The good news for Amazon is that the company broke its all-time revenue record for its annual “Prime Day” sales event earlier this month. According to Adobe Analytics, U.S. consumers spent $12.7 billion over the two-day period, a 6.1 percent increase over last year’s take. Other gains were made in average order size ($54 vs. $52) and the average household spend was $155. All told, the number of total purchases reached 375 million, another record.
Now for the bad news: the Federal Trade Commission (FTC), led by chairwoman Lina Khan, sued the Seattle-based company last month charging that Amazon induced consumers to sign up for its paid “Prime” subscription service and then impeded them if they wanted to cancel.
Furthermore, according to Bloomberg, the FTC shortly plans to file “a far-reaching antitrust suit focused on Amazon’s core online marketplace,” adding that Amazon leverages its power to reward online merchants that use its logistics service and punish others who don’t.”
If successful, the impact of this potential FTC litigation could be devastating to Amazon whose cut of products sold through its third-party network surpassed 50 percent for the first time in 2022.
Of more relevance at the moment is the June 21 suit filed by the federal agency which accused Amazon of duping millions of consumers into subscribing to “Prime” by utilizing “manipulative, coercive or deceptive” tactics.
The suit, which was filed in U.S. district Court for the Western District of Washington (which covers the Seattle area where Amazon is headquartered) also noted that when consumers wanted to cancel, Amazon “knowingly complicated” the process with complex procedures.
According to a statement from the ultra-liberal, anti-big business chair, “Amazon tricked and trapped people into recurring subscriptions without their consent, not only frustrating users but also costing them significant money.”
Amazon responded by stating that FTC’s claims are “false on the facts and the law” and that “by design we make it clear and simple for customers to both sign up for or cancel their Prime membership.” Amazon also said the federal agency filed its suit without advance notice, while the two sides were still discussing the case.
Currently, there are more than 200 million “Prime” members who pay $139 a year to get free and/or faster shipping of products as well as discounts on other offerings including streaming movie and groceries from corporately-owned Whole Foods. Amazon last year grossed more than $35 billion just from the revenue generated by its “Prime” subscriptions.
The lawsuit also stated that Amazon “substantially revamped its Prime cancellation process for at least some subscribers” shortly before the legal action was filed. However, “prior to that time, the primary purpose of the Prime cancellation process was not to enable subscribers to cancel, but rather to thwart them.”
The FTC is asking the court to court to stop Amazon from engaging in those practices and to force the company to pay an unspecified financial penalty.
Before and during Khan’s two-year tenure as head of the FTC, Amazon agreed to settle other legal issues including a $25 million payment concerning its Alexa home assistant device which the agency said had illegally collected children’s data and another case regarding its Ring home security unit. More recently, the FTC said it would not block Amazon’s $3.49 billion acquisition of 1LifeHealthcare but said it would continue to scrutinize the deal even after the statutory deadline for antitrust review had expired. “The FTC’s investigation of Amazon’s acquisition of One Medical continues. The commission will continue to look at possible harms to competition created by this merger as well as possible harms to consumers that may result from Amazon’s control and use of sensitive consumer health information held by One Medical,” said FTC spokesman Douglas Farrar.
Clearly, Khan’s been hunting for Amazon since at least 2017 when she published a paper in The Yale Law Journal titled “Amazon’s Antitrust Paradox,” which took the position that interpretations of antitrust law should be broadened to address tech companies like Amazon, effectively upending decades of established antitrust doctrine. “As Amazon continues both to deepen its existing control over key infrastructure and to reach into new lines of business, its dominance demands the same scrutiny,” she stated.
Since she was appointed as FTC chair in June 2021, Khan has sued to block 10 deals, all involving large corporate firms seeking to gain greater share of market through acquisition. She has been particularly active in seeking to block deals initiated by tech companies including Google and Microsoft.
However, earlier this month, Khan and her team were handed a major setback when a federal judge allowed Microsoft’s deal to acquire video game publisher Activision Blizzard for $68.7 billion to go forward. A subsequent appeal by the FTC, which sued to block the deal in December 2022, was also denied.
It’s clear that the big tech companies (including Amazon) with deep pockets and the time to wade through the legal bureaucracy are ready to do long-term battle with Khan.
However, that might not be the case with the proposed Kroger-Albertsons merger which fits directly in the wheelhouse of deals Khan objects to. In 2017, while a law student at Yale, she co-wrote another paper called “Market Power and Inequality: The Antitrust Counterrevolution and Its Discontents,” in which she cited the 2015 Albertsons acquisition of Safeway as ineffective.
If she sues to block the Kroger-Albertsons deal, which the FTC is expected to rule on by next summer, one might question whether both retailers could afford to wait out a potential years-long battle.
