U.S., 17 states sue Amazon alleging monopolistic practices led to higher prices

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SEPTEMBER 26, 2023

The Federal Trade Commission and 17 state attorneys general filed a sweeping antitrust lawsuit against Amazon Tuesday, a long-awaited move that seeks to bar the company from allegedly abusing its powers to raise prices for shoppers and levy high fees against businesses that sell on its platform.

The lawsuit, filed in Western Washington district court, marks a historic political test of one of the world’s most influential companies — as well as the regulators who have promised for years to rein in its allegedly monopolistic practices.

The FTC alleges that Amazon engages in illegal behavior in both its online shopping marketplace and in the many services it offers to third-party sellers, allowing the company to extract “monopoly rents from everyone within its reach,” according to a news release about the suit. This means Amazon can boost its own products in search results over others that are better quality, and charge costly fees to sellers that rely on the tech giant to stay in business.

FTC Chair Lina Khan’s meteoric rise to the helm of the antitrust enforcement agency has been closely tied to the e-commerce company. She gained national attention while still a law school student for a paper titled “Amazon’s Antitrust Paradox,” arguing the behemoth structure of the e-commerce giant constitutes an anti-competitive threat that evaded political scrutiny because of the relatively narrow way the courts have interpreted antitrust law.

Tuesday’s lawsuit takes a different tact than that paper, focusing on prices for sellers and consumers. Her paper has been at the center of a broader political movement that argues monopoly law should be more creatively and aggressively enforced, extending beyond the prices consumers pay.

“Amazon is a monopolist, and it is exploiting its monopolies in ways that leave shoppers and sellers paying more for worse services,” Khan told reporters in a briefing.

David Zapolsky, Amazon senior vice president of global public policy and general counsel, said the suit is “wrong on the facts and the law.”

“Today’s suit makes clear the FTC’s focus has radically departed from its mission of protecting consumers and competition,” he said. “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.”

Amazon founder and former CEO Jeff Bezos owns The Washington Post. Interim CEO Patty Stonesifer sits on Amazon’s board.

The FTC opened the investigation into Amazon’s potential violations of U.S. antitrust law in 2019 under the Trump administration, but the probe significantly expanded under Khan’s leadership. The agency’s relationship with the company also became visibly more contentious. Within weeks of Khan’s confirmation, the company filed a petition demanding her recusal from the case, citing her long-running criticism of the company.

Over four years, Amazon turned over millions of pages of internal documents and more than 100 terabytes of data, according to a person familiar with the investigation, who spoke on the condition of anonymity to discuss the scope of the probe. Dozens of its senior employees sat for interviews with agency lawyers. In August, executives met with FTC commissioners for a so-called “last rites” meeting, the person said.

Amazon, like other tech giants, has come under increased regulatory scrutiny over the last five years, amid a so-called Washington “techlash.” The lawsuit marks the most potent regulatory threat that the business has faced in its nearly 30-year history.

Unlike ongoing cases against Google and Facebook, the FTC’s case does not seek a breakup of Amazon’s business.

Amazon is a far cry from the book e-tailer start-up founded in Bezos’s Seattle-area garage in 1994. The company is now the United States’ second-largest private employer, and its workforce totals more than 1.4 million globally. It’s gotten into health care, movies, devices and pioneered the cloud, with data servers powering websites around the world. It purchased Whole Foods, Zappos, One Medical and MGM, among other, smaller acquisitions. It’s built a logistics network that rivals the size of UPS domestically.

While many customers think of Amazon as a retailer, its site expanded in 2000 to become a marketplace much like eBay, allowing third-party merchants to sell on its site. That business has ballooned over the last two decades, comprising 60 percent of total units sold on the site in the company’s most recent quarter. To go along with that, Amazon has built a seller services business — bringing in roughly $32.3 billion in revenue in its most recent quarter. Its advertising business brought in an additional $10 billion.

For decades, U.S. competition policy has focused on high prices for consumers as an indicator of whether a company is a monopoly. But as Amazon’s might has grown, Khan has spearheaded a movement to reconsider how antitrust laws might apply to it and other vast internet platforms.

She argued in her influential law review paper that Amazon harms competition not by jacking up prices for consumers, but by driving out competitors with “predatory pricing” and unfairly squeezing the many smaller businesses that rely on its platform to reach their customers. Khan and like-minded advocates, including legal scholar and former Biden adviser Tim Wu, have pushed for a return to more aggressive antitrust policy to rein in the internet giants that have become the world’s most valuable companies.

Yet their antitrust push has suffered significant setback in courtrooms, particularly in tests of efforts to block high-profile tech mergers. A federal judge earlier this year allowed Meta to proceed with its acquisition of the virtual reality company Within, following a FTC challenge. The FTC also lost a similar suit attempting to block Microsoft’s $69 billion acquisition of gaming company Activision, and the deal is expected to close soon.

The FTC’s suit against Amazon arrives as Google is on trial in Washington for antitrust charges brought by the Department of Justice and states. The FTC also has an ongoing antitrust lawsuit that seeks to break up Facebook parent company Meta.

Amid this evolution, state attorneys general have brought their own competition challenges against Amazon. California last year accused the company of stifling competition by penalizing sellers if they offer services elsewhere for lower prices. A federal judge in March blocked Amazon’s attempt to dismiss the California suit. Last year, a court threw out a similar lawsuit brought by the D.C. attorney general.

The FTC in May settled a pair of narrower lawsuits against Amazon, one for $5.8 million pertaining to the home security camera company Ring and another for $25 million relating to its recordings of the voices of children using Alexa, Amazon’s personal voice assistant. Federal regulators have said those cases were intended to send a signal to all tech companies using mass data to refine AI models, particularly among a generative AI race largely sparked by the release of chatbot ChatGPT.

Amazon has also faced questions in congressional hearings in recent years about its practices, including allegedly using its data on third-party sellers to give a leg up to its own, competing products.

In 2020, then-CEO Bezos testified before a House antitrust subcommittee that he couldn’t confirm that the company didn’t use data it collects regarding sales of products in its marketplace to launch its own private-label goods.

“What I can tell you is we have a policy against using seller-specific data to aid our private-label business,” Bezos replied. “But I can’t guarantee you that policy has never been violated.”

Khan said consumers and sellers would benefit if the FTC is victorious in the case, which will likely take years to resolve in court.

“If we succeed, competition will be restored, and people will benefit from lower prices, greater quality, and greater selection as a result,” Khan said.