UPDATED 21:02 EDT / SEPTEMBER 14 2022

POLICY

California slaps Amazon with lawsuit, accusing it of forcing sellers to sign ‘anticompetitive’ price agreements

California’s attorney general has slapped Amazon.com Inc. with a lawsuit that alleges the company is violating the state’s antitrust and unfair business practices laws by using its dominance of online retail to prevent rivals competing with it on price.

Amazon has faced an increasing number of antitrust-related probes from government agencies across the world in recent years, but The Wall Street Journal said today’s lawsuit is its “biggest legal challenge to date.”

The lawsuit was filed in San Francisco Superior Court and alleges that Amazon forces third-party sellers and suppliers into “anticompetitive agreements on price.” Those agreements allegedly prevent sellers from offering their products at lower prices on the websites of Amazon’s competitors, the complaint says. It adds that sellers that violate the agreements with Amazon face “drastic penalties,” including lower placement on Amazon’s search listings and the removal of important buttons such as “Buy Now” and “Add to Cart” from their Amazon product listing pages.

According to the lawsuit, these agreements serve to “insulate Amazon from price competition.” As a result, they help entrench Amazon’s dominance of the online retail market while preventing effective competition, thereby “harming consumers and the California economy,” the complaint added.

“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 reads. “Competing sites do not offer lower prices the way they would in a competitive market, not because Amazon competed successfully, not because Amazon is a more efficient retailer and marketplace, but because Amazon forbids it by contract.”

Amazon had been hit with a similar complaint in 2021 in the District of Columbia, but that lawsuit was dismissed by a district judge earlier this year. That lawsuit’s dismissal is currently being appealed. It reportedly leaned heavily on the findings of a U.S. House antitrust report from 2020.

The California AG’s suit follows a two-year investigation into Amazon’s practices and reportedly aims to block the company from enacting price agreements with third-party sellers. It also asks that the company will be monitored to ensure it complies with its demands, with the threat of a civil penalty of $2,500 for each violation of the state’s competition rules.

“The reality is: Many of the products we buy online would be cheaper if market forces were left unconstrained. With today’s lawsuit, we’re fighting back,” California AG Rob Bonta said in a press release. “We won’t allow Amazon to bend the market to its will at the expense of California consumers, small business owners, and a fair and competitive economy.”

Amazon responded in a statement to the media that Bonta “has it exactly backwards.” It insisted that sellers set their own prices for the products offered in its store, adding that it takes pride in the fact that it offers low prices across the broadest selection of goods.

“Like any store we reserve the right not to highlight offers to customers that are not priced competitively,” Amazon’s statement continued. “The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law. We hope that the California court will reach the same conclusion as the D.C. court and dismiss this lawsuit promptly.”

Amazon may deny the allegations, but the company could well end up learning a very expensive lesson that it does have no option but to comply with antitrust laws in the countries it operates in. That’s according to Rob Enderle of the Enderle Group, who told SiliconANGLE that in his experience the vast majority of companies have been guilty of using their market power to gain unfair benefits.

“Virtually every large company I’ve worked for, with, or studied has been at one time or another guilty of this,” Enderle said. “IBM put in place specific control organizations, like my own, with a mission to identify and eliminate this behavior but most firms don’t have similar controls. Thus, when they attain the kind of power that Google, Facebook, and especially Amazon have, it isn’t a question of if they will do this, but when they will get caught.”

Enderle predicted that Amazon could well lose this case and end up being slapped with an “exceedingly expensive” fine. He said that the result of this case could also inspire other, more aggressive governments to go after Amazon.

“Microsoft had a similar experience when it was accused of inappropriate behavior against Netscape, and the result not only caused Bill Gates to back out of day-to-day management but also led to it becoming a far more ethical company,” Enderle continued. “I expect, this California action is only the beginning of what will likely be a very expensive learning experience for Amazon.”

Holger Mueller of Constellation Research Inc. was less convinced of the California AG’s prospects, noting that the case was a first for the tech-friendly West Coast state. “Knowing Amazon, California had better have its case together if it’s going to accuse of Amazon violating pricing and other regulations,” he said. “We will only know in a few months if there are any merits to the case.”

Amazon has been subject to increased scrutiny from lawmakers and advocacy groups in recent years. Earlier this year, congressional lawmakers asked the U.S. Justice Department to investigate allegations that Amazon collects data on sellers in order to develop competing products, which are then advertised more prominently on its website. The company has also faced criticism for increasing the fees it imposes on sellers, making it more difficult for merchants to enter the market.

Amazon isn’t alone in facing antitrust scrutiny, as U.S. lawmakers have pushed bipartisan legislation that aims to prevent various big technology firms, including Apple Inc., Meta Platforms Inc. and Google LLC, from favoring their own products and services ahead of rival’s offerings. The bill has already cleared several committees, but has languished in Congress amid an intense pushback by the companies concerned.

In Europe there’s a similar story, with regulators there also looking very carefully into Amazon’s business practices. That led to Amazon offering concessions in July to try to settle two antitrust investigations in the European Union. Those concessions included a promise to apply equal treatment to all sellers when ranking product offers on the site’s “buy box,” which is a coveted spot that increases the visibility of items to shoppers.

Photo: Amazon

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