The Amazon antitrust lawsuit is likely to be a long and arduous journey for the FTC

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This article was published 10/10/2023 (1089 days ago), so information in it may no longer be current.

NEW YORK (AP) — Amazon is heading into one of its biggest sales events of the year — Prime Day — with a lawsuit hanging over its head that accuses it of preventing sellers from hawking their merchandise at lower prices on other sites.

The Federal Trade Commission’s long-awaited antitrust case is the agency’s most aggressive move yet to tame the market power of Amazon, a company that’s become synonymous with online shopping and fast deliveries.

Under chair Lina Khan, the agency hasn’t been shy about taking big swings against some of America’s biggest companies and testing the limits of competition law to reverse what many of her supporters see as decades of weak antitrust enforcement. But that approach has also led to some high-profile setbacks, most notably in the FTC’s bid to block Microsoft’s takeover of Activision Blizzard and Meta’s acquisition of the virtual reality startup Within Unlimited. The FTC is appealing the judge’s ruling in the Microsoft case.

The Amazon case, which was backed by 17 states, marks a full-circle moment for Khan, who is finally confronting the company she scrutinized in an influential scholarly paper she penned as a Yale Law student. In the paper, which was called “Amazon’s Antitrust Paradox” and released in 2017, Khan argued the prevailing way of looking at anticompetitive conduct by the impact it has on prices was insufficient in the modern economy. Instead, she pushed for a more progressive approach that examines how corporate concentration impacts the broader market.

Two years ago, Khan was tapped to lead the FTC by President Joe Biden, whose administration has taken a tougher stance on antitrust enforcement. That same year, Amazon unsuccessfully sought to get her recused from agency probes against the company, arguing she was too biased.

Now, her agency must prove in court both that Amazon is a monopoly and is using its dominance to prevent competition from flourishing in the marketplace.

“If we succeed, competition will be restored and people will benefit from lower prices, greater quality, greater selection as a result,” Khan said during a recent call with reporters.

A final decision in Amazon case will likely come years down the road, assuming the lawsuit isn’t dropped under a new administration, dismissed by a judge or ends in a settlement akin to the one Amazon reached with European regulators last year. A similar lawsuit filed last year by the state of California is set to go to trial in 2026. The District of Columbia also tried to sue Amazon on antitrust grounds before, but its lawsuit was dismissed by a federal judge last year.

Experts say the FTC faces a few hurdles in its own case, including convincing the court which slice of the market Amazon is allegedly monopolizing.

In the 172-page complaint filed in federal court, the government paints a picture of an institution that strong-arms sellers and exercises monopoly power in what it calls the “online superstore market” and “online marketplace services.” This isn’t the entire U.S. e-commerce sector, of which Amazon is estimated to control about 40%. But rather, the agency is describing the types of single-destination online stores that offer a large array of products, and allows sellers to access a significant number of shoppers.

In a blog post responding to the lawsuit, Amazon General Counsel David Zapolsky accused the FTC of attempting to “gerrymander alleged market” to portray Amazon as something it’s not. He said consumers buy over 80% of all retail products in physical stores and that Amazon was “just a piece of a massive and robust retail market” that offers options to consumers and sellers. Brick-and-mortar retailers, online stores and newer buy-online-pick-up-in-store options, he says, are all competing vigorously with each other.

Online, Amazon has been facing growing competition from traditional retailers including Walmart, and Chinese shopping sites Shein and Temu, which became popular by offering ultra-cheap goods. There are also platforms like Etsy and Shopify that are enabling small businesses to sell directly to consumers, and specialist retailers like Wayfair.

“Whichever way you look, there are companies competing with Amazon,” said Neil Saunders, managing director at GlobalData Retail.

Besides the jargon around market definitions, the substance of the agency’s complaint focuses on Amazon’s growing fees on third-party sellers and its ramifications on consumers. It accuses the e-commerce company of squeezing sellers through various fees and employing a massive web-crawling apparatus that punishes them for offering lower prices on other sites. The FTC also alleges Amazon keeps sellers dependent on services that have allowed it to collect billions in revenue every year.

Zapolsky counters that Amazon — just like any store owner that doesn’t want to promote bad deals — doesn’t highlight listings that aren’t competitively priced. He also said the services the company provides to sellers are optional.

The Amazon case comes as federal prosecutors and state attorneys general are in the middle of a 10-week trial trying to prove Google rigged the market in its favor by locking in its search engine as the default choice in a plethora of places and devices. That case was brought by the Department of Justice and marks the biggest U.S. antitrust trial since regulators went after Microsoft and its dominance of personal computer software a quarter century ago.

Maurice Stucke, a former senior advisor at agency during Khan’s tenure, said even though there have been some notable antitrust cases, there hasn’t been that much case law around monopolization in the past few decades, limiting the examples the FTC can draw from for its Amazon lawsuit. And even if the FTC wins its lawsuit years down the line, he said changes in the market could make it possible for Amazon to maintain its dominance without engaging in the activities the agency is alleging.

“Once you get to relief, it might be too little too late,” said Stucke, who currently teaches law at the University of Tennessee.

For her part, Khan has dodged questions about whether the agency would try to break up Amazon. She said its focus right now is on establishing liability. The lawsuit, though, does call for “structural relief,” which means the agency could — down the road — ask the court to change the way Amazon works in minor or major ways.

Overall, there has not been a lot of monopolization cases that have ended in a court ordering a company to divest itself, said Sean Sullivan, a professor at the University of Iowa College of Law who teaches antitrust law.

“Judges are trying really hard to do the right thing,” he said. “But they’re also conscious that if they make a mistake, that type of remedy is potentially very costly and would have massive economic ramifications.”