Amazon using monopoly power to hurt consumers, rivals and sellers, FTC claims

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The US Federal Trade Commission and 17 states have sued Amazon, alleging the online retailer illegally uses monopoly power to overcharge consumers, hobble competitors and exploit sellers on its marketplace.

The landmark lawsuit, filed on Tuesday, accused the $1.3tn ecommerce giant of increasing fees to sellers on its marketplace so that it extracts nearly half of every dollar in revenue made by a typical seller using its logistics service to deliver products.

The FTC also alleged that Amazon punishes sellers that discount heavily by making them “effectively invisible” in its search results and forcing vendors to use its “costly” logistics network.

“Most sellers must now pay for advertising to reach Amazon’s massive base of online shoppers, while shoppers consequently face less relevant search results and are steered toward more expensive products,” according to the complaint, filed in federal court in Seattle.

The lawsuit is one of the biggest tests yet of FTC chair Lina Khan’s more aggressive enforcement stance towards Big Tech, which she believes has skirted regulatory scrutiny for decades.

Before being appointed to head the commission by President Joe Biden, Khan rose to prominence with a 2017 academic paper calling for the break-up of Amazon.

“Our complaint lays out how Amazon has used a set of punitive and coercive tactics to unlawfully maintain its monopolies,” Khan said in a statement.

David Zapolsky, Amazon’s senior vice-president of global public policy and general counsel, said the lawsuit “makes clear the FTC’s focus has radically departed from its mission of protecting consumers and competition”.

“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,” he said.

The heavily redacted complaint detailed ways in which it said Amazon built up and maintained both an “online superstore” attracting hundreds of millions of shoppers, and an “online marketplace” where other vendors could sell their products, creating a behemoth of goods and data that would-be rivals could not match.

“According to [Jeff] Bezos”, Amazon’s founder, “‘build[ing] an important and lasting company . . . in ecommerce’ simply ‘isn’t going to work in small volumes’”, the complaint said.

To maintain this alleged monopoly, the FTC said Amazon used a “sophisticated surveillance network of web crawlers” that monitored whether Amazon sellers were offering their products cheaper on other sites, and punished sellers who did so.

According to the complaint, an internal Amazon study had acknowledged that sellers lived “in constant fear” of such tactics. The lawsuit also alluded to an Amazon pricing system internally codenamed “Project Nessie”, which the FTC said had boosted the company’s profits. Further details of Project Nessie were redacted.

The regulator also alleged that Amazon had made “extensive efforts” to frustrate the regulator’s investigation and “hide information about its internal operations”.

The FTC is seeking an order to permanently stop Amazon from engaging in the allegedly illegal conduct.

The FTC in June separately sued Amazon for allegedly tricking customers into signing up for its Prime service without their consent. Amazon at the time called the claims “false on the facts and the law”.

Tuesday’s complaint said although Amazon’s Prime Video streaming service — part of the bundle of services available to Prime members — was available on a standalone basis, the company used “dark patterns” to “thwart” consumers from being able to sign up for it.

In May, Amazon agreed to pay $25mn to settle a lawsuit brought by the FTC and the US Department of Justice charging it with violating children’s privacy laws via its Alexa voice assistant.

Amazon has requested Khan be recused from matters involving the company, citing her longstanding criticism, but its efforts have not succeeded. When asked about potential impartiality at a congressional hearing in 2021, Khan said she was not required to recuse under federal ethics rules.

Under the Biden administration, top antitrust officials including Khan and Jonathan Kanter, head of the DoJ’s antitrust unit, have stepped up enforcement efforts in a bid to crack down on corporate power in the US.

Kanter has sued Google over dominance in digital advertising, and a trial is ongoing in another DoJ case accusing the company of monopolising internet search.

The FTC is fighting to force Meta to unwind its acquisitions of Instagram and WhatsApp. It has also sought to block Meta’s acquisition of virtual-reality business Within, but ultimately withdrew the challenge. The FTC is still trying to block Microsoft’s acquisition of Activision Blizzard after facing initial losses in court.