Arizona attorney general files 2 lawsuits against Amazon

May 15, 2024 – Attorney General Kris Mayes filed two new lawsuits against giant Amazon on Wednesday, accusing the online retail giant of illegal practices that make consumers pay more than they should for products and throwing roadblocks in the path of canceling their services.

One complaint is based on how Amazon lists products on its website. The result, according to Mayes, is set up in a way that is designed to convince shoppers that what’s listed first is the best buy.

But the lawsuit says what consumers see first are items sold either directly by Amazon or by third-party sellers who effectively pay extra fees.

“The result is that consumers routinely overpay for items that are available at lower prices from other sellers on Amazon,” the lawsuit states. More to the point, Mayes said it’s not because consumers don’t care about prices or they’re basing their decisions on other factors, “but because Amazon has chosen to display the offers for which it will earn the highest fees.”

The other lawsuit relates to the company’s Prime membership. That involves collecting regular fees from subscribers in exchange for benefits including free shipping.

Mayes said that until last year, Amazon used a system where it took at least six separate actions by consumers to cancel Prime membership online. The lawsuit also said the process relied on “dark patterns” to manipulate consumers into keeping their memberships.

According to Mayes, the company eliminated the practice last year, shortly before the Federal Trade Commission filed its own litigation.

But even with that, she said consumers were stuck for years paying for services they did not want. And now Mayes wants not only a court order to prevent the company from doing it again but also civil fines as well as a requirement for it to have to surrender any profits it obtained from what she says was unlawful conduct.

There was no immediate response from Amazon.

In both cases, Mayes is using state consumer fraud laws to go after the international giant. That also allows her to have the case handled in state court here, under state laws, versus before a federal judge.

“Arizona consumers deserve to be treated fairly and without deception by big corporations like Amazon,” she said in a prepared statement. “And small businesses deserve a level playing field.”

The state charges against Amazon over discriminating against other retailers on its site is similar in some ways to the FTC lawsuit filed last year.

But there are some differences. And then there’s the fact that the state is seeking not just a halt in how it deals with those retailers but also that Amazon surrender the profits it made, the size of which was not alleged in the litigation.

There are two elements to that.

First is what happens when consumers search for a product.

According to the lawsuit, Amazon has an algorithm that selects just one seller’s offer to appear in the “Buy Box” on a page, allowing consumers to add it to their cart with a single click. And the company allegedly designs its product page to obscure the fact that other offers also are available, something Mayes said results in nearly 98% of purchases are made via the Buy Box.

But the problem, she said, is deeper.

“Consumer reasonably believe that the Buy Box is the best price available in the marketplace for a given item,” the lawsuit states.

“But they are often wrong,” it continued. “The Buy Box algorithm is biased in favor of Amazon first-party retail offers or offers from third-party sellers who participate in Fulfillment by Amazon.”

That program charges those retailers “hefty fees” to store their inventory, pack their products, ship orders, handle returns and communicate with customers, Mayes said. What that means, she said, is that those from whom Amazon doesn’t get any extra profits don’t wind up getting Buy Box treatment, even if they offer the same item for less.

What also is illegal, according to the lawsuit, is an Amazon policy that makes it a violation for a third-party seller to offer an item at any other website for less than it is available on Amazon.

“This is true even though Amazon charges the highest fees in the industry,” Mayes said, saying about 27% of every dollar a consumer spends on Amazon goes to that company rather than the seller.

“In other words, if an Arizona business owner sells a sweater on Amazon for $50, Amazon deems it a violation of its Business Services Agreement for the business owner to sell the same sweater on her own website for $45 —  even though she is not paying fees to sell on her own site,” the lawsuit says.

“This protects Amazon from competition in its capacity as an online retail marketplace provider,” according to the legal papers. “Amazon thus ensures its dominance among online retail marketplaces while keeping prices for Arizona consumers artificially high.”

In filing its own lawsuit, FTC Chair Lina Khan said Amazon has used “punitive and coercive tactics to unlawfully maintain its monopolies.”

The agency said it used Amazon not because of it size “but because it engages in a course of exclusionary conduct that prevent competitors from growing and new competitors from emerging.”

By Kirsten Dorman, Howard Fischer/Capitol Media Services
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