Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Contact lens manufacturers’ retail pricing policies alleged to be anticompetitive, (Mar 9, 2015)

By Linda O’Brien, J.D., LL.M.

Manufacturers of contact lenses conspired with a contact lens distributor and independent eye care professionals to eliminate price competition with large retailers by imposing minimum retail pricing policies, thereby causing consumers to pay supra-competitive prices for disposable contact lenses, according to a complaint filed in the federal district court in San Francisco (Mangum v. Coopervision, Inc., March 6, 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. Stephen Mangum is a consumer who purchased disposable contact lenses that were subject to minimum retail pricing policies.

ECPs perform eye examinations, provide contact lens prescriptions and fittings, and receive payment for those services. Many ECPs also fill prescriptions and sell contact lenses. ECPs are the only retailers that can legally prescribe contacts for consumers.

The complaint states that consumers are not required to purchase contact lenses from their ECP and can purchase their contact lenses from a retailer of their choice, including big box stores, national optical chains, 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. Manufacturers understand this incentive, since ECPs will refuse to prescribe a manufacturer’s lenses if their profit margins are undercut by discount retailers. As a result, contact lens manufacturers have tried to insulate ECPs from price competition.

According to the complaint, the power to prescribe makes ECPs gatekeepers of the disposable contact lens market. When an ECP writes a prescription for a patient, the prescription is for the type and power of the lens as well as a particular brand. Unless the patient returns for another eye exam or switches providers, the patient is locked into buying a brand of lenses for the length of the prescription. 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.

Minimum resale price maintenance (MRPM) policies in the form of UPPs have been implemented across the contact lens industry. Facing pressure from the ABB and ECPs about the competitive threats posed by discount retailers, beginning in June 2013, each of the manufacturer defendants implemented the strategy in the form of MRPM policies. 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. Moreover, the manufacturers’ close relationship with ECPs and the ABB enabled them to collaborate and develop their unilateral pricing policies, the complaint alleges.

The complaint also states that the defendants have previously been subject to antitrust scrutiny arising from their efforts to maintain prices and eliminate discount retailers. In 2001, the attorneys general from 32 states and a class of consumers brought actions against major contact lens manufacturers and trade associations for conspiring to restrain competition. The parties settled and the consent decree resolving the dispute has expired. Additionally, the ABB and ECPs have engaged in other practices to limit retail price competition. The ABB has facilitated the exchange of retail price information among ECPs and has urged ECPs to adopt uniform pricing. The ABB also operates an online contact lenses order website for ECP with suggested retail prices, provides promotional materials, and publishes a quarterly pricing survey which calculates average prices for the most popular selling contact lens brands. ECPs have consistently supported MRPM policies by touting their benefits and some ECPs are actually employed by the manufacturer defendants.

The defendants’ agreement to implement MRPM policies allegedly 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. It is estimated that the elimination of competition could result in price increases to consumers from 40 to 112 percent of certain brands of contact lenses, the complaint charges.

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, the plaintiff charged. Furthermore, the MRPM policies don’t encourage ECPs to focus on patient needs. Instead an ECP will prescribe a contact lens subject to a MRPM, since the ECP will earn a greater profit, it was alleged.

The plaintiff asserts claims for violations of Section 1 of the Sherman Act and California’s Cartwright Act and Unfair Competition Law. The action seeks injunctive relief, 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-01064.

Attorneys: Daniel J. Mogin, Jodie M. Williams, and Sarah B. Abshear (The Mogin Law Firm, P.C.) for Stephen Mangum.

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

News: Antitrust CaliforniaNews