Amazon accused of being illegal monopoly in U.S. antitrust lawsuit

Amazon is being accused of illegally maintaining a monopoly over the U.S. retail and technology marketplace in an antitrust lawsuit filed Tuesday by the Federal Trade Commission (FTC) and 17 states.

In a statement announcing the lawsuit, the FTC said it and the state attorneys general are seeking a permanent court injunction that would prohibit Amazon from continuing to engage in “unlawful conduct” and loosen its “monopolistic control to restore competition.”

The suit comes after a multi-year investigation into Amazon’s businesses and represents one of the biggest legal challenges in decades to the company, which has grown into one of the largest tech conglomerates in the world and dominates the U.S. e-commerce market.

It wasn’t immediately clear if the FTC would seek to break up Amazon, which is also dominant in cloud computing and has a growing presence in other sectors like groceries and health care.

FTC chair Lina Khan dodged questions on whether that might happen during a briefing with reporters on Tuesday, The Associated Press reported.

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Keith Hylton, a legal professor at the University of Boston who specializes in antitrust law, says it’s unlikely the lawsuit will result in Amazon being forced to break apart.

“Most courts recognize that breaking up firms can be a hazardous activity and might end up … making things worse,” he said, with negative impacts on consumers and the marketplace.

Amazon may end up facing a limited court injunction that prevents it from continuing certain business practices, Hylton added. That would then open the company up to class-action lawsuits from merchants and customers who could argue they were hurt by Amazon’s business practices.

The FTC and the states said Amazon was violating antitrust laws “not because it is big, but because it engages in a course of exclusionary conduct that prevents current competitors from growing and new competitors from emerging.”

They allege the company engages in anti-competitive practices through anti-discounting measures that deter sellers from offering lower prices for products on non-Amazon sites, mirroring allegations made in a separate lawsuit last year by the state of California.

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The complaint says Amazon can “bury” listings from sellers if they’re found to be offering lower prices on other sites, making those sellers “effectively invisible” in Amazon search results.

The complaint also says the company degrades the customer experience by replacing relevant search results with paid advertisements, biasing its own brands over other products it knows to be of better quality and charging heavy fees that force sellers to pay nearly half of their total revenues to Amazon.

In a statement to Global News, Amazon’s general counsel and senior vice-president of global public policy David Zapolsky said if the lawsuit is successful, it will drive up prices for consumers, slow down deliveries and hurt small businesses reliant on Amazon’s platform.

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

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Amazon is estimated to control nearly 40 per cent of the U.S. e-commerce market, according to market research company eMarketer. The next top 14 companies — including major brands like Walmart, eBay and Target — make up a combined 31 per cent.

A majority of the sales on its platform are facilitated by independent sellers consisting of small and medium-sized businesses and individuals. In return for the access it provides to its platform, Amazon rakes in billions through referral fees and other services like advertising, which makes products sold by sellers more visible on the platform.

The vast majority of third-party merchants also use the company’s fulfilment service to store inventory and ship items to customers. Amazon has been consistently raising fees for those reliant on the program.

According to the anti-monopoly organization Institute for Local Self-Reliance, third-party U.S. sellers who use Amazon spent 45 per cent of their revenue on the fees in the first half of this year — up from 35 per cent in 2020 and 19 per cent in 2014.

Last quarter, Amazon reported US$32.3 billion in revenue from third-party services. Net sales for that same quarter were US$134.4 billion.

Connecticut, Delaware, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Hampshire, New Mexico, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Rhode Island and Wisconsin joined the FTC’s lawsuit.

The FTC and the U.S. Justice Department have taken a stronger stance against Big Tech companies in recent years.

0:41 Google’s dominance in internet search facing major challenge by U.S. regulators

Google is currently in court fighting allegations it has rigged the market by making its online search engine the one seen first by internet users, blocking out competitors. The company denies the claims laid out in the Justice Department’s antitrust lawsuit, arguing its product is simply superior to others.

The FTC is currently in the middle of a protracted lawsuit against Facebook parent Meta, which it alleges to have engaged in monopolistic behaviour. The agency has also sought to block Meta’s acquisition of the virtual reality startup Within Unlimited and Microsoft’s takeover of video game maker Activision Blizzard.

Some of the agency’s allegations in the Amazon case mirror those made in a separate lawsuit last year by the state of California. A similar case filed by the District of Columbia was thrown out by a federal judge earlier last year and is currently under appeal.

The federal complaint follows other actions the FTC has taken against Amazon in the past few months. In June, the agency sued the company, alleging it was using deceptive practices to enrol consumers into Amazon Prime and making it challenging for them to cancel their subscriptions.

Amazon disputes the allegations.

In late May, the company agreed to pay a $25-million civil penalty to settle allegations that it violated a child privacy law and misled parents about data deletion practices on its popular voice assistant Alexa.

—with files from The Associated Press