DC Attorney General Sues to End Amazon’s “Unlawful Monopoly”
It is a common refrain by people familiar with Amazon’s merchant relationships: Amazon is great if you are a consumer, but if you’re a merchant on the platform, or a competitor, it is a powerful bully who doesn’t hesitate to wield is dominance at your expense.
Attorney General for the District of Columbia Karl A. Racine obviously agrees with the second part of that statement. On May 25, 2021, he sued Amazon over a litany of alleged anti-competitive practices that violate the D.C. Antitrust Act, causing harm to consumers and third-party sellers alike (District of Columbia v. Amazon.com, Inc., D.C., Super. Ct., Civil Div., No. 2021-CA-001775-B).
The case represents just another challenge for Amazon whose aggressive competitive tactics in the e-commerce space have raised serious concerns and cries of foul play. Either inspired by the DC suit or just as a coincidence, other states are joining the Federal Trade Commission's antitrust investigation of Amazon. According to sources cited by Bloomberg, the AGs of Massachusetts and Pennsylvania have joined California, New York, and Washington State in the FTC probe, reported by Bloomberg in August 2020. Amazon has also been investigated in the U.K. and Germany. The DC lawsuit comes at a time when the e-commerce colossus announced its intention to buy MGM Studios for $8.45 billion. CNBC noted that MGM will be only Amazon's second-biggest acquisition, having paid $13.7 billion for Whole Foods in 2017.
Anticompetitive Price Controls Alleged
According to the DC Attorney General, until 2019 Amazon’s Business Solutions Agreement (BSA) explicitly barred merchants on the platform, or “third-party sellers” (TPS), from offering their products for lower prices on competing platforms, such as eBay and Walmart, and even the sellers’ own websites. This has artificially raised consumer prices, denied them the loss of choice, stifled innovation, and hampered competition, the suit charges.
Facing pressure from investigations launched by the U.K. and Germany in 2013, Amazon removed the so-called Price Parity Provision (PPP) from the European market but maintained it for the U.S. market. In 2019 Amazon removed the PPP in the U.S. in response to “intense scrutiny” from Congress and U.S. regulators, the complaint says, but quickly replaced the PPP with an “effectively-identical substitute” called the Fair Pricing Policy.
“The anti-competitive impact of Amazon’s conduct is compounded by a complex scheme of fees and extra charges – sometimes equaling up to 40% of the total product price – that Amazon imposes on TPSs to sell their products on Amazon’s platform,” the complaint reads. “These unreasonably-high charges – which Amazon can charge TPSs because of its market power – are then passed on to consumers not only on Amazon’s platform, but also on all other online retail platforms” by virtue of what the Attorney General calls Amazon’s "platform most-favored-nation policies.”
Saying Amazon’s market power is demonstrated by its “dominant and durable market share,” the complaint says the company has as much as 70% market share in the U.S. online retail sales market and an even greater share of the multi-seller online retail platform market, which includes Walmart.com and eBay. Those two competitors each have just roughly 5% market share.
Amazon has constructed formidable barriers to entry through its Amazon Prime program, in which the company takes “massive financial losses,” by nature of the massive quantity of consumer data it holds, and its use of its own delivery and logistics services, through which it now delivers nearly two-thirds of the products it sells. Amazon even sells its own products on the platform, competing with its third-party merchants.
The complaint alleges Amazon has entered illegal vertical and horizontal agreements in restraint of trade, has maintained an illegal monopoly of the online retail sales market, and is attempting to monopolize the much larger multi-seller online platform market.
The Attorney General seeks to enjoin Amazon from continuing its anti-competitive practices and asks for a corporate monitor to ensure it implements structural and practical remedies ordered by the court. The complaint also seeks equitable relief, civil penalties provided by the D.C. Antitrust Act, actual, statutory and punitive or treble damages, disgorgement, and more.
The case has been assigned to Superior Court Judge Hiram E. Puig-Lugo. As of this writing Amazon has not answered the complaint. A hearing is set for Sept. 3, 2021.
Edited by Tom Hagy for MoginRubin LLP.