Antitrust Law Daily Wrap Up, ANTITRUST—D. Utah: Utah Attorney General can enforce Contact Lens Consumer Protection Act, (May 12, 2015)

By Greg Hammond, J.D.

Contact lens manufacturers Alcon Laboratories, Inc., Johnson & Johnson Vision Care, and Bausch & Lomb could not obtain preliminary injunction, preventing the state of Utah from enforcing its newly enacted Contact Lens Consumer Protection Act (Contact Lens CPA). The federal district court in Salt Lake City denied the motion for a preliminary injunction, finding that the manufacturers were not likely to succeed on their claims that the Contact Lens CPA is unconstitutional (Alcon Laboratories, Inc. v. Reyes, May 11, 2015, Benson, D.).

Background. Contact manufacturers began implementing unilateral resale pricing polices (UPPs) approximately two years ago, setting minimum retail prices for retailers. Retailers that sell or price contact lenses below the manufacturer’s UPP are allegedly punished by supply contract termination for a period of one year. In March 2015, Utah became the first state to enact legislation attempting to restrict UPPs for contact lenses, according to the court. Similar legislation is pending in Arizona, California, Florida, Idaho, Illinois, Mississippi, New York, Oregon, and Washington. Utah’s Contact Lens CPA prohibits contact lens manufacturers and distributors from taking any action to fix or control the prices a retailer charges or advertises for contact lenses.

Alcon, Johnson & Johnson, and Bausch& Lomb filed suit against the Attorney General of Utah, seeking a declaration that the Contact Lens CPA is unconstitutional. The case was before the district court on the manufacturers’ motions for preliminary injunction.

Likelihood of success. The manufacturers argued that the statute violates the Commerce Clause of the U.S. Constitution because it has impermissible extraterritorial effects, impermissibly discriminates against out-of-state economic interests, and imposes excessive burdens on interstate commerce. The court rejected all three arguments, finding first that there was no clear indication of an extraterritorial application in the statute at issue and that no such application can be assumed at the current stage of litigation.

Second, the court found that the plaintiffs are not likely to succeed in demonstrating that the Contact Lens CPA inappropriately discriminates against out-of-state economic interests. The record supported Utah’s claim that retail sales outside of Utah could be higher because of the manufacturers’ pricing policies, not any action taken by the state. The statute protects Utah retailers and consumers from activity that the state believes violates principles of fair competition. Further, because the statute has not taken effect yet, the Utah Attorney General’s Office has not been able to offer its interpretation of the statute in connection with an actual enforcement action. The court therefore presumed that the Utah Attorney General will enforce the statute in a manner that does not violate the Commerce Clause.

Finally, the court concluded that the plaintiffs are not likely to succeed in demonstrating that the burden imposed on interstate commerce by the statute is clearly excessive in relation to the putative local benefits. The alleged local benefit is that the statute would return intrabrand competition to the Utah contact lens marketplace, allowing Utah contact lens retailers to provide lower prices to Utah consumers. This, according to the court, is “exactly the type of benefit states are permitted to advance through state antitrust laws.”

The manufacturers argued that the burden on interstate commerce is that out-of-state manufacturers would be required to participate in interstate commerce, under circumstances which they otherwise would not choose to. The purported burden, however, is no greater than the burden imposed by any other state antitrust law, the court concluded. Further, similar legislation is currently under consideration in at least nine other states, which—if enacted—would negate any competitive advantages obtained by Utah contact lens retailers through the statute.

Irreparable harm, hardships, public interest. The manufacturers additionally failed to convince the court that they will suffer irreparable harm if the injunction is denied, or that the balance of hardships and public interest factors weighed in favor of a preliminary injunction. Specifically, the manufacturers alleged two forms of irreparable harm—constitutional injury and economic injury. However, the manufacturers speculated as to the monetary amounts of the injuries, which were deemed insufficient to constitute irreparable harm, the court concluded.

Further, the balance of hardships and public interest factors weighed in favor of granting preliminary injunction because: (1) entering an injunction would prevent enforcement of a law that the Utah Legislature determined was necessary to protect consumers and promote free competition in the retail market for contact lenses; (2) any alleged harm to the manufacturers was speculative; and (3) after extensive public hearings and legislative debates, in which the manufacturers were given a fair opportunity to present their positions, the people of Utah chose to enact the Contact Lens CPA to eliminate price fixing in favor of free competition.

The case numbers are 2:15cv252-DB, 2:15cv257-CW, and 2:15cv259-DAK.

Attorneys: Amy F. Sorenson (Snell & Wilmer) and David N. Greenwald (Cravath Swaine & Moore LLP) for Alcon Laboratories, Inc. Joel M. Mitnick (Sidley Austin LLP), Kenneth B. Black (Stoel Rives), and Jerome A. Swindell for Johnson & Johnson Vision Care. Brian M. Rothschild (Parsons Behle & Latimer), Steven Sunshine, Maria Raptis, and Clifford M. Sloan (Skadden Arps Slate Meagher & Flom LLP) for Bausch & Lomb. David N. Wolf, Utah Attorney General's Office.

Companies: Alcon Laboratories, Inc.; Johnson & Johnson Vision Care; Bausch & Lomb

Cases: Antitrust UtahNews