This lawsuit alleges that 1-800 Contacts engaged in price fixing and collusion by preventing online competition in the market for contact-lenses. This was done by entering into agreements with competitors that restricted bidding on advertising on Google by keywords and forcing competitors to advertise based on “negative” key words. These actions violate the Sherman Antitrust Act, California’s Cartwright Act, and California’s Unfair Competition Law.
There are two plaintiffs in this case. Plaintiffs J Thompson and William Duncanson both purchased contact lenses directly from 1-800 Contacts through its website. Thompson is from San Diego, California and Duncanson is from San Francisco, California. Both plaintiffs purchased their lenses at supracompetitive prices, and were financially injured.
When advertising on search engines such as Google or Bing, companies pay for their website to appear at the top of the search engine’s list with certain key words. For example, Starbucks Coffee may appear to show up when Internet users search for “coffee.” In order to attract customers from competitors, Starbucks may pay for the key word “Dunkins” to direct alternative traffic to their website. In 1-800 Contact’s case, they created contracts with co-conspirators to do just the opposite. The contracts forbid the other companies from bidding on key words with the trademarks of 1-800 Contact. It is important to note that the contracts were reciprocal. The contracts also set up a system of using “negative” key words. In the Starbucks example, the company may use “tea” as a negative key word to deter consumers of tea from visiting the website. 1-800 Contacts’s co-conspirators were forced to used 1-800 Contacts’s trademarks as a negative key word to avoid taking competition.
This scheme has been occurring for longer than a decade. In 2003, there was about $200 million worth of online contact lens sales and 1-800 Contacts accounted for $187 million worth of those sales. At this point, other competitors began entering the market. 1-800 Contacts began accusing rivals of trademark infringement if a rival’s advertisement appeared on the search results page in response to internet search queries that involved 1-800 Contacts’ band name, websites, or trademarks. This was done in order to restrict competition and maintain its market share and pricing. Their claims were legally baseless and a transparent threat to inundate its competitors with prolonged and costly litigation.
Based upon all of these facts, the plaintiffs allege that 1-800 Contacts violate U.S. Federal antitrust and California state antitrust and competition laws by using search engine advertising contracts with competitors to create a monopoly on the online contact lens market.