Court Allows Utah To Ban Price-Fixing Of Contact Lenses

Contact lens companies have been working together to create price floors for their products, prohibiting retailers from offering competitive discounts and removing consumers’ ability to shop around for savings. Legislators in Utah recently passed a bill that would outlaw this practice but in May a federal appeals court temporarily blocked it from being enacted. But on Friday, the court vacated that injunction, allowing the new law to move forward.

A quick refresher course for those coming to this story late.

While most healthcare professionals are not allowed to be in the business of selling medication directly to patients, optometrists can — and many do — sell eyeglasses and contact lenses to their patients. But retailers like Costco and 1-800-CONTACTS have been selling lenses at a discount, taking away some business from optometrists.

Starting in 2013, the largest contact lens manufacturers (Bausch & Lomb, Alcon, and Johnson & Johnson), accounting for some 80% of the market in the U.S., began establishing price floors for their products to help protect the optometrists they depend on to prescribe their lenses.

Because there are generally no generics for contact lens prescriptions, and there aren’t things like exclusive frames that could give a shopper a reason to look elsewhere for their lenses, the price floor takes away any incentive to shop around.

Utah’s Contact Lens Consumer Protection Act [PDF] is intended to prohibit contact lens companies from any practice that “has the effect of fixing or otherwise controlling the price that a contact lens retailer charges or advertises.” Lens companies would also not be allowed to discriminate against a retailer in the state based on its retail price for lenses.

The three lens companies sued [PDF] to block this law, and sought an injunction against its being enforced. They alleged that the Utah legislature had overstepped its authority in violation of the Commerce Clause of the U.S. Constitution.

Both Costco and 1-800-CONTACTS, who stand to lose contact lens customers if price floors remain in place, filed opposition briefs to the lawsuit.

In May, a U.S. District Court judge denied the lens companies’ injunction request, stating that it was unlikely that they would be successful at trial. However, only days later, and with little explanation, the Tenth Circuit Court of Appeals granted that temporary injunction while allowing all parties to file briefs on why or why it shouldn’t be made permanent pending trial.

The appeals court has read all the filings, and last Friday, it vacated the injunction, saying the three lens makers “have not satisfied the requirements necessary for an injunction.”

Granted, the companies can — and likely will — appeal this ruling, so it’s probably not the end of the matter.

Price floors were effectively outlawed for nearly 100 years, because they were believed to be in violation of the Sherman Antitrust Act. But then in the 2007 case of Leegin Creative Leather Products, Inc. v. PSKS, Inc., the U.S. Supreme Court ruled that it manufacturers could indeed set price floors in some situations.

In overturning earlier precedent, SCOTUS had pointed out that retailers facing price floors could use the money they would have ceded through discounts and invest it in “greater customer service” so as to gain a competitive edge.

In countering this argument, Costco contended that while the contact lens price floors might incentivize retailers to invest that money in something new to win over lens customers, the optometrists didn’t have to invest anything because they already had the customer, the prescription, and the product all in one place — and at a price you’d find regardless of where you shop.

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