The U.S. Court of Appeals for the Second Circuit has vacated the Federal Trade Commission’s (FTC) decision that 1-800 Contacts engaged in illegal agreements with rival online contact lens sellers on June 11, 2021.
In 2018, the Commission imposed antitrust liability against 1-800 Contacts years after it settled at least fourteen trademark infringing lawsuits against competing online retailers. The Commission alleged the settlements restricted trade by preventing all parties from bidding on each other’s trademarked search terms. USCIB filed an amicus brief in support of 1-800 Contacts during the appeal, arguing, among other things, that the Commission’s decision ignored the critical importance to business of intellectual property rights and that enforcing the FTC’s ruling would unfairly apply the lawful exercise of such rights to a higher pro-competition standard.
According to Bryan D. Gant of USCIB member firm White & Case, the Second Circuit’s opinion rejected both the idea that settling trademark disputes is “inherently suspect,” and that this standard could be applied to future cases. The court also overruled the Commission’s attempt to treat mere anecdotal price differences as direct evidence of anticompetitive conduct and directed that any “less restrictive alternatives” the Commission proposes be realistic. Bryant cautions, however, that in a footnote to the opinion, the Second Circuit leaves open the possibility that negative keyword advertising—paying to have a competitor’s name not appear in the search—might raise antitrust concerns, but the Court refused to consider it in this case as the issue was not squarely addressed by the FTC.
“USCIB is pleased that the Second Circuit decision largely accepted its amicus brief, rejecting the FTC’s approach to antitrust liability for trademark settlements, avoiding the potential negative impacts the decision would have had on businesses, consumers and competition,” asserted USCIB General Counsel Nancy Thevenin. The case is now remanded back to the Commission with instructions to dismiss.
USCIB is grateful to Eileen M. Cole, Bryan D. Gant and Seiji Niwa of member firm White & Case and USCIB Competition Committee leadership for their excellent work on the amicus brief.
The Second Circuit opinion is available here.