Published October 28, 2015
A federal appeals court has halted a new Utah law banning price-fixing for contact lenses that could have wide-ranging implications for the industry amid a fight between manufacturers and discount retailers.
Lens maker Alcon Laboratories cheered the order Thursday. Along with Johnson & Johnson and Bausch & Lomb, the company says the law is an unconstitutional overreach written to benefit Utah-based online discount retailer 1-800 Contacts.
The measure halted by the appeals court would allow 1-800 Contacts, one of the nation's biggest lens suppliers, to disregard minimum prices set by the manufacturers and sell discount lenses across state lines, according to Steve DelBianco, executive director of the trade group NetChoice.
That would be good for customers because they'd be paying less for their contacts, he says. But the manufacturers argue setting minimum prices protects eye doctors from being undercut.
At stake is control of a roughly $4 billion market with some 38 million American customers.
Many contact lens sales come from eye doctors. But discount retailers have been growing in recent years, and 1-800 Contacts has captured about 10 percent of the national market, according to court papers.
The order issued late Wednesday from the 10th U.S. Circuit Court of Appeals in Denver puts the Utah law on hold as a legal challenge plays out. It reverses a lower court ruling from U.S. District Judge Dee Benson, who found the law is a legal antitrust measure and allowed it to take effect this week.
Utah's state attorneys declined to comment.
The law targets a pricing program that the manufacturers started using about two years ago. If retailers sell lenses cheaper than the minimum prices, the manufacturers that dominate the market pull their products.
Republican state Sen. Deidre Henderson, who sponsored the measure, has called the pricing minimums predatory and anticompetitive.
Discount giant Costco says the rules forced it to raise prices by more than 20 percent on some brands. The popular Acuvue Oasys brand increased from about $52 for a 12-pack to about $68 last year, according to court papers.
The minimum price rules also have drawn ire elsewhere, sparking 40 class-action lawsuits across the country and scrutiny from Congress since the manufacturers started setting them about two years ago, according to Benson's ruling. Nine states have considered legislation similar to that passed in Utah.
Henderson said the measure was written to bolster competition rather than help 1-800 Contacts, but he has been vague on whether it will allow Utah-based companies like 1-800 Contacts to sell at discounted rates to customers outside the state. The manufacturers say that would violate interstate commerce regulations.
A constitutional law expert said the law doesn't appear to violate those rules because it doesn't give perks to a local company or clash with laws in other states.
But University of Michigan law professor Richard Primus says a provision that allows Utah's attorney general to sue manufacturers who withhold their product from discount sellers could be on shakier legal ground.