Contested Utah law could impact contact lens industry

May 13, 2015, 6:24 PM

SALT LAKE CITY (AP) — A law banning price-fixing for contact lenses that took effect this week in Utah is a setback for the nation’s largest manufacturers that could have ripple effects across the country amid an increasingly bitter fight with discount retailers.

The new law appears to clear the way for the largest online discount seller, Utah-based 1-800 Contacts, to disregard minimum prices set by the lens makers and sell at a discount across state lines, said Steve DelBianco, executive director of the Internet sellers trade group NetChoice.

“That’s good for consumers, who pay less for their lenses when they buy from Utah suppliers,” he said in an email message. But contact lens manufacturers Johnson & Johnson, Bausch & Lomb and Alcon Laboratories disagree, and the measure is still in legal limbo. They call the law an unconstitutional overreach written specifically to bolster the Utah-based 1-800 Contacts and are fighting it in court.

Utah officials, meanwhile, have been vague on whether it will allow Utah companies to sell at discounted rates to customers outside the state. 1-800 Contacts said they plan to lower their prices, but did not respond to questions from The Associated Press about whether that would apply to customers outside the state. As of Wednesday afternoon, the price for a 12-pack of the popular Acuvue Oasys brand hadn’t changed.

At stake is control of a roughly $4 billion market with some 38 million American customers, according to court papers. Many contact lens sales come from eye doctors, who issue prescriptions that are brand and model specific, but discount retailers have been growing in recent years. 1-800 Contacts has captured about 10 percent of the national market, court documents state.

The manufacturers say that the minimum prices protect eye doctors, allowing the professionals to talk to their patients about the right lenses for them without having to worry about prices.

“There is no need to shop around for a better price,” Johnson and Johnson company attorneys wrote. The American Optometric Association said in a statement Wednesday that going to the doctor for lenses also helps keep people’s eyes safe.

But the discounters say that the minimum prices hurt customers by making lenses more expensive. The discount giant Costco says the manufacturer’s minimum price rules forced them to raise prices by more than 20 percent on some brands. Prices on the popular Acuvue Oasys brand increased from about $52 for a 12-pack to about $68 last year, according to court papers.

On Monday, a federal judge sided with Utah and discount companies when he refused to block the law from going into effect the following day. U.S. District Judge Dee Benson said it appears to be a legal antitrust measure designed to keep the manufacturers from squelching competition with the minimum prices.

The minimum price rules have also 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 Monday’s ruling. Nine states have considered similar legislation similar to that passed in Utah.

The manufacturers are appealing Benson’s ruling to the 10th Circuit Court of Appeals in Denver.

A constitutional law expert said Wednesday that the law doesn’t appear to run afoul of interstate commerce rules because it bolsters competition rather than protects a local company.

“This is just garden variety economic regulation,” said Richard Primus, professor of law at the University of Michigan. The potential penalty in the law appears to be more legally complicated, though. The law allows the state’s attorney general to file a civil action against a contact lens manufacturer if they refuse to sell to a Utah retailer that sells the product too cheaply.

“I don’t see how Utah has the power to do that,” said Primus.

Utah state attorney Parker Douglas said it’s not yet clear how the law will be enforced.

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Contested Utah law could impact contact lens industry