California Files Antitrust Lawsuit Against Amazon

September 14, 2022 – California’s attorney general filed an antitrust lawsuit against Amazon on Wednesday, claiming the retailer stifles competition and increases the prices that consumers pay across the internet.

The suit is limited to California, where officials said Amazon had around 25 million customers, but if it succeeds it could have a broad impact across the country.

“If you think about Californians paying even just a little bit more for every product they purchased online over the course of a year, let alone a decade, which is what is at issue here, the collective magnitude of harm here is very far-reaching,” said Rob Bonta, California’s attorney general, during a news conference announcing the case.

“The ‘everything store’ has effectively set a price floor, costing Californians more for just about everything,” he said.

The lawsuit largely focuses on the way Amazon penalizes sellers for listing products at lower prices on other websites. If Amazon spots a product listed cheaper on a competitor’s website, it often will remove important buttons like “Buy Now” and “Add to Cart” from a product listing page.

Those buttons are a major driver of sales for companies selling through Amazon, and losing them can quickly hurt their businesses.

That creates a dilemma for marketplace sellers. At times, they can offer products for lower prices on sites other than Amazon because the cost of using those sites can be lower. But because Amazon is by far the largest online retailer, the sellers would rather raise their prices on other sites than risk losing their sales on Amazon, the complaint said, citing interviews with sellers, competitors and industry consultants.

“Without basic price competition, without different online sites trying to outdo each other with lower prices, prices artificially stabilize at levels higher than would be the case in a competitive market,” the complaint said.

The California suit is the latest in a string of increasingly aggressive efforts by states and regulators in Washington and Europe to curb the influence of the technology industry’s biggest companies. Also on Wednesday, a European Union court gave its blessing to a record multibillion-dollar fine issued against Google in 2018.

Given the size of California’s economy and Amazon’s role in it, “this is a piece of litigation that has significant national implications,” said Christopher R. Leslie, a professor of antitrust law at University of California, Irvine. If the antitrust claims prevail, “there is no way other states won’t pick up the mantle and bring other cases,” he said.

The lawsuit echoes a case that was brought by Karl A. Racine, the attorney general for the District of Columbia, and that was thrown out this spring. Judge Hiram E. Puig-Lugo of Superior Court of the District of Columbia found that Mr. Racine had not provided sufficient evidence that Amazon’s policies were anticompetitive. Mr. Racine is appealing the ruling.

“Similar to the D.C. attorney general — whose complaint was dismissed by the courts — the California attorney general has it exactly backwards,” Alex Haurek, an Amazon spokesman, said in a statement. “Sellers set their own prices for the products they offer in our store.”

Amazon hopes the suit will be dismissed, Mr. Haurek said, and it takes pride in offering low prices “across the broadest selection, and like any store we reserve the right not to highlight offers to customers that are not priced competitively.”

Most of Amazon’s sales — 57 percent of units last quarter — are products that third-party merchants offer on its website. They pay Amazon a referral fee to list their products, and often pay for Amazon’s fulfillment services, advertising and other offerings. Amazon collected more than $100 billion in third-party service fees in the last 12 months, according to its financial filings.

California has been investigating Amazon for more than two years, and the complaint, filed in San Francisco Superior Court, said the practices violated California’s Unfair Competition Law and the Cartwright Act, the state’s primary antitrust law. It asked for remedies that included ending the anticompetitive behavior and paying penalties.

Mr. Haurek said the relief sought in the case “would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law.”

Mr. Bonta said he thought the case would succeed where the District of Columbia had stumbled by providing far more details on how Amazon was hurting consumers. He said there was more research “than any other case has ever seen,” adding that California state law provides some additional protections.

The complaint said Amazon was able to charge sellers more than competitors because it captured so much of online sales. The rising costs for sellers include fulfillment and paying for advertising, which sellers increasingly see as a necessity to succeed. The complaint heavily cites internal Amazon documents that are redacted.

The result is an “anticompetitive cycle,” the complaint said, where sellers must raise prices on Amazon to recoup their costs. But because of Amazon’s pricing provisions, sellers must have higher prices on other sites, and “other online stores cannot effectively attract consumers away from Amazon with lower prices.”

Mr. Bonta’s complaint quoted emails between a personal care electronics brand and another retailer, asking the retailer to raise prices on a discounted item because Amazon suppressed their listing. The brand wanted “to remove all deals and inventory until Q1 since this has happened several times and is causing a big disruption to the Amazon business,” it wrote. “We simply cannot afford buy-box shutdowns on Amazon anymore.”

The complaint said the seller no was longer supplying products to the competitor.

Mr. Leslie, the law professor, said the “meaty” complaint made a compelling argument, likely strengthened by the redacted evidence, that “if the market were left to run without the anticompetitive policies at Amazon, consumers could take advantage of lower prices outside of Amazon.” He said the case still faced hurdles, given the novel issues it raised.

Nationally, the Federal Trade Commission, led by Lina Khan, a critic of Amazon, is investigating whether Amazon has broken antitrust laws. The agency is also looking into the process through which consumers buy or cancel an Amazon Prime membership, which some say can be deliberately confusing.

Amazon has attacked the F.T.C. several times during the investigations. It said last year that Ms. Khan, who wrote a breakout law review critique of the company’s power, should recuse herself from antitrust inquiries into the company.

Last month, Amazon moved to stop the agency’s requests to interview Jeff Bezos, Amazon’s founder, and its chief executive, Andy Jassy, in the Prime inquiry on the grounds that the requests were “calculated to serve no other purpose than to harass Amazon’s highest-ranking executives and disrupt its business operations.”

Lawmakers in Washington also have Amazon in their sights. The company has aggressively fought a bipartisan antitrust bill that would stop Amazon from favoring its own products in its online store. The proposal’s chances of passing may dim further as lawmakers turn their attention to the midterm elections.

Amazon has been more diplomatic in other cases. Facing an inquiry into its retail practices in Europe, the company proposed a series of changes, including limiting the data it collects from rival sellers and allowing them to sell to Prime customers without using Amazon’s logistics program.

By Karen Weise and David McCabe, The New York Times
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