Unilateral Price Policies in the Contact Lens Industry: Can Manufacturers Be Forced to Sell to Every Retailer?
It is a cardinal rule of antitrust that—absent very limited exceptions—parties can do business with, or refuse to do business with, whomever they choose. The Supreme Court solidified that premise in United States v. Colgate & Co.1 and has reiterated it time and again.2 Recent state legislation and lawsuits arising in the contact lens industry are threatening to dismantle that bedrock principle of antitrust law. The State of Utah—home to 1-800 Contacts, a prominent discount reseller—has enacted a statute making it unlawful for a contact lens manufacturer to refuse to sell to a discounting reseller. The manufacturers are fighting back by challenging the constitutionality of this legislation, which, if upheld, would chip away at the nearly 100- year-old the doctrine that gives a manufacturer the freedom choose the resellers with which it does business.
Under the Colgate doctrine, a seller is allowed ‘‘freely to exercise his own independent discretion as to the parties with whom he will deal.''3 Accordingly, a seller may unilaterally refuse to deal with any buyer, for any reason, price-related or otherwise—so long as the action is unilateral, and not a bilateral ‘‘agreement.'' The Colgate doctrine is now being threatened to its very core in a dispute in the contact lens industry.
It all started in the summer of 2014, when the Senate Judiciary Committee conducted a hearing about pricing and competition in the contact lens industry.4 The hearing inspired the non-profit American Antitrust Institute (AAI) to write a ten-page letter later to the Federal Trade Commission and the U.S. Department of Justice, advocating for enforcement action against contact lens manufacturers, and hashing out a possible litigation strategy5.
1 250 U.S. 300, 307 (1919).
2 See, e.g., Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984) (‘‘Independent action is not proscribed. A manufacturer of course generally has a right to deal, or refuse to deal, with whomever it likes, as long as it does so independently.''). The only narrow exception to this general rule applies to monopolists. See, e.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) (applying ‘‘essential facilities'' doctrine).
3 United States v. Colgate & Co., 250 U.S. at 307.
4 The testimony is available here: http://www.judiciary.senate.gov/ meetings/pricing-polices-andcompetition-in-the-contact-lens-industry-is-what-you-see-what-you-get.
5 The letter is available here: http://www.antitrustinstitute.org/content/aai-urges-action-minimumprice-policies-contact-lens-industry
[Full text is available in the PDF below.]