California state attorney files lawsuit against Amazon

California’s attorney general filed a lawsuit against Amazon Wednesday, alleging that the retail giant is violating the state’s antitrust and unfair business practices laws by illegally using its dominance to stomp out competition in the online retail market.

In an 84-page civil complaint, the state’s top law enforcement official says Amazon is insulating itself from price competition by forcing third-party sellers and wholesale suppliers that sell and deliver new products to a buyer’s home to refrain from offering lower prices elsewhere. These pricing agreements require the parties to agree they’ll prevent Amazon’s competitors — such as Walmart, Target, eBay, and the party’s own websites — from offering lower prices.

The contracts prevent effective price competition across a “wide swath” of online marketplaces and stores, the complaint states.

“Amazon makes consumers think they are getting the lowest prices possible, when in fact, they cannot get the low prices that would prevail in a freely competitive market because Amazon has coerced and induced its third-party sellers and wholesale suppliers to enter into anti-competitive agreements on price,” the complaint states.

Amazon — along with other tech giants like Meta Platforms— has been increasingly subject to antitrust scrutiny. This also isn’t the first state-level antitrust lawsuit that’s been brought against Amazon, particularly when it comes to how the company manages pricing and its seller relationships. In March, the Superior Court of the District of Columbia dismissed a similar antitrust lawsuit that D.C. Attorney General Karl Racine’s brought against Amazon.

In a complaint filed May 2021, Racine argued that the company’s “Fair Pricing Policy” violated the district’s Antitrust Act by prohibiting third-party sellers from offering lower prices for their products on competing websites. The suit also alleged that Amazon imposed anti-competitive agreements on wholesalers known as “first-party sellers” that sell products to Amazon, which in turn resells to its retail consumers.

A similar class action is playing out in Seattle, where a group of consumers in March convinced a judge to deny Amazon’s request to dismiss their suit, also alleging that the company’s seller agreements violate antitrust law. According to the judge, the agreement’s requirement that sellers add Amazon fees to the cost of products sold elsewhere could potentially run afoul of federal anti-competition law.

California’s complaint is distinct from the D.C. and Washington cases in that it alleges violations of separate anti-competition laws and different “relevant markets.”

In the D.C. case, the attorney general alleged that Amazon used its dominance in the broader online retail market to violate the district’s antitrust laws. Plaintiffs in the Washington case argued that the tech giant is violating federal competition law using dominance in the U.S. retail e-commerce market.

In 2019, reportedly under the threat of investigation by the Federal Trade Commission, Amazon dropped its “most favored nation” provision, which required sellers to offer items for sale to Amazon users with the most favorable terms.

For now, it’s unclear how this latest lawsuit will affect Amazon, said Adam Kovacevich, who’s CEO and founder of Chamber of Progress, a center-left tech policy coalition.

“I think most people would be shocked to hear the allegation that Amazon was contributing to higher prices, not lower prices,” said Kovacevich, echoing a defense that Amazon has used to deny antitrust claims. “That’s what’s unusual about this case. I think it faces legal hurdles, but also a common sense hurdle.”

If this case moves forward, it will also be a matter of finding the correct remedy, and since this is unchartered legal territory, it’s not clear what that looks like, added Kovacevich.

“Even if this is a problem, what would be the remedy? That’s not clear to me yet,” he said.

California’s attorney general is asking for a jury trial and for Amazon to compensate Californians for the “deadweight loss” allegedly caused to the state’s economy. The complaint further seeks an injunction to stop Amazon’s alleged illegal conduct, and a fine against the company of $2,500 per violation, for claims proven at trial.

“Similar to the D.C. Attorney General — whose complaint was dismissed by the courts — the California Attorney General has it exactly backwards,” an Amazon spokesperson said in a statement to Yahoo Finance. “Sellers set their own prices for the products they offer in our store. Amazon takes pride in the fact that we offer low prices across the broadest selection, and like any store we reserve the right not to highlight offers to customers that are not priced competitively. 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 shares are down about 25% year to date as of close on Wednesday. The company’s stock reacted briefly to the news of the California lawsuit, but spiked back up shortly thereafter.

Source: Yahoo Finance

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