The American Antitrust Institute (AAI) today wrote to the Department of Justice (DOJ) and Federal Trade Commission (FTC) urging them to take action against so-called “unilateral pricing policies” (UPPs) in the contact lens market and restore legal protection for price discounting generally.
Approximately 40 million Americans wear contact lenses and spend more than $4 billion on them annually. Thanks to retail competition among eye care providers, Costco, and 1-800 CONTACTS, contact lens wearers save significant sums of money. This beneficial rivalry is coming to an end, however. The four major contact lens manufacturers—Alcon, Bausch & Lomb, CooperVision, and Johnson & Johnson—have instituted UPPs and thereby set minimum resale prices on at least some of their brands. UPPs are nothing but resale price maintenance (RPM) by another name. Due to the proliferation of UPPs, millions of contact lens wearers are forced to pay hundreds of dollars more per year.
UPPs in the contact lens market appear to be anticompetitive based on an application of the three factors enumerated by the Supreme Court in Leegin Creative Leather Products v. PSKS. First, the four major contact lens makers have implemented UPP on at least some of their brands over the past one year. Second, public information suggests that retailers—specifically, eye care providers—may be the moving force behind UPPs. Third, the four contact lens manufacturers have a combined market share of 97 percent, indicating they have market power. Because eye care providers are paid for contact lens fittings and other presale services, they are not subject to free riding by discount rivals. In fact, UPPs further distort the contact lens market by giving eye care providers, who frequently also sell contact lenses, a greater incentive to prescribe patients expensive, higher-margin brands over lower-priced equivalents. This type of product steering hurts consumers. And despite their name, unilateral pricing policies do not appear to be “unilateral” even under traditional interpretations of the Colgate doctrine.
Even as the Supreme Court abolished the per se rule for RPM in Leegin, it did not intend to give the practice a free pass. The Court recognized that RPM can be used for anticompetitive ends and called on the lower courts to develop a structured test, including the adoption of legal presumptions. Because RPM leads to higher prices and prevents more efficient retailers from passing cost savings through to consumers, RPM should be presumptively illegal. Also, now that RPM is not per se illegal, the Colgate doctrine is no longer necessary to acquit defendants who used RPM to benefit consumers. Accordingly, the definition of “unilateral” conduct under Colgate should be narrowed. Seven years have passed since the Leegin decision. The time has come for the DOJ and FTC not only to reestablish the freedom to discount in contact lenses but also to protect price competition in all markets.
For more information, contact AAI General Counsel, Richard Brunell, 202-600-9640.