E-commerce giant Amazon is set to face the antitrust lawsuit filed by the United States Federal Trade Commission (FTC). Lina Khan-led commission filed the lawsuit in a federal court on Tuesday after years of investigation into the business of the company.
Amazon reacted sharply to the development, saying that the commission has misunderstood the fundamentals of retail. In its statement, the e-commerce giant said, "We respect the role the FTC has historically played in protecting consumers and promoting competition. Unfortunately, it appears the current FTC is radically departing from that approach, filing a misguided lawsuit against Amazon."
The FTC lawsuit was joined by 17 US states, which include Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin.
The landmark antitrust case comes just days after the hearing in US Department of Justice lawsuit against Google began in Washington. With lawmakers increasing their scrutiny of big tech, the new lawsuit against Amazon would be the most difficult case it has faced in the last 30 years of its existence.
What FTC Has Alleged In Its Lawsuit Against Amazon
As per the statement released by the trade commission on Tuesday, Amazon allegedly engages in practices which curtail the emergence of new competitors. FTC alleges that the e-commerce giant has tried to ensure its monopoly in the market "by stifling competition on price, product selection, quality, and by preventing its current or future rivals from attracting a critical mass of shoppers and sellers".
FTC Chairman Lina Khan said that the company has degraded services for millions of consumers. She added, "Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies."
In the complaint, the commission along with several other states have cited some practices. The complaint says that the e-commerce giant has steeply hiked fees from sellers to take close to half of every dollar from sellers who use Amazon's fulfillment service.
FTC has also said that by forcing sellers to advertise more to reach the audience, it has degraded the quality of search results.
The complaint notes that the degradation of services and reduced margins for sellers could help prop up other rivals but the company has ensured that no other rival is able to scale properly using its power.
The complaint reads, "Amazon deploys a sophisticated surveillance network of web crawlers that constantly monitor the internet, searching for discounts that might threaten Amazon’s empire." When it finds a product being sold at a lower price than the price offered by a seller on its platform, it punishes the seller.
FTC lawsuit also mentions that the company earlier used to impose explicit contractual requirements which required all sellers to not offer their goods for lower prices anywhere else. While the clause was dropped after it received attention of lawmakers in Europe and US, the complaint notes that the company is now deploying other means to punish sellers.
According to the details of the case, Amazon kicks out sellers who are found selling at lower prices elsewhere from its buy box option. While the exact share was redacted in the available copy of the complaint, it noted, "Eliminating a seller from the buy box causes the seller's sales to 'tank'. Another form of punishment is to bury discounting sellers so far down in Amazon's search results that they become effectively invisible."
Another alleged anti-competitive practice of the company cited by the prosecutors is the use of eligibility criteria for forcing sellers to enroll for services.
The petitioners are demanding a permanent injunction against Amazon which would prohibit the company from "engaging in its unlawful conduct and pry loose Amazon’s monopolistic control to restore competition".
Amazon's Response To FTC Lawsuit
The e-commerce giant, in its statement after the lawsuit was filed, has claimed that the relief FTC is seeking would hurt consumers the most. The company has countered the main allegations of FTC lawsuit.
On the allegation of tactics against sellers, the company said that it tries to ensure that consumers get competitive prices for products on its platform. "All of the other businesses that sell in our store set their prices independently, but to help them increase sales and make our store more attractive to customers, we also invest in tools and education to help them offer competitive prices," Amazon said in its statement.
As per the company, if a seller still chooses to price product higher then it doesn't highlight or promote them to ensure that consumers are able to get the best deal.
Company has also said that it doesn't force sellers to advertise and it's rather them choosing the optional service provided by the company. It said, "Sellers often choose our services because they provide better value than the alternatives—helping them grow their businesses and serve more customers."
Amazon also refuted the allegation of Prime being an anti-competitive service, asserting that it is good for sellers, consumers and competition. "Our customers love Prime because it’s such a great experience—which makes it hard to understand why the FTC attempts to paint the value of Prime as somehow anticompetitive."
The latest exchange between the commission and the company comes amidst the increased scrutiny of the e-commerce giant by FTC under the leadership of Lina Khan.
Lina Khan's Focus On Amazon
The 32-year-old legal scholar has a history of criticising the business of Amazon. When she took over as the chairperson of FTC in 2021, there was an expectation that ecommerce giant would face greater scrutiny on its empire.
Khan had shot to fame in 2017 after a piece on Amazon written by her gained traction in progressive circles. Published in the Yale Law Journal with the title 'Amazon's Antitrust Paradox', she criticised the monopolistic practices of the company. She had also called for greater regulatory scrutiny of the company and also suggested the break up of businesses.
Talking about the antitrust lawsuit, Khan remarked, "[This] lawsuit seeks to hold Amazon to account for these monopolistic practices and restore the lost promise of free and fair competition.”
The FTC under her regime has already targeted the company with some lawsuits. Back in June, the commission had filed a complaint stating that Amazon enrolled consumers into its Prime programme without their consent and also made it difficult for them to cancel the subscriptions.
Amazon also had to pay $31 million to settle federal lawsuits over privacy violations. The commission had said that the company failed to protect consumers sensitive data by allowing any employee or contractor to access their videos. On Alexa, the commission had said that by not allowing parents to exercise their right for deletion of children's data, the company violated Children’s Online Privacy Protection Act Rule (COPPA Rule).
However, the current case is the biggest threat to Amazon's $1.3 trillion empire. As Khan finally makes her move to rein in the ecommerce giant, it remains to be seen who will prevail in the battle. The action would now move to the federal court room in the coming months, with the decision expected to have widespread ramifications for big tech in the United States.