Be warned - what may seem like reasonable business agreements between two or more online sellers can be considered illegal by regulators and law enforcement.
We've seen this with a group of rival sellers of art posters who, according to the FBI
, coordinated the prices of their products, which it called price-fixing and compared it to the type of conduct that occurs in "smoke-filled rooms." In that case, sellers faced felony charges.
Now regulators are cracking down on sellers who enter into agreements not to compete with each other in paid search.
The FTC sued 1-800 Contacts and charged in its complaint: "The major online search engine companies, Google and Bing, sell advertising space on their search engine results pages through computerized auctions. Beginning in 2004, 1-800 Contacts secured agreements with at least fourteen competing online sellers of contact lenses providing that the parties would not bid against one another in certain search advertising auctions."
The FTC alleged
: "These bidding agreements unreasonably restrain both price competition in search advertising auctions and the availability of truthful, non-misleading advertising. The Bidding Agreements individually and in combination constitute an unfair method of competition and violate Section 5 of the Federal Trade Commission Act, 15 U.S.C. - 45."
The government alleged that the agreements stemmed from lawsuits that 1-800 Contacts brought or threatened against numerous rivals, which accused rivals of infringing its trademarks. "In almost all cases, 1-800 Contacts' rivals agreed to sign the anticompetitive agreements to cease bidding." But, regulators said, "The complaint alleges that the bidding agreements are overly broad and not necessary to safeguard any legitimate trademark interest."
Why should the FTC care about agreements among online merchants? The agency wrote, "The bidding agreements harm consumers, according to the complaint, by restraining competition for, and distorting the prices of, advertising in relevant online auctions, by reducing the number of relevant, useful, truthful and non-misleading advertisements, by restraining competition among online sellers of contact lenses, and in some cases, by resulting in consumers paying higher retail prices for contact lenses."
Both cases are based on concerns that consumers may be paying more due to anti-competitive activity.
So beware of entering into agreements with rivals - particularly if those agreements are designed to maintain higher prices for consumers.