FTC Sues Amazon in Landmark Antitrust Case Over Marketplace

Leah Nylen and Spencer Soper
·6 min read
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(Bloomberg) -- The US Federal Trade Commission sued Amazon.com Inc. in a long-anticipated antitrust case, accusing the e-commerce giant of monopolizing online marketplace services by degrading quality for shoppers and overcharging sellers.

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In a complaint filed in federal court in Seattle Tuesday, the FTC and 17 states accused Amazon of engaging in a course of conduct to exclude rivals in online marketplace services and stifle competition. The company is also accused of illegally forcing sellers on its platform to use its logistics and delivery services in exchange for prominent placement and of punishing merchants who offer lower prices on competing sites.

“Amazon is a monopolist and it is exploiting its monopolies in ways that leave shoppers and sellers paying more for worse service,” FTC Chair Lina Khan said in a briefing with reporters. “The stakes here are high. There is immediate harm that is ongoing. Sellers are paying $1 of every $2 to Amazon.”

The suit is the fourth the agency has filed this year targeting Amazon, underscoring the determination of the Biden administration to put the growing concentration of corporate power, especially among Big Tech companies, at the heart of economic policy.

In a statement, Amazon said it will challenge the FTC’s lawsuit in court, adding that it “radically” departs from the agency’s mission of protecting consumers and is “wrong on the facts and the law.”

“The practices the FTC is challenging have helped to spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store,” said David Zapolsky, Amazon general counsel. “If the FTC gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small businesses — the opposite of what antitrust law is designed to do.”

The case also represents a career-defining moment for Khan, Biden’s FTC chair, who has long had Amazon in her sights. As a young law student, Khan wrote a seminal paper arguing that the existing antitrust enforcement framework was poorly equipped to tackle the potential harm Amazon poses to competition.

Uncertain Remedies

While the agency didn’t outline specifics of possible remedies, if it wins the case it could ask the judge to restructure the company, potentially ordering it to divest its logistics operations among other business units. In a briefing with reporters, Khan declined to discuss potential remedies.

“If we succeed, competition will be restored and people will benefit from lower prices, better quality,” Khan said Tuesday.

In the suit, the FTC accused Amazon of “extensive efforts” to interfere with its investigation and “hide information about its internal operations.” Details about that accusation are redacted, but the complaint refers to the use of Signal, an encrypted messaging app, and claims Amazon “prejudicially” took some action — the specifics are blacked out — despite the agency telling it not to.

Amazon shares were down 2.8% to $127.61 at 12:50 p.m. in New York, little changed from before the lawsuit was made public.

The FTC and a bipartisan slate of states claim Amazon engaged in anticompetitive conduct in two markets — the online superstore sector that serves consumers and the separate market for sellers.

Amazon’s marketplace is the heart of the company’s e-commerce operations. Third-party merchants, who now account for more than half of the company’s online sales, pay a commission on each sale and have the option of also paying Amazon for services that range from warehousing and shipping to advertising.

Merchants have complained for years about what they see as a one-sided relationship, accusing the company of arbitrarily enforcing its rules and being slow to respond when something goes awry.

Among other things, Amazon bars sellers from offering lower prices on other sites, a policy the FTC says curbs online competition because it forces sellers to raise prices on competing platforms such as Walmart.com for fear of having their products buried in Amazon search results.

Amazon causes American consumers to pay higher prices for goods, said Molson Hart, who sells the building toy set Brain Flakes on Amazon.

“The fees and advertising costs to sell on Amazon are higher than other marketplaces,” Hart said. “Because Amazon is by far the largest sales channel for all sellers, sellers must keep their prices high off Amazon to ensure they can continue to sell on Amazon.”

The FTC also alleged that Amazon unduly favors its own retail business, as well as marketplace sellers that use the company’s logistics services.

The FTC, which has both antitrust and consumer protection mandates, has been investigating Amazon for potential anticompetitive conduct for several years, asking questions about everything from the company’s marketplace and Prime subscription service to mergers and its cloud computing arm. Top executives met with the FTC’s three commissioners in August to discuss the suit, though no settlement was discussed, according to people familiar with the meetings.

The majority of states that signed on to the complaint have Democratic attorneys general, though two Republicans also joined. Fewer states joined the Amazon suit than the Justice Department’s antitrust case against Alphabet Inc.’s Google or the FTC’s earlier case against Meta Platforms Inc.

Alexa, Ring

In May, the agency sued the e-commerce giant in two separate cases for failing to delete data about kids collected by its Alexa speakers and illegally spying on users of its Ring doorbells and cameras. Amazon said it disagreed with the FTC’s allegations, but agreed to pay $30.8 million to resolve the cases.

One month later, the FTC again sued Amazon in a consumer protection case, alleging the company duped consumers into signing up for Prime membership and deliberately made it hard to cancel — echoing longstanding complaints from consumer watchdogs. Amazon denies the allegations, and that suit is ongoing.

Amazon has pushed the FTC to recuse Khan from its case, citing her academic work and prior statements about the company. It has also accused the agency of harassing founder Jeff Bezos and the company’s Chief Executive Officer Andy Jassy with document and interview requests.

The FTC is separately investigating Amazon’s proposed $1.65 billion acquisition of Roomba vacuum maker iRobot Corp. as are European antitrust authorities. In July, the companies renegotiated the price of the deal as the regulatory reviews remain ongoing.

The case is FTC v. Amazon, 23-cv-1495, US District Court, Western District of Washington (Seattle).

--With assistance from Matt Day and Zoe Tillman.

(Updates with details from suit, seller comment.)

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