Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Consumer claims contact lens manufacturers’ retail pricing policies were anticompetitive, (Aug 28, 2015)

By Linda O’Brien, J.D., LL.M.

A group of manufacturers of contact lenses conspired to impose minimum retail pricing policies on contact lens products in order to eliminate price competition by certain retailers by preventing the retailers from discounting on those products thereby causing consumers to pay more for contact lenses than they otherwise would have, according to a complaint filed by a consumer in the federal district court in San Francisco (Lanzarotti v. Alcon Laboratories, Inc., August 27, 2015).

Alcon Laboratories, Bausch + Lomb, Johnson & Johnson (J&J), and Cooper Vision manufacture and sell contact lenses to distributors and retailers. ABB Optical Group is the largest distributor of soft contact lenses in the United States and supplies more than two-thirds of the eye care professionals (ECPs) with brand name contact lenses, ophthalmics, and gas permeable lens solutions. Ashley Lanzarotti is a consumer who purchased disposable contact lenses that were subject to minimum retail pricing policies.

ECPs charge consumers a fee for services related to eyes or vision and determine the appropriate vision prescription. Many ECPs also fill prescriptions and sell contact lenses.

The complaint states that consumers with a prescription from an ECP can purchase their contact lenses from a variety of sources, including independent ECPs, national optical chains, mass merchandisers, wholesale clubs, and online retailers. Prior to June 2013, contact lens manufacturers allowed distributors and retailers to determine the prices at which they would sell contact lenses. However, ECPs have an economic incentive to prescribe lenses that provide them with the largest profit margins.

According to the complaint, ABB, the largest distributor of soft contact lenses, sells primarily to independent ECPs and has a goal to help practitioners make more profits. As the biggest customer of the manufacturer defendants and agent for its independent ECP customers, ABB would benefit from unilateral pricing policies (UPPs) since patients would be forced to purchase replacement contact lenses from independent ECPs who are ABB customers. ABB worked with the manufacturer defendants to develop UPPs for several popular lines of contact lenses.

Beginning in June 2013, each of the manufacturer defendants implemented the strategy in the form of minimum resale price maintenance (MRPM) schemes. Under the MRPM scheme, the manufacturer set a minimum retail price for its products and would threaten to curtail the supply of contact lens to retailers who sold below the mandated price. These agreements were intended to eliminate discounting by big box, warehouse club, and Internet retailers and decrease their ability to compete with independent ECPs, the complaint alleges.

The manufacturer defendants were members of the Contact Lens Manufacturers’ Association and the Contact Lens Institute and had regular opportunities to meet and exchange information. Such meetings included the exchange of competitively sensitive, non-public information. The companies participated in a quarterly statistical program that tracked manufacturer shipment data in order to enforce and monitor their respective MRPMs, the complaint states.

The complaint also states that there is no justification for the manufacturer’s MRPM policies. The policies do not prevent “free riding” because an ECP is compensated for his or her eye examination services even if the patient fills the prescription elsewhere. The manufacturers’ claimed concerns about harm to patients who buy contact lenses from others than ECPs are pretextual and don’t justify their anticompetitive conduct. Furthermore, the MRPM policies do not encourage ECPs to focus on patient needs instead of contact lens costs.

The defendants’ agreement to implement MRPM policies has harmed competition by increasing prices of contact lenses for consumers. Collectively, the manufacturer defendants control 97 percent of the domestic contact lens market. Independent ECPs, who prescribe a majority of contact lenses sold in the United States, played a significant role in instigating manufacturers to adopt MRPM policies in order to foreclose low-cost competitors. As a result of the defendants’ conspiracy, consumers have been forced to pay supra-competitive prices for contact lenses, and price competition has been substantially eliminated, the complaint charges.

The plaintiff asserts claims for violations of Section 1 of the Sherman Act, as well as California’s Cartwright Act and Unfair Competition Law. The action seeks declaratory and injunctive relief, restitution, treble damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 3:15-cv-03920-EDL.

Attorneys: Christopher P. Ridout and Brian C. Gudmundson (Zimmerman Reed, LLP) and Arthur M. Murray (Murray Law Firm) for Ashley Lanzarotti.

Companies: Alcon Laboratories, Inc.; Bausch + Lomb; Johnson & Johnson Vision Care, Inc.; Cooper Vision, Inc.; ABB Optical Group

News: Antitrust CaliforniaNews