• Keyword Ad Settlements Raise Antitrust Concerns
  • December 14, 2018
  • Law Firm: - Office
  • The Federal Trade Commission evaluates competition in online keyword search advertising. The FTC recently ruled in In re 1-800 Contacts Inc. that 1‑800 Contacts’ marketing agreements with its competitors – which restricted the competitors’ online advertising – violated the FTC Act because the agreements harmed consumer choice and price competition. 1-800 Contacts, Inc., Docket No. 9372, Opinion of the Commission (FTC Nov. 14, 2018).

    Keyword search advertising is uniquely valuable to advertisers. It puts an advertisement in front of a consumer immediately after the consumer identifies interest in a product by looking for it in a search engine. Paid online search advertising permits a company to purchase, from the search engine, the right to have its own ads displayed on a search engine when a consumer inputs certain keywords. Paid online search advertising is identified as a “sponsored” ad.

    In contrast to paid online search advertising, 1-800 Contacts entered into 13 marketing agreements with its competitors that restricted the competitor’s online advertising from 2004 to 2013. To obtain these marketing agreements, 1-800 Contacts sued its competitors when the competitor’s sponsored link appeared in response to a search engine query involving the trademark term “1-800 Contacts.” For example, if a consumer entered the keyword search “1-800 Contacts cheap” and a competitor’s advertisement appeared, 1-800 Contacts: (1) asserted that “1-800 Contacts” is a trademark and (2) sued the competitor, asserting claims for trademark infringement, unfair competition, trademark dilution and unjust enrichment. 1-800 Contacts then agreed to settle these lawsuits by entering into the marketing agreements with the competitor. The agreements: (1) prohibited the competitor from using 1-800 Contacts’ trademarks and variations of the marks as keyword search advertising and (2) required the competitor to employ negative keywords that prevent the competitor’s advertisements from appearing when a consumer used 1-800 Contacts’ trademarks or other keywords. Negative keywords are powerful because a competitor’s advertisement will not appear even if the consumer entered the search term of, for example, “1‑800 Contacts competitors.”

    When evaluating these marketing agreements, the FTC was concerned that the negative keywords resulted in an intentional absence of information for consumers because competitors’ advertisements were repressed in response to a consumer’s online search query. The FTC was concerned about consumers being denied information, particularly when the consumer was likely considering purchasing a product when inputting the query in the search engine.

    The FTC rejected 1‑800 Contacts’ arguments that the marketing agreements were proper actions to protect the company’s intellectual property. The FTC noted that courts do not consider bidding on trademark keywords to constitute trademark infringement.

    The FTC also rejected 1-800 Contacts’ argument that because the marketing agreements arose from a settlement of a lawsuit, the agreements were immune from antitrust liability per the United States Supreme Court’s ruling in FTC v. Actavis, 133 S. Ct. 2223 (2013). The FTC explained that the Supreme Court did not state a general rule that removes settlement agreements from antitrust scrutiny. Thus, the FTC found that the marketing agreements violated antitrust law. It is expected that there will be further legal filings regarding the issue of a company’s ability to enter into marketing agreements with competitors regarding online advertisement searches.

    In the interim, companies should not agree to employ negative keywords that result in search results that may prevent consumers from obtaining information about price and product comparisons. If companies enter into agreements with competitors that limit online advertising, the agreements should be narrowly tailored to protect trademark rights that are clearly established under law, such as limiting confusing and deceptive advertising.