Thompson v. 1-800 Contacts, Inc.
| Decision Date | 17 May 2018 |
| Docket Number | Case No. 2:16-CV-1183-TC |
| Parties | J. THOMPSON, et al., Plaintiffs, v. 1-800 CONTACTS, INC., et al., Defendants. |
| Court | U.S. District Court — District of Utah |
Plaintiffs, who bought contact lenses online from the Defendants, allege that they paid artificially-inflated prices for those contact lenses due to Defendants' anti-competitive agreements. To recover damages, they bring this proposed class action alleging antitrust violations of § 1 of the Sherman Act.
Defendants move to dismiss the claims1 for failure to allege antitrust standing, failure to establish a relevant product market, and failure to allege a single overarching conspiracy. Alternatively, they argue that any damages Plaintiffs can prove must be limited to contact lens purchases made within the Sherman Act's four-year statute of limitations—i.e., 2012 to 2016. Because Plaintiffs seek damages for purchases dating back to 2004, they rely on two bases for tolling that statute: fraudulent concealment and statutory tolling. Defendants respond that Plaintiffs' allegations do not establish either. For the reasons set forth below, the motions aredenied.
Plaintiffs assert in their Consolidated Amended Complaint (CAC)3 that a series of trademark litigation settlement agreements between 1-800 and other on-line contact lens retailers suppressed competition in the online market for contact lenses, artificially inflated the cost of contact lenses purchased online, and deprived consumers of complete and important information about competing retailers and their products. This, they contend, violated § 1 of the Sherman Act, which provides that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." 15 U.S.C. § 1.
In 2004, Defendant 1-800 Contacts began filing trademark infringement cases against its competitors. It settled those suits and entered into settlement agreements with the targets of its trademark litigation. Plaintiffs contend that those settlement agreements restrain competition inviolation of the Sherman Act.
In each bilateral settlement agreement, the parties agreed to limit or withhold use of certain trademark and related key words in their bids for advertisement space on Internet search engines like Google and Yahoo. The agreements prohibited the retailers "from bidding on any search keywords or phrases with the other company's names, websites or trademarks in them" and required them to use "negative keywords" to prevent that company's advertisement from appearing in a response to a search query that contains one or more of the specified words. (CAC ¶¶ 10-11, ECF No. 72.) This, Plaintiffs allege, illegally manipulated the number and types of ads seen by the online shopper.
Altogether the CAC alleges the existence of fifteen agreements (see Pls.' Omnibus Mem. in Opp'n to Defs.' Mot. Dismiss ("Opp'n") at 30, ECF No. 142), four of which are addressed in some detail in the CAC. 1-800 and Vision Direct entered into two agreements: one dated June 2004 and a follow-up settlement agreement dated May 2009. In March 2010, 1-800 settled its lawsuit against AC Lens and National Vision. And finally, in June 2010, 1-800 settled with Walgreens in the fourth agreement.
Before the private consumers filed their private antitrust actions, the Federal Trade Commission (FTC), in 2015, began investigating 1-800's practice of suing competitors for trademark violations and then settling with those parties on terms that limited the parties' use of trademarks in on-line advertising. In January 2015, the FTC issued a Civil Investigative Demandto 1-800,4 in which it sought information to determine whether 1-800 was violating antitrust law. In August 2016, following its investigation, the FTC filed an administrative complaint against 1-800. In October 2017, after a lengthy evidentiary hearing conducted by an administrative law judge, the FTC issued Findings of Fact and Conclusions of Law and ruled that 1-800 had violated Section 5 of the FTC Act, "which encompasses violations of Section 1 of the Sherman Act."
The Plaintiffs, in their opposition to the motions to dismiss, point to the FTC's findings to bolster their complaint and convince the court to deny the motions to dismiss. But because the FTC decision is not part of the CAC and has no precedential value, the court will not consider it here.
Defendants jointly filed two motions to dismiss. In the first motion, they contend that Plaintiffs lack antitrust standing, fail to allege a cognizable relevant market, and fail to allege a single overarching conspiracy or other concerted activity barred by the Sherman Act. (See Defs. Vision Direct, Inc., Walgreens Boots Alliance, Inc., Walgreen Co., & Luxottica Retail N. Am. Inc.'s Mot. Dismiss Pls.' Consol. Am. Compl., ECF No. 116 (hereinafter "Vision Direct Motion") (incorporated by 1-800 in its motion).)
In the second motion, they focus on the statute of limitations, asserting that claims based on purchases of contact lenses before October 13, 2012, are time-barred. And they challengePlaintiffs' reliance on two separate rules that prevent dismissal of damages incurred before that date: (1) statutory tolling, and (2) fraudulent concealment. (See 1-800 Contacts' Mot. Dismiss Pls.' Consol. Am. Compl., ECF No. 118 (hereinafter "1-800 Motion") (incorporated by Vision Direct et al. in their motion).)5
When analyzing a motion to dismiss, the court "must accept all the well-pleaded allegations of the complaint as true and must construe them in the light most favorable to the plaintiff." Thomas v. Kaven, 765 F.3d 1183, 1190 (10th Cir. 2014) (internal citation and quotation marks omitted). To withstand the motions to dismiss, Plaintiffs need only show that the allegations in the CAC "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
In order to bring a private antitrust claim, the party must have antitrust standing, which consists of "antitrust injury" and a plausible connection between that injury and the alleged violation of the antitrust laws. Tal v. Hogan, 453 F.3d 1244, 1253 (10th Cir. 2006). According to Plaintiffs, they suffered antitrust injury because the advertisement restrictions deprived them of truthful information and caused them to pay artificially inflated prices online. Defendantscontend that the alleged connection between their injury and Defendants' agreements, as well as the economic theory underlying the antitrust claims, are flawed.
Courts typically consider six non-exclusive factors when analyzing whether a plaintiff has antitrust standing. Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519 (1983) (AGC). These AGC factors include:
(1) the causal connection between the antitrust violation and the plaintiff's injury; (2) the defendant's intent or motivation; (3) the nature of the plaintiff's injury—i.e., whether it is one intended to be redressed by the antitrust laws; (4) the directness or the indirectness of the connection between the plaintiff's injury and the market restraint resulting from the alleged antitrust violation; (5) the speculative nature of the damages sought; and (6) the risk of duplicative recoveries or complex damages apportionment.
Sharp v. United Airlines, Inc., 967 F.2d 404, 406-07 (10th Cir. 1992) ().
Defendants focus on causation, the nature of the injury, and the remoteness of that injury to the alleged anti-competitive behavior. They say that "Plaintiffs fail to allege any facts at all showing how these narrowly tailored advertising agreements caused them to pay higher prices for contact lenses than they would have but for the existence of these agreements" and that "Plaintiffs' harm (overcharges on contact lenses purchased online) is too far removed from the alleged anticompetitive conduct (restrictions on bidding for certain online advertising keywords relating to contact lenses)." (Vision Direct Mot. at 12, 15.)
In response, Plaintiffs say that their injury—a financial loss stemming from a"competition-reducing aspect or effect"6 of the settlement agreements—is carefully alleged in the CAC. (See Opp'n at 5-6.) This financial injury, they assert, is the "epitome of 'antitrust injury'" and is "precisely the type of injury that is likely to result from defendants' advertising restrictions: higher search costs and higher prices." (Id. at 6-7.) The court agrees.
Plaintiffs back up their theory of causation with multiple allegations in the CAC. According to Plaintiffs, Defendants (who together control "approximately 80% of the online retail market for contact lens sales") "committed not to compete against one another in certain critical online advertising, thereby suppressing competition and inflating the amount consumers paid for the online purchase of contact lenses from Defendants." (CAC ¶ 2.) Their allegations link the agreements to higher prices. Plaintiffs identify the agreements and the key provisions, explain how the agreements work, and explain that, under their theory, they paid overcharges and were deprived of "the total amount of truthful information about sellers of contact lenses online and about the prices of contact lenses sold online."
And, in their opposition brief, Plaintiffs elaborate on the connection between the alleged injury and the...
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