FTC Antitrust Suit to Take Aim at Amazon with Lina Khan at the Helm

Lina Khan, who heads the Federal Trade Commission, has initiated legal action against Amazon.com Inc. on three occasions. Currently, she is preparing for a significant legal battle against the company.

According to documents reviewed by Bloomberg and three people familiar with the case, the agency plans to file a far-reaching antitrust lawsuit in the coming weeks that focuses on Amazon’s core online store. The main charge is expected to be that Amazon uses its power to reward online retailers who use its logistics services and punish those who don’t.

FTC investigators and Khan’s office have been polishing the complaint for several months, the two people said, and are finalizing key details, including how to file a lawsuit. Khan and his colleagues are keen to announce before staff changes in August, according to the people, who warned the timing could slip.

Based on his public comments, Khan is unlikely to accept compromises from Amazon and could try to restructure the company – a dramatic outcome that Amazon is sure to appeal to.

Taking on Amazon promises to be a career-defining moment for the 34-year-old Khan, who rose to prominence with a fresh analysis of how the Seattle-based company is abusing its market power. In a prominent law review article, Khan argued that the current antitrust enforcement framework was ill-equipped to counter Amazon’s potential harm to competition.

Khan’s nomination to head the FTC sparked the Biden administration’s crackdown on Big Tech, which already includes complaints against Alphabet Inc’s Google and Meta Platforms Inc, as well as an investigation into Apple Inc.

Amazon says Khan should step down from the company because of his public statements. But when Meta made a similar demand, Khan continued to lead the case, ignoring a non-binding recommendation from the agency’s top ethics official that he step aside. A footnote in an ethics attorney’s memo previously reported by Bloomberg stated that Khan was authorized to act as a prosecutor in the Amazon cases.

The ethics memo said Khan’s past statements about Meta are sufficient to warrant dismissal in the agency’s administrative tribunal in cases where commissioners have the final say, but did not include conclusions about Amazon. Two judges have ruled that there is no problem with Khan’s involvement in the cases filed in federal court, which could prompt a lawsuit by the FTC. This avoids lengthy litigation over whether Khan has a conflict of interest, but could make it harder to win the case.

Amazon executives will get a final chance to argue their case before the FTC’s three commissioners, including Khan, but a “final dispute” meeting is not scheduled, said one of the people and another person, who spoke on condition of anonymity to discuss the situation.

Both Amazon and the FTC declined to comment.

Amazon shares were down less than 1 percent at 11:57 a.m. in New York.

The Great One

Amazon’s sprawling marketplace is the heart of the company’s e-commerce business. Third-party merchants, who now account for more than half of the company’s online sales, pay a commission for each sale and may also pay Amazon for services ranging from warehousing and shipping to advertising.

These fees are optional, but most merchants consider them a necessary cost of doing business. Amazon’s average cut of each sale on the marketplace has grown in recent years, surpassing 50 percent in 2022, according to research from Marketplace Pulse, up from 35 percent in 2016.

The FTC has gathered evidence that the company is putting sellers who don’t use these services at a disadvantage, and the agency is investigating the algorithm that selects merchants for the online store’s coveted “Buy Box,” where consumers can add items to a cart with a single click.

The pending charges are similar to a 2020 report by a US House subcommittee — which counted Khan as a staff member — and overlap with a European antitrust case in which Amazon was accused of rewarding sellers who use its fulfillment services and using merchants’ sales data to boost it. own retail store.

Amazon settled the European case by offering to change its Buy Box policies and limit how it uses data from third-party sellers in its European online stores. While Amazon could make a similar offer to the US market, Khan has expressed opposition to such compromises, telling a Senate committee last year that the FTC would “strongly reject” such remedies.

Customer obsessed

Amazon has long said it puts customers first — something workers are taught to embrace in antitrust training, according to documents reviewed by Bloomberg. The antitrust action would be the FTC’s fourth case this year seeking to challenge the company’s famous focus on customers.

In May, the agency sued the e-commerce giant in two separate cases for failing to delete data about children collected by Alexa speakers and illegally spying on users of its Ring doorbells and cameras. Amazon said it disagreed with the FTC’s allegations, but agreed to pay $30.8 million to settle the cases.

Last week, the FTC sued Amazon again in a consumer protection case, alleging that the company tricked consumers into signing up for Prime membership and intentionally made it difficult to cancel. The FTC case caught Amazon executives completely by surprise, according to two people familiar with the situation.

The FTC is separately investigating Amazon’s proposed $1.65 billion purchase of Roomba vacuum maker iRobot Corp.

Antitrust Probe

The FTC’s big antitrust case has been going on for a long time. Amazon received the initial notice of investigation in June 2019, according to documents reviewed by Bloomberg. The first records request followed two months later.

That letter, a copy of which was obtained by Bloomberg, included several questions about how using Amazon’s warehouse and delivery services “affects a third-party seller’s product placement,” including boxes on the website that give products more visibility.

The document request also asked for information on any arrangements made with Apple Inc., including evidence of “the basis for entering into such agreements.” The two companies agreed in 2018 to allow the iPhone maker to sell its products directly on Amazon’s marketplace — the FTC later reviewed the agreement’s impact on Apple retailers.

In February 2020, the FTC issued mandatory document requests seeking more information about these matters and the Amazon Web Services cloud services division, according to internal agency documents obtained by Bloomberg through a public records request.

Amazon responded with lots of information during 2020 and 2021. At the time, the FTC had only a few investigators investigating because it focused most of its antitrust enforcement on Meta.

Khan’s FTC

In June 2021, Khan took over the agency and began retooling the Amazon probe. He personally helped draft some lines of questioning for the investigators and selected John Newman, an academic with experience in the Department of Justice, to help lead the inquiry. Newman added to the team further.

During 2022, the FTC interviewed nearly 30 Amazon employees under oath, according to the people.

When the complaint is finally filed, the FTC anticipates a barrage of criticism directed at Khan, who is already at the center of corporate interests wary of his hardline approach and the agency’s leadership. One person familiar with Amazon’s strategy pointed to its broad attacks on congressional antitrust legislation focused on technology. Last year, the company and its affiliates spent $20 million lobbying and launching an advertising campaign and efforts to get vendors in lawmakers’ home states to publicly oppose the bills.