FTC: 1-800 Contacts stifling competition
A leading proponent of the Coalition for Contact Lens Consumer Choice, 1-800 Contacts has been called to task over business practices found to undermine contact lens marketplace competition, antitrust regulators say.
The U.S. Federal Trade Commission (FTC) filed suit against 1-800 Contacts on Aug. 8, alleging that the company unlawfully used its market power to orchestrate and maintain anti-consumer agreements with rival online contact lens retailers. These agreements not only suppress competition in online search advertisements, but also "restrict truthful and non-misleading internet advertising to consumers, resulting in some consumers paying higher retail prices for contact lenses," according to the FTC's administrative complaint.
"This suit reveals anti-competitive sales tactics that 1-800 Contacts purportedly employs to suppress competition—tactics that harm patients."
The lawsuit—making national news—faults 1-800 Contacts with how it manipulated its way into prominent search engine advertising, signing agreements with 14 other online contact lens retailers stating that the companies would not competitively advertise against one another in search engines, such as Bing or Google.
Typically, competing companies bid in an advertising auction for space atop search engine results. When a search is performed for a keyword or phrase, the search engine's algorithm evaluates bids and awards the advertising placement to the most relevant and useful content.
However, the FTC alleges that 1-800 Contacts' "bidding agreements" with other retailers bar both parties from bidding over each other's trademarked terms, and additionally, require the use of negative keywords designed to keep search engines from displaying another party's advertisements when a specific trademarked term or variation thereof is searched. That means even if a consumer searched for "1-800 Contacts cheaper competitors," search results would return advertisements only for 1-800 Contacts, the FTC notes.
"As early as 2003, 1-800 Contacts recognized that it was losing sales to lower-priced online competitors," the FTC complaint reads. "However, 1-800 Contacts did not want to lower its prices to compete with these rivals, and devised a plan to avoid doing so. To this day, 1-800 Contacts' prices for contact lenses remain consistently higher than the prices of its online rivals."
"These actions had the purpose, capacity, tendency and likely effect of restraining competition unreasonably and injuring consumers," the FTC says, in a number of ways, including:
- Unreasonably restraining price competition in certain search advertising auctions;
- Distorting prices in, and undermining the efficiency of, certain search advertising auctions;
- Depriving consumers of truthful and non-misleading information about the prices, products and services offered by online sellers of contact lenses;
- Depriving consumers of the benefits of vigorous price and service competition among online sellers of contact lenses; and,
- Causing at least some consumers to pay higher prices for contact lenses than they would pay absent the agreements, acts and practices of 1-800 Contacts.
An administrative trial is scheduled to begin April 11, 2017.
AOA sounds alarm on deceptive, illegal business tactics
The AOA continues to aggressively fight for a crackdown on online contact lens sellers' deceptive and unlawful tactics that can ultimately restrict patient choice and put patient health at risk.
In a statement released Aug. 8, AOA commends the FTC for taking action and filing suit against 1-800 Contacts, noting: "This suit reveals anti-competitive sales tactics that 1-800 Contacts purportedly employs to suppress competition—tactics that harm patients by restraining competition in online advertising and restrict truthful internet advertising, resulting in some consumers paying higher retail prices for contact lenses.
"AOA has been a long-time advocate against the abusive and illegal practices internet contact lens sellers use, especially those that cause harm and result in added health care costs. AOA and our coalition partners will continue to fight against these retailers and hold sellers accountable, including support of the Contact Lens Consumer Health Protection Act (S. 2777) which aims to strengthen the patient health safeguards in existing federal law that have been undermined, and in certain cases even ignored."
Introduced by Republican Sen. Bill Cassidy, M.D., of Louisiana, the AOA-backed S. 2777 offers common-sense, pro-patient reforms based on the importance of contact lenses as medical devices. It would strengthen the Fairness to Contact Lens Consumers Act (FCLCA) in a way that holds unscrupulous retailers responsible for infractions and ensures the doctor-patient relationship is respected.
"Patients are the ones who suffer when for-profit companies actively employ tactics that undermine the doctor-patient relationship and attempt to circumvent the importance of a comprehensive eye examination," says Andrea P. Thau, O.D., AOA president.
Click here to read more about patient vision safety and the contact lens marketplace in the July/August 2016 edition of AOA Focus.
This FTC lawsuit against 1-800 Contacts comes only days after the Coalition for Patient Vision Care Safety, of which AOA is a member, met with FTC Commissioner Maureen Ohlhausen to discuss the importance of safeguarding patients' eye health and educating about the risks associated with improper contact lens practices.
Additionally, both the U.S. Senate and House appropriations committees this summer approved Fiscal Year Financial Services and General Government spending bills that include language directing the FTC to "consider modifications that prioritize patient safety and strengthen enforcement mechanisms" for preventing sales of contact lenses using fake or expired prescriptions.
Click here to read how AOA's advocacy has affected change in 1-800 Contacts' business practices.