On March 3, 2015, the four largest contact lens manufacturers and a contact lens wholesaler were sued in federal courts based on allegations that they violated federal and state antitrust laws. One of the class action lawsuits, which was filed in federal court in San Francisco, contends that the company defendants and a wholesaler conspired with independent optometrists and ophthalmologists to eliminate low-priced competition from big-box retailers and Internet distributors. According to the complaint, the defendants allegedly accomplished this goal by requiring resellers of contact lenses to charge minimum retail prices through so-called “Unilateral Pricing Policies” (UPPs). This was one of a number of antitrust class actions cases filed against contact lens manufacturers over the last few weeks.
According to the plaintiffs, the disposable contact lens market is subject to distortion based on the fact that there are two types of retailers of lenses: (1) eye-care professionals, including optometrists and ophthalmologists, who both prescribe and sell lenses, and (2) discount sellers, including big-box retailers, such as Costco and Wal-Mart and Internet resellers, such as 1-800-Contacts. The plaintiffs allege that the manufacturers and the wholesaler set the UPPs in consultation with eye care professionals with a goal of protecting the eye-care professionals and resulting in increased profits for these eye-care professionals. According to the plaintiffs, the UPPs constitute illegal resale price maintenance agreements in violation of the Sherman Antitrust Act, which protects competition by outlawing certain business practices, such as price fixing, which would restrict trade or supply.
Prior to the imposition of the UPPs in 2013, retailers were free to discount prices on contact lenses. However, since the advent of the UPPs, manufacturers will generally not supply retailers who sell product lines below the levels set by those manufacturers. The plaintiffs contend that 80% of disposable contact lens product lines will be covered by UPPs, thereby harming consumers, who will no longer be able to obtain discounted prices for disposable contact lenses. A spokesperson for one of the contact lens companies recently testified before the U.S. Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights, arguing that the imposition of uniform pricing actually benefited consumers, as prices were lowered across the board once discounts were eliminated. A court or jury would evaluate whether these restrictions were reasonable under the Sherman Act.
The Plaintiffs alleged that the trade association for independent eye care professionals, the American Optometric Association (AOA), conspired with the Defendants to impose minimum resale prices on certain contact lens even though the trade association itself was not named as a defendant in these cases. As made clear in previous antitrust court decisions, professional associations may not be immune from antitrust liability if they are involved in eliminating competition among their members or boycotting others from joining the association. The plaintiffs noted that the Defendants and the AOA were previously sued by 32 state attorney generals in the context of prior industry efforts to suppress price competition for contact lenses, resulting in a settlement and discontinuation of the challenged practices.
If your company is a contact lens manufacturer, or in any life sciences company that utilizes UPPs, it must realize that there are risks inherent with the use of UPPs. Regardless of whether a class plaintiff will prevail on this issue, the company could become embroiled in lengthy and expensive litigation. If a trade association in this area is involved, it must receive proper antitrust advice because it is a potential defendant as well. As a former Federal Trade Commission attorney, I am aware of the types of concerns government prosecutors have, and you should receive antitrust advice to avoid engaging in agreements that could be interpreted to be blatant price fixing. You must always examine the reasonableness of your actions to ensure that it would pass muster under the Sherman Act.
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