1-800 CONTACTS, INC., Pеtitioner, v. FEDERAL TRADE COMMISSION, Respondent.
Docket No. 18-3848
United States Court of Appeals for the Second Circuit
Decided: June 11, 2021
August Term, 2019. Argued: March 5, 2020. Before: LYNCH and MENASHI, Circuit Judges.*
ON PETITION FOR REVIEW OF AN ORDER OF THE FEDERAL TRADE COMMISSION (DOCKET NO. 9372)
1-800 Contacts, Inc., petitions from a Final Order of the Federal Trade Commission
PETITION FOR REVIEW GRANTED, FINAL ORDER VACATED AND REMANDED.
STEPHEN FISHBEIN, Shearman & Sterling LLP, New York, NY (Ryan A. Shores, Todd M. Stenerson, Brian C. Hauser, Shearman & Sterling LLP, Washington, D.C., on the brief) for Petitioner.
IMAD ABYAD, Federal Trade Commission (Gail F. Levine, Deputy Director, Geoffrey M. Green, Assistant Director, Joel Marcus, Deputy General Counsel, Barbara Blank,
Corbin K. Barthold and Cory L. Andrews, Washington Legal Foundation, Washington, D.C. for Amici Curiae Richard A. Epstein, Keith N. Hylton, Thomas A. Lambert, Geoffrey A. Manne, Hal Singer and Washington Legal Foundation in Support of Petitioner.
Theodore H. Davis Jr., Kilpatrick Townsend & Stockton LLP, Atlanta, GA and Sheldon H. Klein, President, American Intellectual Property Law Association, Arlington, VA, for Amicus Curiae American Intellectual Property Law Association in Support of Petitioner.
Bryan D. Gant, Seiji Niwa, White & Case LLP, New York, NY and Eileen M. Cole, White & Case LLP, Washington, D.C., for Amici Curiae United States Council for International Business in Support of Petitioner.
Mark A. Lemley, William H. Neukom Professor, Stanford Law School, Stanford, CA for Amici Curiae Intellectual Property, Internet Law and Antitrust Professors in Support of Respondent.
PER CURIAM:
Between 2004 and 2013, Petitioner 1-800 Contacts, Inc. (“1-800“) entered into thirteen trademark settlement agreements and one sourcing and services agreement with competitors (the “Challenged Agreements“). As explained below, the Challenged Agreements contained provisions restricting specifiс terms on which the parties could “bid” when participating in auctions held by companies that operate search engines. By restricting bidding on terms in these auctions, the competitors agreed not to advertise their products when consumers used the search engines’ platforms to search the specific terms at issue. In August 2016, the Federal Trade Commission (“FTC” or the “Commission“) issued an administrative complaint against Petitioner, alleging that the Challenged Agreements and Petitioner‘s enforcement of the agreements unreasonably restrain truthful, non-misleading advertising as well as price competition in search advertising auctions in violation of Section 5 of the FTC Act,
Although we hold that trademark settlement agreements are not automatically immune from antitrust scrutiny, the Commission‘s analysis of the alleged restraints under the “inherently suspect” framework was improper. We further hold that the Commission incorrectly concluded that the agreements are an unfair method of competition under the FTC Act. We therefore GRANT the petition for review, VACATE the Final Order of the Commission, and REMAND the case to the Commission with orders to DISMISS the administrative complaint.
Contact lenses, prescription eyewear designed to improve the user‘s vision, can be sold only pursuant to a prescription. Such prescriptions specify both the characteristics of the lens, such as its strength, and the manufacturer brand. Thus, when consumers purchase contact lenses, they may not substitute one brand for another, but must purchase the brand listed on the prescription. Contact lenses are sold by four different types of retailers: independent eye care professionals; optical retail chains; mass merchants and club stores; and purely internet-based retailers, such as Petitioner. Internet-based retailers accounted for 17 percent of all contact lens sales in 2015, the year before these proceedings began. 1-800 accounts for a majority of all online sales of contact lenses. The price of contact lenses varies significantly based on retail channel; independent eye care professionals typically charge the most, followed by retail chains, mass merchants, and then online retailers. Petitioner, however, admits that it charges more than its rival online retailers. It prices its lenses somewhere below independent professionals and retail chains but above mass merchants and other club stores.
Petitioner and its competitors pay to advertise their sales of contact lenses on the internet. One way they do this is via “search advertising.” When an online shopper uses a search engine such as Google or Bing, the search engine‘s program returns two types of results to the shopper: “sponsored” and “organic,” both of which provide links to web pages. Sponsored results are ads; they appear because the owner of the featured web page has paid for its page to appear in that space. Sponsored links are typically designated by a label like “Ad” or “Sponsored,” and by colored or shaded boxes around the link. Organic results, on the other hand, appear based exclusively on which results a search engine‘s algorithm deems to be most relevant to the shopper‘s search. Organic results are listed separately from the sponsored results.
Search engines determine which advertisements to display on a search results page based in part on the relevance or relation of the consumer‘s search to various words or phrases called “keywords.” Advertisers bid on these keywords during auctions hosted by the search engines. The highest bidders’ ads are typically displayed most prominently on a page, though search engines consider other factors when determining where to place an ad on a results page, such as an ad‘s quality and relevance to a consumer‘s search. Search engines generally do not limit the keywords available to advertisers at auction. As a result, competitors often bid on each other‘s brand names so that their ad runs when a consumer searches for a competitor. Brand name terms are often trademarked.
Via bidding on “negative keywords,” an advertiser may also prevent its ad from being displayed when a consumer searches for a particular keyword. These negative keywords preclude ads from being displayed even when the search engine independently determined thаt the ad would be relevant to the consumer. The Commission suggests that this is useful when, for example, a retailer selling eyeglasses has bid on the advertising keyword “glasses” but wants to prevent its ad from appearing in response to the term “wine glasses.”
Many online retailers of contact lenses devote the majority of their advertising budgets to search advertising. The Commission found that these ads are presented to consumers “at a time when [they are] more likely looking to buy.” JA 279. Unlike its online retail competitors, Petitioner also
In 2002, Petitioner began filing complaints and sending cease-аnd-desist letters to its competitors alleging trademark infringement related to its competitors’ online advertisements.1 Between 2004 and 2013, Petitioner entered into thirteen settlement agreements to resolve most of these disputes. Each of these agreements includes language that prohibits the parties from using each other‘s trademarks, URLs, and variations of trademarks as search advertising keywords. The agreements also require the parties to employ negative keywords so that a search including one party‘s trademarks will not trigger a display of the other party‘s ads. The agreements do not prohibit parties from bidding on generic keywords such as “contacts” or “contact lenses.”2 Petitioner enforced the agreements when it perceived them to be breached.
Apart from the settlement agreements, in 2013 Petitioner entered into a “sourcing and services agreement” with Luxottica, a company that sells and distributes contacts through its affiliates. JA 283. That agreement also contains reciprocal online search advertising restrictions prohibiting the use of trademark keywords and requiring both parties to employ negative keywords.
The FTC issued an administrative complaint against Petitioner in August 2016 alleging that the thirteen settlement agreements and the Luxottica agreement (the “Challenged Agreements“), along with subsequent actions to enforce them, unreasonably restrain truthful, non-misleading advertising as well as price competition in search advertising auctions, all of which constitute a violation of Section 5 of the FTC Act,
Having found actual anticompetitive effects, as required under the rule of reason analysis, the ALJ rejected the procompetitive justifications for the agreements offered by Petitioner. He found that while trademark protection is procompetitive, it did not justify the advertising restrictions in the agreements and also that Petitioner failed to show that reduced litigation costs would benefit consumers. The ALJ issued an order that barred Petitioner from entering into an agreement with any marketer or seller of contact lenses to limit participation in search advertising auctions or to prohibit or limit search advertising.
1-800 appealed the ALJ‘s order to the Commission. In a split decision, a majority of the Commission agreed with the ALJ that the agreements violated Section 5 of the FTC Act. The majority, however, analyzed the settlement agreements differently from the ALJ. The majority classified the agreements as “inherently suspect” and alternatively found “direct evidence” of anticompetitive effects on consumers and search engines. The majority then analyzed the procompetitive justifications Petitioner offered for the agreements and rejected arguments that the bеnefits of protecting trademarks and reducing litigation costs outweighed any potential harm to consumers. Finally, the majority identified what it believed to be less anticompetitive alternatives to the advertising restrictions in the agreements. One Commissioner dissented, reasoning both that the majority should not have applied the “inherently suspect” framework and that it failed to give appropriate consideration to Petitioner‘s proffered procompetitive justifications. This timely appeal followed.
JURISDICTION AND STANDARD OF REVIEW
We have jurisdiction over this appeal under
DISCUSSION
I. Actavis Considerations
Petitioner argues, as it did below, that trademark litigation settlements are generally immune from antitrust review. It contends that in Actavis, the Supreme
In Actavis, the Supreme Court analyzed what are known as “reverse payment” patent settlements. 570 U.S. at 141. In short, manufacturers of brand name drugs paid manufacturers of generic drugs to keep the generic manufacturers from litigating the validity of the brand name manufacturers’ patents. See id. at 145. This effectively allowed the brand name manufacturers to maintain exclusive sales of certain drugs for longer than they would havе if the applicable patent, through litigation, was found to be invalid. Id. at 153-54. In Actavis, the Court rejected the idea that the conduct at issue was immune from antitrust scrutiny just because it occurred within the context of a patent litigation settlement. Id. at 146-48. The Court explained that “it would be incongruous to determine antitrust legality by measuring the settlement‘s anticompetitive effects solely against patent law policy, rather than by measuring them against procompetitive antitrust policies as well.” Id. at 148.
Petitioner argues that Actavis represents an exception to the general rule against subjecting intellectual property (IP) settlement agreements to antitrust scrutiny because patents, unlike trademarks, for example, are inherently exclusionary and because the reverse payment scheme at issue in Actavis was “unusual.” Petitioner‘s Br. 43 (citing Actavis, 570 U.S. at 147). To be sure, in Actavis the Court detailed how certain commonplace forms of settlement agreements did not, by the nature of their existence alone, create antitrust liability. 570 U.S. at 151-52. Contrary to Petitioner‘s claim, however, the Court went on to say that the possibility that agreements may not always bring about anticompetitive consequences “does not justify dismissing the FTC‘s complaint. An antitrust defendant may show in the antitrust proceeding that legitimate justifications are present[.]” Actavis, 570 U.S. at 156.
As in Actavis, Petitioner‘s trademark, “if valid and infringed, might have permitted it to” preclude competitors from bidding on its trademarked terms in search advertising auctions or running advertisements on those terms. Id. at 147. We “take this fact as evidence that the agreement‘s anticompetitive effects fall within the scope of” the trademark protections. Id. (internal quotation marks omitted). But the mere fact that an agreement implicates intellectual property rights does not “immunize [an] agreement from antitrust attack.” Id.; see also In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322, 1325 (Fed. Cir. 2000) (“Intellectual property rights do not confer a privilege to violate the antitrust laws.“); United States v. Microsoft Corp., 253 F.3d 34, 63 (D.C. Cir. 2001) (same). We have not shied away from considering antitrust claims that implicate trademark rights in the past, see, e.g., Clorox Co. v. Sterling Winthrop, Inc., 117 F.3d 50, 55-56 (2d Cir. 1997), and we decline to do so now. As in any antitrust case, we must “determine whether the restraints in the agreement[s] are reasonable in light of their actual effects on the market
II. Sherman Act Framework
Because “[t]he FTC Act‘s prohibition of unfair competition and deceptive acts or practices . . . overlaps the scope of § 1 of the Sherman Act . . . aimed at prohibiting restraint of trade,” California Dental Ass‘n v. FTC (Cal. Dental), 526 U.S. 756, 762 n. 3 (1999), it was appropriate that the ALJ and the Commission consulted Sherman Act jurisprudence to determine whether the Challenged Agreements violated Section 5 of the FTC Act. See Realcomp II, Ltd. v. FTC, 635 F.3d 815, 824 (6th Cir. 2011); North Carolina Bd. of Dental Examiners v. FTC, 717 F.3d 359, 370-71 (4th Cir. 2013) (recognizing a Section 1 violation as a “species” of unfair competition prohibited under the FTC Act).
To prove a Sherman Act violation – and by extension, a Section 5 violation – the FTC must establish (1) a contract, combination, or conspiracy exists that (2) unreasonably restrains trade. See Major League Baseball Props., Inc. v. Salvino, Inc. (MLB), 542 F.3d 290, 315-16 (2d Cir. 2008). In this case, the Challenged Agreements are undeniably contracts between Petitioner and its competitors. We “prеsumptively appl[y]” what is known as the “rule of reason” analysis to the Challenged Agreements to determine whether they restrain trade. Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006). Under that analysis an antitrust plaintiff “must demonstrate that a particular contract or combination is in fact unreasonable and anticompetitive before it will be found unlawful.” Id. As Justice Brandeis famously articulated:
The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable. The history of the restraint, the evil believed to exist, the reason for adopting the particular remedy, the purpose or end sought to be attained, are all relevant facts. This is not because a good intention will save an otherwise objectionable regulation or the reverse; but because knowledge of intent may help the court to interpret facts and to predict consequences.
Chicago Board of Trade v. United States, 246 U.S. 231, 238 (1918). A plaintiff bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market. North Am. Soccer League, LLC v. U.S. Soccer Fed‘n, Inc., 883 F.3d 32, 42 (2d Cir. 2018). After a prima facie case of anticompetitive conduct has been established, the burden shifts to the defendant to proffer procompetitive justifications for the agreement. Id. “Assuming defendants can provide such proof, the burden shifts back to the plaintiffs to prove that any legitimate competitive benefits offered by defendants could have been achieved through less restrictive means.” Geneva Pharm. Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485, 507 (2d Cir. 2004).
In some cases, however, “certain agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have
The Supreme Court, however, has rejected fixed categories of analysis when considering the anticompetitive nature of a restraint. See Cal. Dental, 526 U.S. at 779. Some restraints, therefore, fall between the type of conduct typically labeled per se anticompetitive and that which is analyzed under a “full-blown” rule of reason analysis. MLB, 542 F.3d at 317. When “the great likelihood of anticompetitive effects can easily be ascertained[,]” courts apply an abbreviated rule of reason analysis sometimes known as the “quick-look” approach. Cal. Dental, 526 U.S. at 770. The Commission calls the standard it applies in these situations the “inherently suspect” framework.5 JA 291.
Under the Commission‘s “inherently suspect” framework, neither direct evidence of harm nor proof of market power is needed to show the anticompetitive effect of the restraint because the “likely tendency to suppress competition” posed by the challenged conduct makes it “inherently suspect.” Polygram Holding, Inc., 136 F.T.C. 310, 344-45 (2003), aff‘d, 416 F.3d 29 (D.C. Cir. 2005). An “elaborate market analysis” is unnecessary, Polygram, 416 F.3d at 35, and once the government has identified a “suspect” agreement, the burden shifts directly to the defendant to show any procompetitive justifications it might have for the restraint. See United States v. Apple, 791 F.3d 290, 330 (2d Cir. 2015).
This approach is only permissible when “an observer with even a rudimentary understanding of economics could conclude that the arrangements in question would have an anticompetitive effect on customers and markets.” Cal. Dental, 526 U.S. at 770; see also Dagher, 547 U.S. at 7 n.3 (rejecting a quick-look analysis because it applies only “to business activities that are so plainly anticompetitive that courts need undertake only a cursory examination before imposing antitrust liability“); Polygram, 416 F.3d at 37 (explaining that the inherently suspect framework is only applicable when “close family resemblance [exists] between the suspect practice and another practice that already stands convicted in the court of consumer welfare“).
Further, “[i]f an arrangement ‘might plausibly be thought to have a net procompetitive effect, or possibly no effect at all on competition,’ more than a ‘quick look’ is required.” MLB, 542 F.3d at 318 (quoting Cal. Dental, 526 U.S. at 771). In California Dental, the Supreme Court considered the California Dental Association‘s rule prohibiting price advertising, specifically discounted fees, and advertising relating to the quality of dental services. 526 U.S. at 761. There, the Court rejected the use of an abbreviated rule of reason analysis, holding that the existence of a plausible procompetitive justification – in that case, the prohibition of deceptive advertising in an asymmetrical information marketplace – effectively foreclosed the ability of
Here, the Commission viewed the advertising restrictions in the Challenged Agreements as inherently suspect; it also found that the agreements were a form of “bid rigging” that harmed search engines – i.e., an independent basis upon which it could apply the inherently suspect analytical framework. Petitioner and amici argue that the application of the inherently suspect framework was improper and that the Challenged Agreements should only be considered under a rule of reason analysis. We agree with Petitioner that the Challenged Agreements cannot be classified as inherently suspect.
Citing expert reports and economic theory, the government argues that the Commission was correct to employ the inherently suspect framework because restrictions on advertising are likely to cause consumers to pay more for contact lenses. But even if restraints on truthful advertising have a tendency to raise
prices, “[t]he fact that a practice may have a tangential relationship to the price of the commodity in question does not mean that a court should dispense with a full rule-of-reason analysis.” MLB, 542 F.3d at 317.
Crucially, the restraints at issue here could plausibly be thought to have a net procompetitive effect because they are derived from trademark settlement agreements. In Clorox, applying the rule of reason, we considered whether a trademark settlement agreement illegally restrained trade under the
The Commission acknowledged as much, finding Petitioner‘s proffered procompetitive justifications to be “cognizable and, at least, facially plausible[.]” JA 296. Rather than take that fact as an indication that it should not apply an abbreviated rule of reason analysis, as the Supreme Court instructed in California Dental, the Commission instead set out to show (i) that there was a theoretical basis for the alleged anticompetitive effect and that the restraints were likely, in this particular context, to harm competition and (ii) that Petitioner could have minimized the anticompetitive effects and accomplished its procompetitive justifications through less restrictive means. While this may be analytically acceptable in some situations, see Cal. Dental, 526 U.S. at 779 (noting to require a “more extended examination” does not always translate to a call for “plenary market examination“), it was not appropriate here.
Courts do not have sufficient experience with this type of conduct to permit the abbreviated analysis of the Challenged Agreements undertaken by the Commission. See Cal. Dental, 526 U.S. at 781 (explaining that the quick-look approach may be applicable if rule-of-reason analyses in case after case reach identical conclusions); Polygram, 416 F.3d at 36-37 (accepting the Commission‘s definition of “inherently suspect” as describing restraints previously condemned by both “judicial experience and economic learning“). While both California Dental and Polygram consider advertising restraints, there are key differences between the restraints in those cases and the
III. Application of the Rule of Reason
Under the rule of reason, the Commission bears the burden of establishing a prima facie case of anticompetitive effect. Direct evidence of anticompetitive effects establishes a prima facie case of a
A. Anticompetitive Effects
Anticompetitive effects in a relevant market may be shown through direct evidence of output reductions, increased prices, or reduced quality in the relevant market. Ohio v. Am Express Co. (Am. Express), 138 S. Ct. 2274, 2284 (2018); see also North Am. Soccer League, 883 F.3d at 42. The Commission has also defined sufficient evidence of anticompetitive harm to include evidence of “retarded innovation, or other manifestations of harm to consumer welfare.” In re Realcomp II Ltd., No. 9320, 2007 WL 6936319 (F.T.C. Oct. 30, 2009), aff‘d, 635 F.3d 815. We reject the Commission‘s argument that it has established direct evidence of anticompetitive effect in the form of increased prices. When an antitrust plaintiff advances an antitrust claim based on direct evidence in the form of increased prices, the question is whether it can show an actual anticompetitive change in prices after the restraint was implemented. See Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 236-37 (1993); MacDermid, 833 F.3d at 184. The government could not make that showing because it did not conduct an empirical analysis of the Challenged Agreements’ effect on the price of contact lenses in the online market for contacts. The evidence offered by the government is theoretical and anecdotal;10 it is not “direct.” Consequently, the Commission‘s conclusion that differences between 1-800 Contacts’ prices and those of its competitors constitute direct evidence of the Challenged Agreements’ anticompetitive effects is not supported by substantial evidence
The government also argues that “disrupted information flow” is an anticompetitive effect and that a reduction in the quantity of advertisements is direct evidence of that effect. Respondent‘s Br. 63. While, to our knowledge, no Court of Appeals has held that a reduction of truthful information is necessarily a manifestation of anticompetitive harm, our sister circuits have occasionally considered advertising restraints in different contexts and have found the conduct in question to have anticompetitive effects. See, e.g., California Dental Ass‘n v. FTC (Cal. Dental II), 224 F.3d 942, 949 (9th Cir. 2000) (considering professional advertising restraints in an asymmetrical information marketplace); Polygram, 416 F.3d at 37 (holding that the FTC appropriately concluded an agreement to restrain price cutting and advertising violated the
B. Procompetitive Justifications
Petitioner asserts that the Challenged Agreements are justified by two procompetitive effects: reduced litigation costs and рrotecting Petitioner‘s trademark rights. The Commission found that, while both of these justifications were “cognizable and facially plausible,” Petitioner did not show that they “have a basis in fact,” and therefore they were not “valid.” JA 309. We disagree. The protection of Petitioner‘s trademark interests constitutes a valid procompetitive justification for the Challenged Agreements.
The Commission determined that, since “the [Challenged Agreements] restrict a type of competitive advertising that has never been found to violate the trademark laws, and the weight of authority overwhelmingly points to non-infringement[,]” trademark protection was not a valid procompetitive benefit that justified the Challenged Agreements. JA 313. This was incorrect. Trademarks are by their nature non-exclusionary, and agreements to protect trademark interests are “common, and favored, under the law.” Clorox, 117 F.3d at 55. As a result, “it is difficult to show that an unfavorable trademark agreement creates antitrust cоncerns.” Id. at 57. This is true even though trademark agreements inherently prevent competitors “from competing as effectively as [they] otherwise might[.]” Id. at 59.
In Clorox, we found that the plaintiff had failed to show adverse effects on the market as a whole because the restrictions at issue did not restrict competitors’ ability to enter into the relevant market. Id. at 59. Although we held that the plaintiff in that case failed to present a prima facie case of anticompetitive harm, we also went on to detail how the procompetitive justifications of the agreement weighed against finding an antitrust violation. Id. at 60. We stated that “trademark agreements are favored in
The Commission, however, decided that the trademark claims that led to the Challenged Agreements were likely meritless. While it claimed not to be determining the validity of Petitioner‘s trademark claims, it did just that by weighing the potential validity of the trademark claims in order to show that Petitioner‘s procompetitive justification was invalid.12 Even if the Commission‘s analysis of the underlying trademark claims were correct, trademark agreements that “only marginally advance[] trademark policies” can be procompetitive.13 See id. at 57. Under Clorox, “[e]fforts to protect trademarks, even aggressive ones, serve the competitive purpose of furthering trademark policies.” Id. at 61.
That does not mean that every trademark agreement has a legitimate procompetitive justification. If the “provisions relating to trademark protection are auxiliary to an underlying illegal agreement between competitors,” or if there were other exceptional circumstances,14 we would think twice before concluding the challenged conduct has a procompetitive justification. See id. at 60. As in Clorox, however, there is a lack of evidence here that the Challenged Agreements are the “product of anything other than hard-nosed trademark negotiations.”15 Id. Consequently, we find Petitioner met its burden at step two.
C. Less Restrictive Alternatives
Because Petitioner has carried its burden of identifying a procompetitive justification, the government must show that a less restrictive alternative exists that achieves the same legitimate competitive
In Clorox, however, we noted that “it is usually unwise for courts to second-guess” trademark agreements between competitors. 117 F.3d at 60. In this context, what is “reasonably necessary,” Brown Univ., 5 F.3d at 679, is likely to be determined by competitors during settlement negotiations, Clorox, 117 F.3d at 60. And, as articulated above, absent something that would negate the typically procompetitive nature of these agreements, “the parties’ determination of the scope of needed trademark protections is entitled to substantial weight.” Clorox, 117 F.3d at 60.
The government attempts to differentiate Clorox by arguing that the FTC is different than a private plaintiff, and when it brings an antitrust claim we should not give the settling parties as much latitude to negotiate a trademark agreement as a court would in a private antitrust suit. Even if we were to accept the Commission‘s argument that its presence in a case warrants less solicitude for trademark interests, the government still needs to show more than the mere possibility there could be crafted an alternative form of the trademark agreement. The alternative must be “substantially less restrictive.” Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles and Their Application ¶ 1502 (3rd & 4th eds., 2019 Cum. Supp. 2010-2018). The alternative must also achieve the same legitimate competitive benefits outlined by the Petitioner. North Am. Soccer League, 883 F.3d at 42. And at the end of the day, our job is to “weigh[] the competing evidence to determine if the effects of the challenged restraint tend to promote or destroy competition.” Apple, 791 F.3d at 329 (internal quotation marks omitted).
The Commission majority thought that a disclosure requirement was enforceable because, inter alia, it has ordered similar requirements in the past. But the majority failed to consider the practical reasons for the parties entering into the Challenged Agreements. Under Clorox, this was insufficient. 117 F.3d at 60-61. The Commission did not consider, for example, how the parties might enforce such a requirеment moving forward or give any weight to how onerous such enforcement efforts would be for private parties. When the restraint at issue in an antitrust action
While trademark agreements limit competitors from competing as effectively as they otherwise might, we owe significant deference to arm‘s length use agreements negotiated by parties to those agreements. Clorox, 117 F.3d at 59-60. Doing so may give rise to collateral harm in a relevant market. But forcing companies to be less aggressive in enforcing their trademarks is antithetical to the procompetitive goals of trademark policy.17 See id. at 61. And without considering the downstream effects of requiring less aggressive enforcement, the government has failed to show that the proffered alternatives achieve the same legitimate procompetitive benefits as those advanced by the Petitioner.
CONCLUSION
In this case, where the restrictions that arise are born of typical trademark settlement agreements, we cannot overlook the Challenged Agreements’ procompetitive goal of promoting trademark policy. In light of the strong procompetitive justification of protecting Petitioner‘s trademarks, we conclude the Challenged Agreements “merely regulate[] and perhaps thereby promote[] competition.” Chicago Bd. of Trade, 246 U.S. at 238. They do not constitute a violation of the
The petition for review is GRANTED, the Final Order of the Federal Trade Commission is VACATED, and the case is REMANDED with instructions to DISMISS the administrative complaint.