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Utah-based 1-800 Contacts Inc. is facing a new legal challenge from eight lawsuits now consolidated into one case that alleges the company illegally collaborated with other online lens sellers to cause consumers to pay higher prices.
The proposed class action lawsuit, filed late Wednesday in federal court in Salt Lake City, seeks to enjoin 1-800 Contacts and other companies from violations of antitrust law and asks for triple damages for consumers.
Beginning in 2004, the Draper company entered into a series of agreements to restrict the companies from bidding against each other for keyword search-related advertising auctions and also require them to use certain "negative keywords," which block advertisements from showing up in response to certain search terms.
For example, the agreements affect what happens when a consumer uses search terms such as "cheaper than" or "better than" 1-800 Contacts or "competitors of 1-800 Contacts."
"If consumers use search terms that include the phrase 1-800 Contacts or common misspellings of the company's name, other defendants' advertisements will not pop up," said Carl Goldfarb of Boies Schiller Flexner LLP, one of two lead law firms in the suit.
The lawsuit alleges violations of the Sherman Antitrust Act, which prohibits companies from making agreements that restrict marketplace competition.
"Often the hardest thing to show in cases based on antitrust laws is that the companies entered into an explicit or implicit agreement to restrict competition," said Goldfarb. "What's unusual about this case is you have written agreements. 1-800 has entered into a written agreement with each of the other defendants. What we'll attempt to prove at trial is that those agreements are anti-competitive."
Cindy Williams, 1-800 Contacts general counsel, said the company had a long history of advocating for competition in the contact lens retail market and said the new lawsuit was "merely recycled from prior complaints." Williams said in a statement, "The allegations have no merit."
Goldfarb and Steven Jodlowski of the other lead legal firm, Robbins Geller Rudman & Dowd LLP, said consumers in Utah and across the country were overcharged for contact lenses bought online dating back to 2004. The exact amount of those overcharges, while substantial, will be analyzed by experts and ultimately determined by a jury, they said. Antitrust law allows for the tripling of damages that result from violations of the law.
The consolidated lawsuit is the latest legal challenge to the Draper company that is now majority owned by the New York private equity firm AEA Investors LP.
The Federal Trade Commission initiated an administrative complaint against the company in August of last year that alleges the same type of anti-competitive behavior. That case remains pending before an administrative law judge.
The new lawsuit alleges that 1-800 Contacts entered into agreements with at least 13 competitors. Together the companies control about 80 percent of the online retail market for contact lenses, while 1-800 Contacts alone captures 50 percent of the sales, the lawsuit said.
One of those companies is Vision Direct, which signed an accord with 1-800 Contacts in 2004. At the time, Vision Direct's counsel wrote to the Utah company's attorney warning that such an agreement "creates an unacceptable risk of violating Section 1 of the Sherman Act, and as such, represents a serious antitrust issue," according to the lawsuit.
Other defendants named in the complaint are Walgreens Boots Alliance, Arlington Contact Lens Service, National Vision and Luxottica Retail North America.