“Today’s decision makes clear that the FTC may not punish 1-800 Contacts for simply trying to protect its own trademark.”
—Cory L. Andrews, WLF General Counsel & Vice President of Litigation
(Washington, DC)—Today the U.S. Court of Appeals for the Second Circuit vacated an FTC order misapplying the “quick look” antitrust standard and remanded with instructions that the agency dismiss its administrative complaint against 1-800 Contacts. The decision was a victory for WLF, which filed an amicus brief in the case on behalf of both itself and prominent antitrust scholars Richard A. Epstein, Keith N. Hylton, Thomas A. Lambert, Geoffrey A. Manne, and Hal Singer.
As an innovative leader in the contact lens market, 1-800-Contacts has attracted many competitors. Some of these firms have tried to free ride on 1-800’s success by buying the advertising space at the top of internet-search results for terms like “1-800 Contacts.” 1‑800 sued or threatened to sue these firms for trademark infringement. Each dispute settled, and as part of each settlement, the allegedly infringing firm agreed not to buy advertisements keyed to 1-800’s trademark terms.
The FTC condemned these settlements as an antitrust violation. Instead of conducting an extensive analysis of the evidence, however, it applied the “quick look” standard, under which the conduct at issue is presumed anticompetitive.
In its amicus brief urging vacatur, WLF contended that the quick-look standard governs only if the conduct at issue is obviously anticompetitive. Internet-search advertising is a relatively new phenomenon, so there is little that is “obvious” about its impact on competition.
In a 35-page per curiam opinion, the Second Circuit agreed. It held that although trademark settlements are not immune from antitrust scrutiny, the FTC erred by (1) considering the agreements to be “inherently suspect” and (2) incorrectly concluding that the agreements violated the FTC Act under the rule of reason.
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