UPDATED: Amazon Faces Backlash for Alleged Abusive Practices

UPDATE 02/15/2024: In recent legal battles, Amazon finds itself entangled in two separate class-action lawsuits, both shedding light on alleged deceptive practices that have drawn the ire of consumers.

The first lawsuit, filed by California residents Jeffrey Taylor and Robert Selway, accuses Amazon of utilizing an algorithm to favor pricier products, impacting search results and the coveted “Buy Box.” Simultaneously, the second lawsuit revolves around a significant change to the Prime Video service, where the retail giant introduced ads and charged an additional fee for an ad-free experience.

Algorithm Favoring Pricier Goods

Filed in the US District Court in Western Washington, the first lawsuit accuses Amazon of violating WA state law by utilizing an algorithm to intentionally promote costlier items in its “Buy Box.” The proposed class action suit claims that Amazon’s algorithm prioritizes more expensive products over relevant items with lower prices and faster delivery times. 

The suit also claims that Amazon used its algorithm to boost sales of costlier goods sold by participants in its Fulfillment by Amazon (FBA) network, which includes third-party sellers. Additionally, the lawsuit alleges that Amazon shoppers overwhelmingly choose the company’s product recommendations, even if they are not the lowest-priced options.

As a result, “consumers routinely overpay for items that are available at lower prices from other sellers on Amazon—not because consumers don’t care about price, or because they’re making informed purchasing decisions, but because Amazon has chosen to display the offers for which it will earn the highest fees,” the complaint said.

This case follows a similar thread to the Federal Trade Commission’s (FTC) lawsuit filed five (5) months earlier in the same federal district court. The agency accused Amazon of employing anticompetitive and unfair strategies to maintain a monopoly, including preventing rivals and sellers from lowering prices and stifling innovation.

The potential financial liabilities Amazon may face remain uncertain, but could be substantial. Approximately 80% of the retailer’s customer base, amounting to 300 million subscribers, is believed to be from the US, and these customers are claimed to have overpaid on the majority of their purchases for the past seven years. In 2023, Amazon’s US sales surpassed $574 billion.

Related: Amazon Faces Tougher Scrutiny Under EU’s Digital Services Act

Prime Video Changes Lawsuit

In January, Amazon implemented a significant change to its Prime Video service by introducing ads and offering customers the option to remove them for an extra $2.99 a month on top of their regular subscription fee.

The class-action lawsuit, filed in California on February 9, claims that this change was deceptive and unfair, violating state consumer protection laws. The case argues that Amazon falsely advertised its Prime Video service as “commercial-free” for years to induce consumers to purchase its Prime subscription.

By introducing ads and requiring an additional fee for an ad-free experience, the plaintiffs argue that Amazon breached Washington’s Consumer Protection Law and California’s Unfair Competition Law, which prohibits “unlawful, unfair, or fraudulent” business practices.

Adding to the controversy, Amazon has reportedly removed Dolby Atmos and Dolby Vision from Prime Video. Now, access to these features comes at an additional cost of $2.99/month for users opting to eliminate ads. 

The lawsuit seeks $5 million in damages, restitution, and an injunction preventing Amazon from engaging in similar alleged behavior in the future.

Final Thoughts

These dual lawsuits mark another chapter in Amazon’s legal battles, reflecting the increasing scrutiny faced by the tech giant. As consumers and regulators alike raise concerns over anticompetitive practices and deceptive changes to services, Amazon finds itself in the crosshairs of legal challenges that could reshape its business practices and potentially impact the broader eCommerce landscape.
The outcomes of these lawsuits will be closely watched, as they may set important precedents in the ongoing debate over the responsibilities and accountability of major tech companies.

UPDATE 07/26/2023: A win for UK sellers! 🇬🇧💪

Amazon on Wednesday offered concessions to the UK Competition and Markets Authority (CMA) to settle an open antitrust probe.

In 2022, an investigation was launched by the CMA against Amazon, with claims asserting that the retail giant was engaging in practices that exploited its dominant market position, particularly concerning its marketplace operations.

The focal points of the British regulator’s inquiry revolve around three key aspects.

• The questionable methods employed by Amazon to gather and utilize data from third-party sellers, and whether the company uses this intel to gain unfair competitive advantage in deciding what products to sell (for its own brands, for example) and how to set prices.
• The investigation also centers on scrutinizing how the eligibility criteria for selling under the Prime label are established. Prime offers certain benefits, such as free and fast delivery, that are only available to Prime members, putting non-Prime users at a disadvantage.
• Amazon’s “secretive and self-preferencing” process for selecting products in the “Buy Box.” The company uses a set of (undisclosed) criteria to determine which products are granted the coveted position of being the first choice in the “Buy Box.” For customers, this box holds prime real estate on product pages, offering convenient “Buy Now” or “Add to Basket” options exclusively from a particular seller, which could be Amazon itself.

To address these concerns, Amazon has offered to:

• Restrict its use of data concerning marketplace sellers. By doing so, the retail giant aims to prevent any unfair advantage for its own retail business over other sellers within its marketplace.
• Treat all products equally when Amazon decides which ones will be featured in the Buy Box. This proposal, if accepted, will grant sellers a fair opportunity to have their product offers prominently showcased in the coveted box, even when contending with Amazon’s own product offerings.
• Allow sellers to directly negotiate their preferred shipping rates with Prime delivery service providers so that they can offer affordable delivery fees to customers.
• Together with CMA, appoint an independent trustee to conduct regular compliance monitoring. 

The CMA is currently engaging in a consultation process regarding Amazon’s offers, prior to reaching a final decision on their acceptance. If accepted, Amazon would dodge yet another big antitrust case in Europe.

In December 2022, Amazon reached a final deal with the European Commission over similar antitrust investigations into its use of seller data, Buy Box algorithm, and eligibility criteria for Prime, thereby avoiding a fine of up to 10% of its total revenue.

Amazon may have survived these EU antitrust cases unscathed, but a bigger threat looms over its US eCommerce operations with the Federal Trade Commission (FTC) finalizing a lawsuit that could break up the company. See report below.

UPDATE 06/29/2023: Amazon could soon face a major antitrust lawsuit as the Federal Trade Commission (FTC) inches closer to taking action. 🥊

FTC chair Lina Khan and her team of investigators have dedicated months to finalizing a complaint against the dominant eCommerce firm. The complaint alleges that Amazon manipulates its influence by favoring third-party sellers who utilize its logistics services while penalizing those who opt not to, as reported by Bloomberg.

The agency is also currently conducting an inquiry into an algorithm responsible for selecting brands to feature in the highly sought-after “Buy Box” on Amazon.com. This means that if there are multiple offers on the same listing, one seller’s offer is given priority over others, allowing consumers to effortlessly add to cart in a single click, streamlining their shopping experience.

The anticipated antitrust lawsuit is similar to a 2020 report presented by a subcommittee within the US House, in which Khan was listed as a team member. These allegations also align with a concurrent antitrust lawsuit in Europe, accusing Amazon of granting preferential treatment to sellers utilizing its fulfillment services and leveraging sellers’ sales data to bolster its own retail operations.

In the event that the Commission successfully provides evidence of Amazon engaging in deliberate market manipulation within an industry where it possesses monopolistic influence, it opens the possibility for advocating for the company’s dissolution or restructuring. This stance also indicates Khan’s reluctance to accept concessions from Amazon – something that the company did to resolve the EU antitrust case.

Amazon reportedly reached a settlement where they agreed to modify their Buy Box practices and impose limitations on the utilization of data obtained from 3rd-party sellers on their online EU marketplaces.

However, when it comes to the US market, Khan has expressed clear opposition to adopting similar compromises. During her testimony to a Senate committee last year, she firmly stated that the FTC would strongly oppose and disapprove of such legal remedies.

This forthcoming lawsuit is not the first encounter between the FTC and Amazon.

Over the past couple months, the agency has initiated three distinct and unrelated cases against the eComm giant.

• Amazon resolved the first accusation, which involved claims of unauthorized surveillance on customers through its Ring brand doorbells.
• The company faced allegations of violating child data privacy laws with its Alexa technology.
• In a separate instance, the FTC filed a new case last week, accusing the retailer of engaging in deceptive practices concerning its subscription services.

Amazon Braces for the Massive Antitrust Case

When Khan took over the FTC in 2021, she initiated a new approach to the agency’s antitrust probe of Amazon. She actively contributed to formulating key interrogative points for the investigative team, personally selected John Newman as co-lead investigator, and re-interviewed nearly 30 individuals employed by the retail giant.

Khan’s stringent stance and handling of the Commission earned her the ire of Amazon, accusing her of showing bias, and thus must recuse herself from the case. Amazon also tried to derail antitrust investigations by allegedly launching an offensive against the tech-focused antitrust legislation proposed by Congress, a source told Bloomberg.

In 2022, Amazon and other big tech firms invested $20 million in lobbying efforts, alongside initiating an ad campaign and mobilizing sellers in the home states of lawmakers to publicly resist the proposed bills.

Aside from criticisms, Amazon has also poached former FTC employees to gain intel, the NY Post reported.

According to informed sources, the former FTC officials who left the organization to pursue opportunities at Amazon have been greatly influenced by Khan’s distinctive managerial style.

Khan’s leadership approach has generated discontent among FTC employees, with certain staff members characterizing the 34-year-old chair as an authoritative figure with a management style that is deemed “tyrannical” and “abusive” according to the above referenced article.

“If people are displeased with leadership, it makes you more inclined to listen to offers,” former FTC chair William Kovacic told the NY Post.

While the ex-FTC employees are prohibited from working on the case, they can share insights into “key players, who is making decisions, the mood of the agency, prevailing attitude of enforcement, overall sense of how stretched an agency is in using resources, and many people they can deploy on a given matter,” Kovacic said.

All of this shows Amazon’s profound concern regarding the challenges posed by the FTC. The anticipated antitrust case accusing Amazon of playing favorites, in particular, holds the potential to have significant ramifications for the company. The outcome of this legal battle has the power to change the eCommerce landscape moving forward.