies' trademarks. However, Google found that when consumers searched for trademarked words, they also wanted to learn about products and services offered by the trademark holders' competitors. Therefore, Google modified its policy in 2004 to allow bidding on trademarks. Between 2004 and 2013, 1-800 Contacts sued numerous competitors for trademark infringement, based on competitors bidding on the company's trademark to secure advertising in paid search results when consumers searched for 1-800 Contacts. Rather than litigating any of the trademark cases to conclusion, 1-800 Contacts entered into settlement agreements with each of 13 competitors. The agreements prohibited each party from advertising on searches for each other's trademarks, URLs, and certain variations thereof. Nothing prohibited generic key words, such as "contacts" or "contact lens," but the companies were required to use negative key words to prevent matches with 1-800 Contacts' trademark.

The Decision

The FTC's complaint challenged the settlement agreements on three theories, arguing: (1) that the agreements were presumptively anti-competitive; (2) that they had directly harmed competition and consumers; and (3) that the market share of the participants involved was so high that the agreements would likely result in harm to consumers.

Judge Chappell focused on the second of these theories, and chose not to address the other two. According to Judge Chappell, the evidence showed that 1-800 Contacts had used the trademark settlements to limit the ability of competitors to offer cheaper prices in search results. Based on the evidence and the testimony of the FTC's expert witness, the court found it was more likely that the agreements restricted advertising and caused consumers to pay more for contact lenses than they would have absent the restrictions.

Judge Chappell rejected 1-800 Contacts' pro-competitive justifications. One assertion was that the agreements provided trademark protection, which promoted economic efficiency and incentivized investing in brand-building. However, as Judge Chappell pointed out, this justification assumes that what 1-800 Contacts' competitors were doing was, in fact, trademark infringement. 1-800 Contacts' own expert witness was unaware of a U.S. court agreeing that the conduct challenged by 1-800 Contacts constituted infringement. 1-800 Contacts' additional arguments included: (1) the settlement agreements avoided litigation costs; (2) the agreements prevented consumer confusion; (3) the agreements reduced consumers' search costs; and (4) the agreements increased purchases of contact lenses by consumers who searched for 1-800 Contacts' trademarks. Judge Chappell found none of these justifications to be supported by the facts, and concluded that the settlement agreements violated Section 5 of the FTC Act.

Consequently, the judge barred 1-800 Contacts from agreeing with a marketer or seller of any contact lens product to restrict, prohibit, regulate, or otherwise limit that seller's participation in search advertising auctions, and barred 1-800 Contacts from instructing search engines to restrict or prohibit any seller's use of any key word.

The initial decision will become the decision of the Commission 30 days after it is served upon the parties, unless one of the parties files a timely motion to appeal the decision to the Commissioners. Presumably 1-800 Contacts will appeal this to the "full" Commission, and from there one side is likely to seek review by one of the Courts of Appeal.


Agreements between competitors should be scary things that you enter into rarely and always with antitrust counsel involved. Even when you think the agreements simply enforce the rights that you think you should have under the intellectual property laws, you should ensure that any agreement with competitors is backed up by a court order or by a very strong argument that the agreement furthers competition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions