The Federal Trade Commission’s lawsuit against Amazon.com, Inc., reveals inconsistencies between the agency’s laws and the company’s policies, according to Sean Heather, senior vice president of Internal Regulator Affairs & Antitrust for the U.S. Chamber of Commerce.
Heather argues that the FTC created its paradox, emerging from its suit against the online retailer which exposed Amazon to conflicting legal obligations that make it almost impossible for the company to follow the law.
The FTC’s lawsuit claims Amazon violated antitrust laws by exerting control over its third-party seller, while on the other hand, its Mail Order Rule requires Amazon to fulfill orders within its advertised time of two days, according to Heather.
“In other words, the FTC has put Amazon between a rock and a hard place,” said Heather.
In late September, the FTC along with 17 state attorneys general brought a lawsuit against Amazon.com. The suit alleges that the company is a monopolist, using interlocking anticompetitive and unfair strategies to illegally maintain its power, according to a FTC press release.
The FTC said Amazon’s policies allow it to block rivals and sellers “from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon.”
As part of its antitrust lawsuit, the commission argues that Amazon halted the ability of third-party sellers to use its shipping services within the Amazon Prime program. As part of Amazon Prime, consumers are guaranteed free two-day shipping when purchasing eligible items.
According to the antitrust complaint, the FTC argues that Amazon improperly limited the ability of third-party sellers to use their shipping services within Amazon’s Prime program. When consumers purchase items eligible for Amazon Prime, they are guaranteed free two-day shipping, at no extra cost to them.
The FTC alleges that the company forces third-party sellers to use Amazon’s shipping and distribution services, rather than allowing them to ship items themselves.
Heather argues that the FTC’s theory will face strong opposition in court.
He argues Amazon has both legal and pro-competitive business reasons to monitor the shipping performance of its sellers, including a specific rule set by the FTC.
The Mail Order Rules, created by the FTC in 1975, require mail, phone, and online sellers to have a reasonable basis to expect that they can ship within an advertised time frame, or if no time frame is specified, within 30 days, the rule states.
The rule also requires that the seller obtain the consumer’s consent to a shipping delay or refund payment for unshipped merchandise when a seller cannot ship within a specified timeline, which may result in a fine of up to $50,000 per violation.
According to Heather, this rule requires Amazon to closely monitor and be responsible for the shipping performance of its third-party sellers. If the company does not monitor them, Amazon could risk violating the Mail Order Rule, or falsely promising two-day advertised shipping under Section 5 of the FTC Act.
Heather argues that the FTC case is not surprising, as Chair Lina Kahn gained recognition in antitrust circles after her law review article “Amazon’s Antitrust Paradox” was published in the Yale Law Journal.
In her article, Khan argues that antitrust’s framework, “specifically its pegging competition to ‘consumer welfare,’ defined as short-term price effects—is unequipped to capture the architecture of market power in the modern economy.” Khan said consumers cannot understand the potential harm to competition from Amazon’s dominance.
