a doorstep with amazon packages piled around it

By: Caitlyn Lindstrom

On September 26, 2023, the Federal Trade Commission. (“FTC”), along with seventeen states, filed suit against Amazon.com, Inc. (“Amazon”), claiming Amazon’s business practices violate Section 5(a) of the FTC Act, 15 U.S.C. § 45(a)[1] and Section 2 of the Sherman Act, 15, U.S.C. § 2[2], in addition to state competition and consumer protection laws.[3]  The FTC alleges that Amazon has monopoly power in the “online superstore market in the United States,” and it engages in anticompetitive and exclusionary conduct, including anti-discounting practices, which “stifle price competition and tend to create an artificial price floor.”[4]  As a result, consumers experience “artificially higher prices” since merchants cannot sell their products on other competitive sites, ultimately fostering an exclusive market for Amazon to promote its own products.[5]  Amazon’s general counsel, David Zapolsky, denies the FTC’s allegations, stating that Amazon’s practices have promoted innovation and contributed to competition.[6]

Although many people agree that Amazon has a prominent presence in online commerce and questionable business practices, it seems the FTC is unlikely to prevail on its allegations. [7]  First, the FTC claimed mergers of large technology companies, like Meta[8] and Microsoft[9] harmed competition but still failed to block the acquisitions.  In FTC v. Meta Platforms, Inc., the FTC filed a preliminary injunction to stop Meta from acquiring all shares of Within Unlimited, Inc., a virtual reality (“VR”) fitness software development company. [10]  The FTC claimed that Meta wanted to fund Within Unlimited’s VR app development, a process called “third-party development”, so the application had the opportunity to be offered on Meta’s app store, Quest Store.[11]  The FTC needed only to demonstrate a reasonable probability that Section 7 of the Federal Trade Commission Act was violated through a reduction of actual and potential competition.[12]  By looking at Meta’s potential benefit from investment, the efficiency of hardware integration, and profitability, the Court rejected the FTC’s objective evidence and argument that it is “reasonably probabl[e]” sic Meta would enter the relevant market.[13]  The Court held Meta’s evidence failed to show intent to “build its own dedicated fitness app market if it could enter by acquisition”.[14]  Further, the Court considered subjective evidence of Meta’s interest in entering the market and concluded that Meta never intended to build its own VR fitness app.[15]  As such, the Court declined to enforce an injunctive order on Meta for violation of the Clayton Act.[16]  In sum, the Court found the FTC failed to meet its burden in establishing that (1) Meta possessed the “characteristics, capabilities, and economic incentive to render it a perceived potential de novo entrant” and (2) Meta’s “premerger presence on the fringe of the target market in fact tempered oligopolistic behavior on the part of existing participants in that market,” rejecting the FTC’s plea for injunctive relief.[17]

Similarly in FTC v. Microsoft Corp., the FTC sought a preliminary injunction against Microsoft for a proposed acquisition of Activision, publisher of the video game franchise Call of Duty, due to a violation of the Clayton Act.[18]  The FTC claimed the merger would substantially lessen competition in the video game library subscription and cloud gaming markets.[19]  The Court found that the FTC did not show a likelihood of success on its claim because Microsoft is not incentivized to foreclose Call of Duty from other gaming consoles.[20]  Moreover, Microsoft affirmatively stated it intended to keep Call of Duty accessible for Sony consoles, and the merger will increase competition by sharing Microsoft’s content with the greater cloud-streaming market.[21]  Thus, the Court rejected the preliminary injunction to prevent the merger.[22]

Here, the FTC alleges Amazon acts as the gatekeeper to the online market and effectively eliminates just competition.[23]  The Court will likely weigh this evidence against evidence provided by Amazon to determine if Amazon has the “characteristics, capabilities, and economic incentive”, as well as “oligopolistic behavior” to lessen competition in a particular market.[24]  However, it is known that Amazon has the “lowest operating margins among its big tech peers, and the company’s retail operations have lost money in seven of the last eight quarters.”[25]  Taken together with other tech companies’ growth in recent quarters, the FTC will have a difficult time prevailing on its antitrust claim against Amazon.[26]

Although the FTC did not suggest any remedies in its initial complaint, there are competing views regarding whether pressure from this suit will inspire change in Amazon’s business practices.[27]  Amazon fosters about 40%. of all online shopping and two-thirds of adults in the United States are members of Amazon’s subscription service, Prime, the legal precedent requires the FTC to meet a higher burden of evidence than it has previously offered, and recent growth of Amazon’s competitors may provide additional proof that Amazon does not intend to lessen competition.[28]

[1] 15 U.S.C. § 45(a) (2012) (“Unfair methods of competition in or affecting commerce, and unfair and deceptive acts or practices in or affecting commerce, are hereby declared unlawful.”).

[2] 15 U.S.C. § 2 (2004) (“Every person who shall monopolize or attempt to monopolize . . . shall be deemed guilty of a felony ….”).

[3] See Complaint at 130-146, FTC v. Amazon.com, Inc., No. 2:23-cv-01495 (W.D. Wash. Sept. 26, 2023) (listing alleged violations of antitrust and consumer protection laws in over five states).

[4] Id. at 125.

[5] Id. at 84; David McCabe, U.S. Accuses Amazon of Illegally Protecting Monopoly in Online Retail, N.Y. Times (Sept. 26, 2023), https://www.nytimes.com/2023/09/26/technology/ftc-amazon.html.

[6] Dave Michaels & Dana Mattioli, FTC Sues Amazon, Alleging Illegal Online-Marketplace Monopoly, Wall St. J. (Sept. 26, 2023, 5:58 PM), https://www.wsj.com/tech/ftc-sues-amazon-alleging-illegal-online-marketplace-monopoly-6bd9af23 (“The practices the FTC is challenging have helped to spur competition and innovation across the retail industry, and have produced greater selection, lower prices, and faster delivery speeds . . . .”).

[7] Dan Gallagher, Amazon’s Own Track Record Undercuts the FTC’s Case, Wall St. J. (Sept. 27, 2023, 7:00 AM), https://www.wsj.com/business/retail/amazons-own-track-record-undercuts-the-ftcs-case-a98e18a0.

[8] FTC v. Meta Platforms Inc., No. 5:22-cv-04325-EJD, 2023 WL 2346238, at *33 (N.D. Cal. Feb. 3, 2023) (finding that there is no “direct or circumstantial evidence to suggest Meta’s presence did in fact temper oligopolistic behavior or result in any other procompetitive benefits.”).

[9] FTC v. Microsoft Corp., No. 23-cv-02880-JSC, 2023 WL 4443412, at *22 (N.D. Cal. July 10, 2023) (finding that the FTC failed to show that the merger in this industry may “substantially lessen competition” because the record shows an increase in consumer access of “Call of Duty and other Activision content.”).

[10] Meta Platforms Inc., 2023 WL 2346238, at *1-2.

[11] Id. at *2.

[12] Id. at *21; 25 U.S.C. § 52(b) (1994).

[13] Id. at *23 (“Meta presently lacks the capability to create fitness content is, at the very least, probative as to the reasonable probability. . . .”).

[14] Id. at *24-25 (“Meta’s undisputed financial resources and engineering manpower are counterbalanced by its necessary reliance on external fitness companies or experts . . . Furthermore, the record is inconclusive as to Meta’s incentives to enter the relevant market.”).

[15] Id. at *27 (finding that Meta historically opted to acquire VR developers where the experience requires content creation from the developer, so Meta was hesitant to build its own independent VR fitness app).

[16] Id. at *33.

[17] Id. at *31 (citing United States v. Marine Bancorporation, Inc., 418 U.S. 602, 625 (1974)).

[18] Microsoft Corp., 2023 WL 4443412 at *1.

[19] Id. at *12.

[20] Id. at *15.

[21] Id. at *13, 20 (“After the merger, several of Microsoft’s cloud-streaming competitors will—for the first time—have access to this content.”).

[22] Id. at *22.

[23] See Michaels & Mattioli, supra note 6 (“[Amazon] steadily grew from an online bookseller into a gatekeeper of online commerce that used its size to squash any budding rivals.”).

[24] Meta Platforms Inc., 2023 WL 2346238, at *31 (citing United States v. Marine Bancorporation, Inc., 418 U.S. 602, 625 (1974)).

[25] Gallagher, supra note 7.

[26] Gallagher, supra note 7 (stating that Walmart and Shopify, two of Amazon’s competitors, have experienced higher growth rates than Amazon over the last eight quarters).

[27] Spencer Soper, Amazon Punishes Seller for Five-Cent Price Cut, Echoing FTC Case, Bloomberg L. News (Sept. 27, 2023, 11:49 AM) (stating that some merchants believe pressure from the FTC has made Amazon more seller-friendly while others believe Amazon will always have leverage to offer the lowest prices).

[28] Alina Selyukh, U.S. Sues Amazon in a Monopoly Case That Could be Existential for the Retail Giant, Nat’l Pub. Radio (Sept. 26, 2023, 12:40 PM), https://www.npr.org/2023/09/26/1191099421/amazon-ftc-lawsuit-antitrust-monopoly.

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