ANTITRUST AND TRADEMARK SETTLEMENTS
C. S
COTT
H
EMPHILL
& E
RIK
H
OVENKAMP
*
Some leading online platforms do not charge a monetary fee to consumers,
instead earning their profits mainly through advertising. As consumers in-
creasingly rely on such platforms as their primary sources of information,
sellers have become increasingly reliant on these firms to inform consumers
about their products. Thus, one important result of the continuing rise of digi-
tal platforms is the increased relevance of advertising—particularly online ad-
vertising—to the competitive process. It follows that restraints on competitive
advertising are now more relevant to antitrust law than ever before.
Certain restraints on advertising are privileged as a matter of trademark
law. In particular, ads likely to confuse consumers about the source of a prod-
uct are actionable as trademark infringement. This may confer safe harbor to
restraints that would otherwise raise antitrust concerns. The upshot is that the
intersection of antitrust and trademark law has become steadily more impor-
tant in the “Big Tech” era.
A central issue at this intersection is the rise of horizontal agreements in
which competitors attempt to invoke trademark law to justify a restraint on
competitive advertising. Consider an example.
1
Walgreens sells contact lenses
online. Buying advertisements on Google—and other smaller search engines,
which we ignore for expositional simplicity
2
—has been an important element
of its marketing plan. The ads appear alongside Google’s search results when
a user searches for online contact lens,acuvue, or—as particularly relevant
* Moses H. Grossman Professor of Law, NYU School of Law; Assistant Professor, USC
School of Law. We thank Barton Beebe, Michael Carrier, Tom Cotter, Stacey Dogan, Harry
First, Mark Lemley, Christopher Leslie, Tony Reese, Jeremy Sheff, Danny Sokol, and audiences
at the American Bar Association Spring Meeting, Boston University, New York University, the
University of California–Irvine, the University of Minnesota, and the University of
Texas–Austin for helpful comments and discussions, and Emma Becker, Lucas Crosby, Antara
Joardar, Mike Rusie, and Aditya Trivedi for excellent research assistance.
1
See Initial Decision, 1-800 Contacts, Inc., FTC Docket No. 9372, 2017 FTC LEXIS 125
(Oct. 27, 2017) [hereinafter 1-800 Contacts Decision].
2
See id. at 21, 2017 FTC LEXIS 125, at *40 (noting that “[i]t is generally recognized” that
Google’s share of search advertising exceeds 80 percent).
67
68
A
NTITRUST
L
AW
J
OURNAL
[Vol. 85
here—1800contacts, the name of the leading online retailer of contact lenses.
The ads target likely customers and inform them about Walgreens’ business.
Search ads, and in particular ads targeting a competitor, are a potent and cost-
effective way to advertise low prices and other attractive features.
1-800 Contacts (1-800) responded to the threat posed by competitive search
advertising in two ways. First, the firm filed trademark suits against Wal-
greens and other competitors, alleging that their ads were confusing and
thereby infringed the
1-800
CONTACTS
trademark. Second, it settled the litiga-
tion, with 1-800 and Walgreens each agreeing not to run ads triggered by a
search for the other firm’s name. As a result, consumers who use Google to
reach 1-800 are left in the dark about the existence, price, and features of
competitive offerings. Similar settlements have been reached in a wide range
of other industries.
Under what circumstances do these settlements violate antitrust law? Anti-
trust enforcers and private plaintiffs have challenged these deals as unlawful
restraints of trade, with mixed results.
3
Despite their importance, search adver-
tising agreements have received little scholarly attention.
4
To answer this
new—and newly urgent—question about competition on digital platforms re-
quires a deeper examination of the nature of the intellectual property (IP) priv-
ilege and its intersection with antitrust law.
This intersection has received a great deal of analysis in the context of
patent law. The settlement of patent litigation, in which competing firms agree
to restrain competitive activity in some manner, has been a subject of particu-
larly intense litigation and scholarly debate. This debate culminated in the
Supreme Court’s landmark Actavis decision, which recognized important lim-
its on the scope of the IP privilege.
5
The case established the anticompetitive
harm and illegality, under antitrust law, of an important class of patent settle-
3
See infra Part I.A.
4
The main exceptions are Samuel N. Weinstein, Rigged Results? Antitrust Lessons from
Keyword Auctions, 91 T
ULANE
L. R
EV
. 629 (2017) (discussing potential anticompetitive effects);
Geoffrey A. Manne, Hal Singer & Joshua D. Wright, Antitrust Out of Focus: The FTC’s Myopic
Pursuit of 1-800 Contacts’ Trademark Settlements, A
NTITRUST
S
OURCE
(Apr. 2019), at 1 (oppos-
ing antitrust liability); and Jan Svit´ak, Jan Tichem & Stefan Haasbeek, Price Effects of Search
Advertising Restrictions, 77 I
NT
’
L
J. I
NDUS
. O
RG
. 102736 (2021) (concluding that hotel-imposed
restraints on online resellers are associated with higher prices). See also Eric Goldman, Want to
Engage in Anti-Competitive Trademark Bullying? Second Circuit Says: Great, Have a Nice
Day!, T
ECH
. & M
KTG
. L. B
LOG
(June 14, 2021), blog.ericgoldman.org/archives/2021/06/want-to-
engage-in-anti-competitive-trademark-bullying-second-circuit-says-great-have-a-nice-day-1-
800-contacts-v-ftc.htm (criticizing a lenient approach to settlements); Giuseppe Colangelo, Com-
peting Through Keyword Advertising in the EU and the US (Transatlantic Tech. L. Forum,
Working Paper No. 52, 2020), law.stanford.edu/wp-content/uploads/2020/02/co-
langelo_wp52.pdf (summarizing developments in various jurisdictions).
5
See generally FTC v. Actavis, Inc., 570 U.S. 136 (2013).
2023]
A
NTITRUST AND
T
RADEMARK
S
ETTLEMENTS
69
ments. The lessons of Actavis have been elaborated in a decade’s worth of
lower-court cases.
Settlements of trademark litigation raise analogous questions that have
gone largely unexplored. One uncontroversial premise is that trademark law
protects firms such as 1-800 from certain forms of competition. For example,
it prohibits marketing activity that creates a risk of confusion as to the identity
of the seller of a product. On the other hand, competitive advertising that
creates no risk of confusion is both lawful and desirable. The problem is that
firms would prefer to limit their rivals’ competitive advertising, whether or
not it creates a risk of confusion. Consequently, firms have an incentive to
enter into agreements that restrain advertising to a greater extent than is justi-
fied by trademark law. A second unremarkable premise is that winning a
trademark suit is not an antitrust violation, even if the result is a restriction on
competition. However, settling a trademark suit is a very different thing. Such
agreements may violate the antitrust laws, just like anticompetitive settle-
ments involving patents. However, there is relatively little case law or schol-
arship shedding light on when this is the case.
This article is an effort to fill that gap. We analyze the competitive effects
of trademark settlements and propose a means to assess whether a particular
settlement is an unlawful restraint of trade. We explain how Actavis, a deci-
sion about patent settlements, can be adapted and applied to trademark cases.
We do so with a view to reconciling antitrust concerns about competitive mar-
kets with the policy interests underpinning trademark law.
Our first step is to distinguish two types of trademark settlements. The first
type limits a competitor’s ability to choose a mark for its own goods.
6
One
famous example is a deal between the makers of
LYSOL
kitchen disinfectant
and
PINE
-
SOL
floor cleaner, which set the terms of entry for a kitchen disinfec-
tant under the
PINE
-
SOL
name.
7
Such settlements restrict what mark the com-
petitor can attach to its own product. The maker of
PINE
-
SOL
is free to “invent
around” any trademark issue by choosing a different mark. The perceived ease
of doing so results in a dismissive conclusion that, in terms of exclusionary
potential, trademarks are a “weak” IP right compared to patents and hence
unworthy of antitrust attention. This conclusion has been influential and ap-
plied broadly—too broadly, as we explain—in denying antitrust liability
where a trademark is involved.
The second type of trademark settlement limits a competitor’s ability to
target the incumbent for competition using the incumbent’s trademarked
6
See infra Part I.B.
7
See Clorox Co. v. Sterling Winthrop, 117 F.3d 50, 52–54 (2d Cir. 1997).
