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1-800 Contacts, Inc. v. FTC

United States Court of Appeals for the Second Circuit

March 5, 2020, Argued; June 11, 2021, Decided

Docket No. 18-3848

Opinion

Per Curiam:

Between 2004 and 2013, Petitioner 1-800 Contacts, Inc. ("1-800") entered into thirteen trademark settlement agreements and one sourcing and services agreement with competitors (the "Challenged Agreements"). As explained below, the Challenged [*3]  Agreements contained provisions restricting specific terms on which the parties could "bid" when participating in auctions held by companies that operate search engines. By restricting bidding on terms in these auctions, the competitors agreed not to advertise their products when consumers used the search engines' platforms to search the specific terms at issue. In August 2016, the Federal Trade Commission ("FTC" or the "Commission") issued an administrative complaint against Petitioner, alleging that the Challenged Agreements and Petitioner's enforcement of the agreements unreasonably restrain truthful, non-misleading advertising as well as price competition in search advertising auctions in violation of Section 5 of the FTC Act, 15 U.S.C. § 45. The claim was tried before an Administrative Law Judge (ALJ), who in 2017 issued an Initial Decision and Order finding that the agreements violate Section 5. Petitioner then appealed to the full Commission, which affirmed the ALJ's conclusion in a three to one decision, with one Commissioner not participating. This timely petition for review followed the issuance of the Commission's Final Order.

Although we hold that trademark settlement agreements are not automatically immune from antitrust [*4]  scrutiny, the Commission's analysis of the alleged restraints under the "inherently suspect" framework was improper. We further hold that the Commission incorrectly concluded that the agreements are an unfair method of competition under the FTC Act. We therefore GRANT the petition for review, VACATE the Final Order of the Commission, and REMAND the case to the Commission with orders to DISMISS the administrative complaint.

BACKGROUND

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2021 U.S. App. LEXIS 17508 *; 2021 U.S.P.Q.2D (BNA) 633; __ F.3d __; 2021 WL 2385274

1-800 CONTACTS, INC., Petitioner, v. FEDERAL TRADE COMMISSION, Respondent.

Prior History:  [*1] ON PETITION FOR REVIEW OF AN ORDER OF THE FEDERAL TRADE COMMISSION. (DOCKET NO. 9372).

1-800 Contacts, Inc., petitions from a Final Order of the Federal Trade Commission (FTC) finding that agreements between Petitioner 1-800 Contacts, Inc. and various competitors to, among other things, refrain from bidding on "keyword" search terms for internet advertisements, violate Section 5 of the FTC Act, 15 U.S.C. § 45. We hold that although trademark settlement agreements are not immune from antitrust scrutiny, the FTC (1) improperly considered the agreements to be "inherently suspect" and (2) incorrectly concluded that the challenged agreements are a violation of the FTC Act under the "rule of reason.".

In re 1-800 Contacts, Inc., 2018 FTC LEXIS 183 (F.T.C., Nov. 7, 2018)In re 1-800 Contacts, Inc., 2018 FTC LEXIS 184 (F.T.C., Nov. 7, 2018)

Disposition: PETITION FOR REVIEW GRANTED, FINAL ORDER VACATED AND REMANDED.

CORE TERMS

trademark, advertising, procompetitive, anticompetitive, antitrust, consumers, competitors, contact lens, effects, retailers, rule of reason, settlement agreement, parties, online, keywords, restrictions, prices, search engine, terms, bid, direct evidence, auctions, settlements, courts, Sherman Act, manufacturers, implicate, proffered, restrain, patent

Administrative Law, Judicial Review, Standards of Review, Substantial Evidence, Antitrust & Trade Law, Sherman Act, Defenses, Per Se Rule & Rule of Reason, Per Se Rule Tests, Manifestly Anticompetitive Effects, Private Actions, Standing, Requirements, Claims, Price Fixing & Restraints of Trade, Sherman Act, Per Se Violations, Cartels & Horizontal Restraints, Price Fixing, Vertical Restraints, Monopolies & Monopolization, Actual Monopolization, Anticompetitive & Predatory Practices, Evidence, Inferences & Presumptions, Presumptions, Creation, Public Contracts Law, Dispute Resolution, Bid Protests, Bids & Formation, Competitive Proposals, Burdens of Proof, Allocation, Monopoly Power, Regulated Practices, Attempts to Monopolize, Elements, Types of Evidence, Circumstantial Evidence, Business & Corporate Compliance, Causes of Action Involving Trademarks, Infringement Actions, Determinations, Weight & Sufficiency