Antitrust Out of Focus: The FTC’s Myopic Pursuit of 1-800 Contacts’Trademark Settlements

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This co-authored article was published by The Antitrust Source. This article analyzes the FTC’s opinion condemning a series of trademark settlement agreements between 1-800 Contacts and 14 online sellers of contact lenses. In finding that the settlement agreements violated Section 1 of the Sherman Act, Chairman Simons and the majority commit two critical errors—one legal, the other economic—that render the Commission opinion, in our view, highly vulnerable to reversal upon appeal. First, the Commission improperly applies the Polygram “inherently suspect” framework to substantiate its truncated approach, which is reserved for agreements between rivals that are well established—whether through judicial learning or economic evidence—to have anticompetitive effects. The second error is the majority’s use of an economic analysis that, in contrast to the challenged agreements, is inherently suspect. The FTC analyzed contact lens prices as the appropriate metric of antitrust injury. The Commission deploys that economic analysis and evidence of 1-800 Contacts’ pricing premium among online contact lens retailers to claim that the agreements have anticompetitive effects. Yet evidence of 1-800 Contacts’ price premium relative to smaller online rivals—how the alleged anticompetitive harm manifests itself according to the Commission—is unrelated to the trademark settlements and falls woefully short of evidence of consumer injury. Indeed, 1-800 Contacts commanded the same premium prior to the challenged conduct.