Last month in  In the Matter of 1-800 Contacts, Inc., the Federal Trade Commission (“FTC”) provided insight into the circumstances under which retail price competition may take place in the 21st century internet economy.  In the Opinion authored by Chairman Joseph J. Simons (“Commission’s Opinion”) the Commission decided that 1-800 Contacts, the country’s largest online retailer of contact lenses, unlawfully entered into anticompetitive agreements with 14 rival online sellers (“Agreements”).  The Agreements, which, in most cases were trademark litigation settlements, required the parties, when bidding as part of search engine advertising auctions, to take measures ensuring their advertisements do not appear in response to searches for the other party’s trademark terms.  According to the Commission’s Opinion, approved 3-1-1, the “decision will affect not only the price that consumers pay for some contact lenses but also the very manner in which substantial parts of price competition will occur throughout consumer markets today and tomorrow.”  This week, 1-800 Contacts filed an application with the FTC for a partial stay pending review by the U.S. Court of Appeals.

The Agreements between 1-800 Contacts and Rival Retailers

By way of background, more than a decade ago, 1-800 Contacts began bringing trademark infringement actions against rival contact retailers, who were selling lenses at lower prices.  The infringement claims were based on the retailers’ online advertisements appearing in response to consumers’ searches for “1-800 Contacts.”  The Agreements, which resulted from the litigation, restricted the parties’ ability to bid on certain “keywords” in search engine auctions.  “Keywords” are words or phrases that trigger the display of a party’s advertisements as “sponsored links” on a search engine when the words or phrases “match” a user’s search.  As relevant here, the Agreements specifically prohibited each party from bidding on keywords that allegedly infringe upon the other party’s trademarks and additionally required the parties to employ “negative” keywords to prevent their advertisements from displaying whenever a search included the other party’s trademarks. 
Continue Reading Sights on Online Search Advertising: FTC Finds Practices by 1-800 Contacts to Unlawfully Harm Competition and Restrict the Availability of Truthful Advertising to Consumers

On July 21, New Jersey Governor Chris Christie signed into law the Personal Information Privacy Protection Act (PIPPA) (S. 1913), which limits the circumstances under which “retail establishments” (retailers) can collect and use information obtained by scanning the state-issued identification cards of customers.

The new law limits the ability of retailers to scan the barcode or other machine-readable section of a customer’s ID to the following eight purposes:

  1. To verify the authenticity of the card or the identity of the person;
  2. To verify age when providing age-restricted goods and services;
  3. To prevent fraud or other criminal activity if the person returns an item or requests a refund or an exchange;
  4. To prevent fraud or other criminal activity related to a credit transaction to open or manage a credit account;
  5. To establish or maintain a contractual relationship;
  6. To record, retain, or transmit information as required by law;
  7. To transmit information to a consumer reporting agency, financial institution, or debt collector; and
  8. To record, retain, or transmit information by a covered entity governed by the medical privacy and security rules under the Health Insurance Portability and Accountability Act.


Continue Reading New Jersey Enacts Law Limiting Ability of Retail Establishments to Scan State-Issued IDs

A number of investigations and inquiries, including a call for a hearing in Congress on December 30, 2013, have been sparked by the announcement by Target Corp. that a massive security breach of approximately 40 million of its customers’ credit and debit card accounts used at brick-and-mortar Target stores occurred between November 27 and extending through at least December 15.

The retailer stated that hackers obtained information known as “track data”: customer names as well as debit or credit card numbers and card verification values (CVVs).  Armed with track data, hackers can create counterfeit cards by encoding the information onto any card with a magnetic strip. In recent weeks, the stolen track data has been flooding underground black markets, according to Brian Krebs, writing on Krebs on Security. The data is being sold in batches of one million cards for anywhere from $20 to more than $100 per card, with cards issued by foreign banks fetching the higher prices.


Continue Reading Senators Call for Hearing on Data Security in Wake of Target Data Breach

Earlier this week, the Huffington Post’s Jennifer Kerr reported on the practice of tracking of merchandise returns by retailers.  According to the article, some retailers track merchandise returns to identify “chronic returners or gangs of thieves trying to make off with high-end products that are returned later for store credit.”  The article notes that

Just under a year has passed since the California Supreme Court ruled that asking for a customer’s ZIP code during a credit card transaction violates California’s Song-Beverly Credit Card Act.  According to media reports, the court’s decision in Pineda v. Williams-Sonoma Stores, Inc. has spurred more than 200 suits against California retailers.  A roundup of recent developments in Song-Beverly Act litigation:

  • A case against Brookstone had been dismissed in May 2010 on the ground that a ZIP code is not “personal identification information” within the meaning of Song-Beverly, but a state appellate court ruled [PDF] that the subsequent contrary decision in Pineda applied retroactively and that the suit against Brookstone could therefore proceed. 
  • Both state and federal courts in California have now reaffirmed that Song-Beverly does not apply to online transactions (Gonor v. Craigslist, Inc. [PDF]; Salmonson v. Microsoft Corp. [PDF]).  According to Mehrens v. Redbox Automated Retail LLC [PDF], Song-Beverly does not apply to transactions conducted at self-service kiosks either.  The courts recognized that fraud prevention justifies the collection of ZIP codes in online and kiosk transactions. 
  • A California federal court preliminarily approved a settlement under which Tiffany and Co. agreed to provide a voucher for either $10 off or free engraving to an estimated class of 90,000 customers; $142,000 in attorneys’ fees to class counsel; and $2,000 to the class representative.


Continue Reading Pineda One Year Later

In a decision with implications for all California retailers, the California Supreme Court ruled [PDF] yesterday that a customer may not be asked to provide his or her ZIP code during an in-person credit card transaction.  At issue in Pineda v. Williams-Sonoma Stores, Inc. was the scope of California’s Song-Beverly Credit Card Act of 1971, Cal.