Amazon Faces Unprecedented Monopoly Lawsuit by US Government and 17 States

Amazon is facing a significant lawsuit from the US government and 17 states, which accuses the e-commerce giant of engaging in monopolistic practices and stifling fair competition. This landmark case is the culmination of years of accusations against Amazon for exploiting its market dominance. Despite initially specializing in book sales, Amazon has evolved into an "everything store," diversifying its offerings to include a broad range of consumer products. The company has also established a global logistics network and achieved immense success in areas such as cloud computing, cementing its position as a technological powerhouse.

The complaint, spanning 172 pages, contends that Amazon engages in unfair practices by prioritizing its own platform and services over third-party sellers who heavily rely on the company's e-commerce marketplace for distribution.

According to the FTC, this is exemplified by Amazon's requirement for sellers on its platform to purchase Amazons in-house logistics services in order to access the most beneficial seller benefits, known as "Prime" eligibility. Additionally, the complaint alleges that the company engages in anti-competitive behavior by compelling sellers to list their products exclusively on Amazon at the lowest prices available online, precluding them from offering their products at lower prices on competing marketplaces.

The practice in question is already the focus of a stand-alone lawsuit against Amazon, filed by the California attorney general in the previous year. According to the FTC, due to Amazon's strong position in e-commerce, sellers are left with limited choices but to comply with Amazon's terms, leading to increased prices for consumers and a diminished consumer experience. Additionally, the FTC stated that Amazon prioritizes its own products over those sold by third parties in marketplace search results.

Amazon is exclusively dedicated to preventing other entities from achieving the same level of customer reach, according to FTC Chair Lina Khan during a press briefing on Tuesday. "This complaint embodies the most advanced understanding and practices regarding competition in the digital sector, as well as the strategies employed by Amazon to stifle competitors, suffocate their growth, and ultimately create a hindered landscape," Khan stated.

The states participating in this case include Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island, and Wisconsin.

Next steps in the case

A complaint has been lodged in the US District Court for the Western District of Washington, requesting a court order to prevent Amazon from participating in the purportedly anticompetitive conduct. Khan refrained from commenting on Tuesday about whether the agency will pursue breaking up the company, stating that the case is presently concentrated on establishing Amazon's accountability according to federal antitrust law.

Amazon has become the third major tech giant, alongside Google and Meta, to face extensive allegations from the US government regarding its violation of federal antitrust laws. This reflects the growing global resentment towards Big Tech, which has intensified since 2016. It is expected that the legal battle could span several years. Similar to critics comparing Amazon founder Jeff Bezos to figures from America's Gilded Age due to his immense wealth, the FTC lawsuit against the company may come to symbolize a contemporary repetition of the antitrust crackdown witnessed in the early 20th century.

In a statement, Khan accused Amazon of employing "punitive and coercive tactics" to safeguard its illegal monopoly.

Amazon rejects Khans logic

Amazon's exploitation of its monopoly power has resulted in increased prices and decreased service quality for the millions of American families who use its platform, as well as the hundreds of thousands of businesses that rely on Amazon for market access," stated Khan. "The objective of this lawsuit is to hold Amazon accountable for these monopolistic practices and restore the long-lost promise of fair and open competition."

David Zapolsky, Amazon's senior vice president of global public policy and general counsel, stated that today's lawsuit demonstrates a significant deviation from the FTC's original mission of safeguarding consumers and promoting competition. He emphasized that Amazon's practices have played a pivotal role in fostering competition, innovation, and a wide selection of products in the retail industry. Zapolsky contended that Amazon has facilitated lower prices, faster delivery, and supported small businesses in selling their merchandise.

Zapolsky expressed concern that if the FTC's objectives are achieved, there would be a reduced availability of products, increased prices, slower deliveries for consumers, and limited options for small businesses. This goes against the very purpose of antitrust laws. He firmly stated that the lawsuit filed by the FTC lacks factual and legal support, and Amazon eagerly anticipates presenting its case in court.

In a subsequent blog post, Zapolsky cautioned that the FTC lawsuit might not only compel Amazon to list products at higher prices compared to rival marketplaces but also increase the costs of conducting business for Amazon. These costs could potentially be passed on to consumers in the form of higher Amazon Prime subscription prices or longer shipping times.

"We acknowledge the FTC's historical role in safeguarding consumers and promoting competition," the blog post stated. "Unfortunately, it seems that the current FTC is deviating significantly from that approach by pursuing an ill-advised lawsuit against Amazon. If successful, this lawsuit would force Amazon to adopt practices that are detrimental to consumers and the numerous businesses that sell on our platform. This would include featuring higher prices, providing slower or less reliable Prime shipping, and making Prime more expensive and less convenient."

Amazon's critics, including US lawmakers, European regulators, third-party sellers, consumer advocacy groups, and more, have long accused the company of various wrongdoings. These accusations range from mistreating its workers to imposing unfair terms on its third-party sellers. One argument is that Amazon utilizes sellers' commercial data to gain an advantage and determine which products it should sell. Additionally, many critics believe that Amazon's competition with sellers on its own platform creates a conflict of interest that should be deemed illegal.

However, the focus of the FTC's recent lawsuit against Amazon is more specific. It targets Amazon's actions in two particular markets: the "online superstore" market, where its behavior allegedly harms shoppers, and the "online marketplace services" market that serves independent sellers. According to John Newman, deputy director of the FTC's competition bureau, Amazon's deliberate favoritism towards its own products in search results is a direct result of the underlying anticompetitive behavior being examined in the case.

A defining moment for Lina Khan

The lawsuit marks a pivotal moment in Khan's career. She is widely recognized for initiating the examination of Amazon's antitrust practices in the United States through her influential law paper in 2017. Subsequently, she played a key role in leading a congressional probe into alleged competition abuses within the technology industry. In a comprehensive 450-page report, she highlighted how Amazon, along with Apple, Google, and Meta, possess "monopoly power" and presented "significant evidence" demonstrating that their anticompetitive behavior has impeded innovation, limited consumer choice, and weakened democratic processes.

The investigation resulted in multiple legislative proposals aimed at regulating the companies. However, the most impactful ones have been obstructed due to extensive industry lobbying and the decision of congressional leaders not to present the bills for a final vote.

The inaction of lawmakers has placed the responsibility of addressing the alleged anti-competitive practices of the tech industry on antitrust enforcers. In a surprising move in 2021, President Joe Biden appointed Khan not only to be a member of the FTC, but also to lead the agency. This appointment signals Biden's endorsement of stringent antitrust oversight.

Mounting monopoly scrutiny

: Khan has adopted an assertive enforcement approach, specifically targeting the tech sector. During her tenure, the FTC has filed lawsuits to prevent numerous tech mergers, most notably Microsoft's $69 billion bid to acquire video game publisher Activision Blizzard. The commission has also introduced measures to regulate the collection and usage of consumers' personal data, while cautioning about the potential risks associated with generative artificial intelligence.

Throughout the years, the FTC has closely examined Amazon's practices, taking legal action in various instances. In June, the company faced a lawsuit for supposedly deceiving countless consumers into subscribing to Amazon Prime. Additionally, in May, Amazon reached substantial settlements with the FTC for alleged privacy breaches associated with their smart home devices.

However, the most noteworthy lawsuit against Amazon is arguably the one that directly challenges the core of their e-commerce operations and addresses longstanding criticisms of the company.

One section of the FTC lawsuit, which has been heavily redacted, includes a reference to Project Nessie. According to the lawsuit, Project Nessie is an undisclosed algorithm and pricing system that has allegedly taken value away from American households. The details and workings of Project Nessie remain unclear. The FTC complaint suggests that the program contradicts Amazon's claim of being customer-centric. Amazon has not responded to CNN's inquiries regarding Project Nessie.

To demonstrate the level of threat perceived by Amazon regarding Khan's rise to power, the company requested her recusal from all cases involving the tech giant in 2021.

Khan has rejected those calls. In her recent statements to reporters, she avoided discussing her previous work with Amazon and instead commended the FTC staff for successfully concluding the agency's investigation. On Tuesday, the FTC announced that the lawsuit had been authorized with a unanimous 3-0 vote, in which Khan was one of the voters supporting the decision to move forward.