FTC Files Antitrust Complaint On Amazon

The Federal Trade Commission lodged a long-expected case Tuesday accusing Amazon of violating antitrust law, marking another aggressive step in the administration's efforts to increase competition across the economy, especially through moves to rein in large digital platforms.

The suit filed in federal court in Washington state targets Amazon's policies that enforcers say punish sellers for offering lower prices elsewhere and requirements that force merchants to use Amazon's logistics services to gain access to the platform.

FTC Chair Lina M. Khan, who shot to public prominence while still in law school with a paper titled "Amazon's Antitrust Paradox," said during a press briefing Tuesday that the complaint, joined by the attorneys general of 17 states, lays out several tactics Amazon uses to "thwart competition and protect its dominance."

"The upshot here is that Amazon is a monopolist and it is exploiting its monopolies in ways that leave shoppers and sellers paying more for worse service," Khan said. "In a competitive world, a monopoly hiking prices and degrading service would create an opening for rivals and potential rivals to come in, draw business, grow and compete.

"Amazon's unlawful monopolistic strategy has closed off that possibility and the public is paying dearly as a result," Khan added.

The suit targets Amazon's policies that prevent third-party sellers from selling products cheaper on other platforms by punishing sellers through degraded search results on Amazon. Enforcers also allege third-party sellers are required to use Amazon's costly logistics services in order to obtain "Prime" eligibility, which the commission said is crucial to their success but also makes it more expensive to sell on other platforms.

Khan said Tuesday the tactics employed by Amazon all had the same goal of depriving rivals of "the scale necessary to meaningfully compete."

Amazon's senior vice president of global public policy and general counsel, David Zapolsky, responded to the suit in a statement Tuesday saying it makes clear that the FTC's focus has "radically departed" from its mission of protecting consumers and competition.

Zapolsky contended that the practices the commission is challenging have helped spur competition and innovation "across the retail industry," resulting in greater selection, lower prices and faster delivery for consumers, along with greater opportunities for Amazon sellers.

"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," Zapolsky said. "The lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court."

The suit alleges that Amazon deploys a sophisticated surveillance network to monitor for sellers offering discounts on other platforms "that might threaten Amazon's empire" and then punishes those sellers by making their products harder to find on Amazon. Originally, the complaint said, Amazon used explicit contractual requirements to prevent sellers from selling cheaper elsewhere but turned to a new approach after scrutiny from European enforcers and U.S. lawmakers.

Now, the complaint says, Amazon levies sanctions on sellers found to be offering discounts, including removing them from the "Buy Box" at the top of the page and burying them far down in results. The suit also contends Amazon uses its own retail business, which competes against sellers, to deter them from competing on price.

"Moreover, Amazon's one-two punch of seller punishments and high seller fees often forces sellers to use their inflated Amazon prices as a price floor everywhere else," the complaint said. "As a result, Amazon's conduct causes online shoppers to face artificially higher prices even when shopping somewhere other than Amazon."

Amazon's pricing policies were already the subject of a suit from the California attorney general's office alleging the policies violate state law, while the D.C. attorney general's office is also trying to revive a similar case over the pricing policies under local laws there.

Consumers and retailers, meanwhile, also have various private suits targeting Amazon for antitrust violations that remain pending.

The case from the FTC and the states on Tuesday also targets requirements that sellers use Amazon's order fulfillment service in order to be eligible for "Prime," contending the designation is critical for reaching Amazon's "enormous base of shoppers."

This not only raises the costs for sellers on Amazon but also prevents them from selling on multiple channels since they are unable to use an independent provider for Amazon orders, according to the suit.

"Each element of Amazon's monopolistic strategy works to keep its rivals and potential rivals from growing, gaining momentum, and achieving the scale necessary to meaningfully compete against Amazon," the complaint said. "The cumulative impact of Amazon's unlawful conduct is greater than the harm caused by any particular element."

The sprawling 172-page complaint accuses Amazon of illegally maintaining monopolies over a market for "online superstores" used by consumers and a market for online marketplace services used by third-party sellers on its platform. It includes claims under Section 2 of the Sherman Act as well as unfair competition under the FTC Act, and myriad state-law claims.

The potential remedies listed in the complaint include injunctions preventing Amazon from engaging in the conduct, or similar conduct in the future, and also "structural relief" if needed to restore competition, which could refer to a break up or a sale of part of Amazon's business.

During Tuesday's press briefing, Khan said the focus of the case right now is on liability and said the goal is to halt the illegal conduct and prevent its recurrence. Though she also said the commission will try to explain the competitive dynamics of the market to the court and how Amazon's activity is cumulative and self-reinforcing.

Khan's seminal paper about Amazon for The Yale Law Journal outlined the company's growth and accumulation of dominance across various sectors of the economy, contending Amazon achieved its status by accepting meager profits for years to fuel expansion and to attract loyal consumers with low prices.

Before taking helm of the commission, Khan was also a lead author of a landmark report from staff of the House antitrust subcommittee examining the dominance of Apple, Amazon, Facebook and Google.

In anticipation of FTC enforcement, Amazon has raised objections about Khan's objectivity in the face of her past work targeting it.

The FTC has been ramping up its scrutiny of Amazon more generally, cutting a deal in May for the company to pay more than $30 million in separate settlements over allegations that it breached the privacy of children who used its Alexa voice assistant service and users of its home security camera company, Ring LLC.

In June, the FTC also accused Amazon of using "dark patterns" to trick consumers into automatically renewing their Prime subscriptions and added three senior Amazon executives to that case earlier this month.

Amazon has faced scrutiny from enforcers abroad over various business practices as well. In July, it cut a deal with the U.K.'s Competition and Markets Authority agreeing not to use third-party seller data to its own advantage. It also agreed to make sure its own products are not more likely to appear as the Buy Box featured offer and to ease delivery service restrictions on sellers.

That came after a similar deal last year with European Union enforcers, when Amazon promised not to use nonpublic marketplace seller data for its own retail purposes and to eliminate bias when choosing Buy Box and Prime sellers. The European Commission has also gone after Amazon over its distribution agreements for e-books in the past.

The states that have joined the lawsuit are Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin.

The commission is represented internally by John M. Newman, Susan A. Musser, Edward H. Takashima, Christina F. Shackelford, Christine M. Kennedy, Colin M. Herd, Daniel S. Bradley, Daniel A. Principato, Danielle C. Quinn, David B. Schwartz, Emily K. Bolles, Emma P. Dick, Jake O Walter-Warner, Kelly M. Schoolmeester, Megan E. B. Henry, Sara M. Divett, Stephen E. Antonio and Z. Lily Rudy.

The states are represented by their respective attorneys general.

Counsel information for Amazon was not immediately available.

The case is Federal Trade Commission et al. v. Amazon.com Inc., case number 2:23-cv-01495, in the U.S. District Court for the Western District of Washington.