In a case that could significantly alter the business model of the e-commerce giant, California is taking on Amazon in an effort to loosen its monopoly on third-party sellers.
On Wednesday, Attorney General Rob Bonta announced that his office would be suing Amazon because the company forces retailers to sign contracts that punish them if they offer their products elsewhere at lower prices. Democrat Bonta claimed that Amazon had broken anti-trust laws in California by excluding rivals and effectively cementing higher prices. He filed a lawsuit demanding that Amazon be prohibited from requiring third-party contracts that limit price competition, as well as compensating affected businesses and paying other monetary penalties.
According to the complaint, Amazon has “coerced and induced its third-party sellers and wholesale suppliers to enter into anticompetitive agreements on price,” leading consumers to believe they are paying higher prices than they would in a more competitive market. According to the lawsuit, “the intent and effect of these agreements is to insulate Amazon from price competition, thereby entrenching Amazon’s dominance and preventing effective competition, thereby harming consumers and the California economy.”
Bonta presented the lawsuit as a way to protect Californians from overcharging in the face of rising prices.
At a press conference in San Francisco, Bonta said, “Through its illegal actions, the quote ‘everything store’ has effectively set a price floor costing Californians more for just about everything.”
According to a statement released by Amazon, Bonta “had it exactly backward” when it claimed that price hikes would follow a win by California.
The statement read, “Sellers set their own prices for the products they offer in our store.” Amazon is proud to offer the widest selection of products at the lowest possible prices, but the company also reserves the right to downplay deals that aren’t the best value for customers.
Additional legal uncertainty now surrounds Amazon’s use of third-party sellers like this one. After Washington Attorney General Bob Ferguson initiated a price-fixing investigation, the company agreed to terminate its “Sold by Amazon” program earlier this year and pay a fine.
Recently, a superior court judge disagreed with Bonta and the District of Columbia’s attorney general, Karl Racine, who had sued Amazon for anti-competitive behavior on the grounds that the company’s use of third-party contracts led to price gouging. Racine’s office announced its intention to appeal the case, and the new California lawsuit is nearly identical to it. According to the Washington, D.C. Superior Court judge who dismissed the suit, the plaintiffs have the right to sell their goods wherever they choose, and if they don’t like Amazon’s terms, they can simply stop selling on Amazon.
To encourage lower prices elsewhere, Amazon said it would no longer enforce certain contract terms in 2019. However, Bonta’s office claims that the practice was maintained.
Bonta claimed that he was confident in winning his case because of California’s anti-monopolization laws. In addition, he voiced his desire for anti-monopoly legislation to be introduced in the Legislature, where he had previously served.
A lawsuit from the state of California will add to the political pressure Amazon is feeling from lawmakers on Capitol Hill. Amazon’s CEO has personally lobbied senators to vote against antitrust legislation that would punish Amazon and other tech giants for elevating their products above rivals’ offerings, and the company has bolstered its lobbying corps accordingly. The company has reached out to third-party sellers to help in this fight, claiming that federal regulations would have a negative impact on everyone who uses the platform to sell goods.
Some documents leaked to POLITICO this summer suggest Amazon was plotting price cuts to undercut its rivals. It is alleged in the California lawsuit that Amazon has lied to law enforcement and international investigators.
Their business practices are also being investigated by federal regulators. The FTC is looking into Amazon’s Prime subscription business, as well as its retail, device, and cloud computing operations, for potential privacy violations and other consumer harms. It has also started looking into whether Amazon’s $1.7 billion purchase of iRobot, a maker of robot vacuum cleaners, and $3.9 billion purchase of One Medical infringe on antitrust laws.
The California attorney general’s office has targeted Amazon before. Bonta has advocated for more stringent regulation of the environmental impact of fulfillment centers and last year obtained a court order compelling Amazon to disclose more information about Covid-19 case numbers among its workforce.
Legislators in California have also been trying to rein in the tech industry more and more frequently in recent years. The Democratic governor of California, Gavin Newsom, is considering signing legislation that would establish privacy and safety standards for children under the age of 18 who frequently use the internet. A similar bill that would have made online services liable for harm they cause to minors who become addicted failed to pass the Senate this year.