A recent decision by the Second Circuit in an antitrust case involving advertising may have long-standing effects on how competitors use each other’s names and trademarks in advertising and on settlement agreements in the intellectual property space. The Second Circuit’s decision in 1-800 Contacts, Inc. v. FTC could allow competitors more freedom to agree on restraints on the use of their trademarks. While agreements between competitors should still be carefully considered from an antitrust perspective, this decision has signaled a deference to parties’ negotiated trademark settlements that could allow new and more robust approaches to trademark protection. This is especially true where, as here, competitors attempt to agree on limits to the use of their trademarks in search terms purchased for advertising purposes on search engines such as Google.
In November of 2017, we discussed an Initial Decision by an FTC ALJ that 1-800 Contacts had violated Section 5 of the FTC Act by negotiating settlement agreements with its competitors that were anti-competitive in nature. Specifically, such agreements mutually limited each parties’ abilities to bid on search terms containing each other’s trademarks and URLs in auctions for placement in search results on websites such as Google. The ALJ found that 1-800 Contacts directly harmed competition and consumers in the online market for contact lenses and rejected 1-800 Contacts’ argument that such agreements were pro-competitive because, among other things, they efficiently protected trademark rights while avoiding expensive litigation.