FTC “Prime” Time: Federal Trade Commission and Seventeen State Attorneys General File Antitrust Suit against Amazon for its “Amazon Prime” Seller Conditions

In the complaint, the FTC describes Amazon’s marketplace and fulfillment products as an online retail “behemoth” that is unparalleled in its capabilities and scale. Specifically, the FTC alleges that Amazon has “durable monopoly power” in two relevant markets:

• Online superstores, which the FTC defines as retail stores that offer an “extensive breadth and depth of product selection accessible through an online storefront.” The FTC argues that online superstores operate as a single destination for shoppers and are materially distinct from brick and mortar retailers due to their 24/7 accessibility, lack of set location, unlimited shelf space, filtering and discovery tools, stored consumer data, as well as convenient checkout and post-checkout experience. Further, online superstores are distinct from other “limited-selection” online retailers in breadth and depth of product selection. The FTC alleges that Amazon has maintained an estimated market share of anywhere between 70 and 85% in the “online superstore market” and is protected by significant barriers to entry including economies of scale, network effects, reputational barriers, and switching costs.
• Online marketplace services, which the FTC defines as services offered to online sellers, including “access to a significant base of shoppers in the United States”; “an interface for consumer search”; “the ability for sellers to set the prices for their goods”; “the ability for sellers to create and maintain product detail pages”; and “the ability for sellers to display… customer-generated ratings and reviews.” These services facilitate sellers making online sales to U.S. shoppers without having to operate an online store of their own. The FTC argues that these services are not reasonably interchangeable with selling as a vendor to a retail store, whether online or offline. Nor are these services reasonably interchangeable with services sold by Software-as-a-service (“SaaS”) providers, such as Shopify or BigCommerce, because these SaaS services do not provide access to an established U.S. customer base.

The FTC’s allegations center on Amazon’s alleged illegal monopoly maintenance through a series of practices that, on their own and in combination, allegedly prevent competitors from achieving the necessary scale and profitability to pose a viable threat to Amazon’s position.

• Anti-discounting conduct. The FTC takes issue with Amazon’s restrictions that allegedly prevent sellers from offering lower prices both on Amazon’s marketplace and on other online retailers. The FTC alleges Amazon effectuates these restrictions through contractual obligations and “sophisticated” price surveillance on and off Amazon’s marketplace. The FTC alleges that, when Amazon finds a violation of its mandates, it punishes infringing sellers by disqualifying those sellers from important sales channels such as the “Buy Box” and even escalates to “total banishment from Amazon’s Marketplace.”
• Coercive conduct. The FTC also alleges that Amazon coerces sellers to use Amazon’s fulfillment service and prevents them from utilizing competing offerings. The essential aspect of Amazon’s conduct is that sellers can only be part of Prime if they use Amazon fulfillment services for all sales through Prime. The FTC argues that being a part of the Prime service is essential to the success of a seller on Amazon, as sellers who forgo Prime eligibility “effectively disappear from Amazon’s storefront.” Thus, sellers have no choice but to use Amazon’s fulfillment services. And according to the FTC, Amazon has been steadily increasing the costs associated with Amazon’s fulfillment services. The complaint alleges that Amazon has increased its fulfillment fees by approximately 30% over the last two years, and “takes close to half of every dollar from the typical seller that uses Amazon’s fulfillment service.”

The FTC alleges that this conduct causes sellers to offer inflated prices on Amazon.com and across digital retail marketplaces as well as to refrain from utilizing alternative fulfillment services that could offer superior quality or lower costs. The “cumulative impact of Amazon’s unlawful conduct” is that online shoppers face higher prices and reduced product selection, quality, and innovation. According to the FTC, Amazon’s conduct has “yielded a distorted and stunted competitive landscape” and that “left unchecked, Amazon will continue to harm competition and maintain its monopoly power” in the relevant markets.

In the press release announcing the suit, Chair Khan stated that the FTC is seeking to “hold Amazon to account for [its] monopolistic practices and restore the lost promise of free and fair competition.” In a response to the suit, Amazon’s Senior VP of Global Public Policy and General Counsel argued that the FTC’s allegations “radically depart” from its mission to protect consumers and that the FTC’s suit would result in “fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small business.” Consequently, Amazon argues, the FTC is “wrong on the facts and the law.” An Amazon blog post provides a more detailed response to the FTC’s charges.

The complaint was filed in the Western District of Washington and, after Judge John C. Coughenour recused himself, has been assigned to Judge John H. Chun.