Why Amazon may have the upper hand in antitrust suits

The logo of Amazon is seen at the company logistics centre in Boves, France, October 6, 2021 REUTERS/Pascal Rossignol

(Reuters) - If there’s one thing I hate when shopping, it’s buying something and then finding the item offered for less somewhere else.

Keen to spare its customers such aggravation, Amazon.com says it “constantly compares” its prices to make sure they’re “as low or lower than all relevant competitors.”

It sounds great, at least in theory. Rather than scouting 10 websites to find the best price on, say, a frying pan, I can just click “Buy Now” from Amazon and feel confident I got the optimal deal.

Except it’s not so simple, as a trio of antitrust suits -- the most recent filed last week by California Attorney General Rob Bonta -- against the $1.3 trillion e-commerce giant makes clear.

While Amazon’s low-price policies may seem budget-oriented and consumer-friendly, the lawsuits allege that the company is actually stifling price competition and using its market power to coerce third-party sellers into agreeing not to sell their products at a lower price elsewhere.

The result? Shoppers allegedly pay more -- an estimated 6% to 16%, according to plaintiffs' lawyers -- than they should across a wide swath of online marketplaces and stores.

An Amazon spokesperson told me that the suits have it “exactly backwards. Sellers set their own prices for the products they offer in our store.”

While the plaintiffs' claims seem compelling, antitrust experts tell me that making them stick is likely to be tricky.

A key issue in the three cases is whether Amazon's commitment to offering the lowest prices “helps or harms consumers,” said University of Minnesota Law School professor Tom Cotter. “In general, it's very difficult for plaintiffs to win on these types of claims.”

Indeed, one of the suits has already failed, at least initially. In March, a District of Columbia Superior Court judge dismissed a complaint by Washington, D.C., attorney general Karl Racine for failing to show Amazon's actions were anticompetitive.

Racine’s office, which did not respond to a request for comment, has filed a notice of appeal.

Plaintiffs in Seattle federal court are faring better, where a group of trial lawyers from Quinn Emanuel Urquhart & Sullivan; Hagens Berman Sobol Shapiro; and Keller Postman blazed the trail in 2020 by filing the first of the Amazon pricing complaints.

Their would-be class action is sweeping in its ambition, encompassing about 340 million products offered concurrently on both Amazon competing e-commerce channels such as eBay or Walmart.com, and covering consumers in 18 states who bought goods online.

Amazon is represented by Paul, Weiss, Rifkind, Wharton & Garrison in the Seattle case, and was also represented by the firm in the D.C. case. Partner Karen Dunn declined to comment.

Crucially, the plaintiffs earlier this year survived a motion to dismiss, when U.S. District Judge Richard Jones found that the class representatives had standing to sue and that they “sufficiently allege the requisite anticompetitive conduct.”

Plaintiffs' lawyer Steve Berman, who is co-leading the case, laid out their theory for me.

“Amazon charges high seller fees and commissions so that it costs third-party sellers significantly more to sell on Amazon Marketplace than to sell on their own websites that charge no fees, or on competing online retail marketplaces (like eBay) that charge lower seller fees,” he said via email.

If the third-party sellers hadn’t agreed to restrain their competition with Amazon, Berman continued, they “would lower their prices on online sites where it costs them less to sell, but instead they raise their prices to match the prices on Amazon Marketplace.”

Under this scenario, consumers are the losers.

Or as the California AG put it in his complaint, which was filed on Sept. 14 in San Francisco Superior Court, Amazon is using its pricing policies to entrench its dominance, "preventing effective competition, and harming consumers and the California economy."

The state’s 84-page complaint, which a spokesperson described as “the culmination of an extensive 2+ year investigation,” invokes California’s antitrust statute, the Cartwright Act, and its unfair competition law.

The Cartwright Act “is a very good law to sue on” for plaintiffs, New York University School of Law professor Eleanor Fox told me. Unlike the federal Sherman Antitrust Act, it doesn’t require the state to convince the court that Amazon is a monopoly -- a high bar -- but merely that it is dominant, which is “much easier to prove.”

Amazon in a blog post counters that the AG “misconstrues Amazon’s practices.”

Yes, the company may crack down if a seller’s prices are “significantly higher than recent prices offered on or off Amazon,” according to the company’s “Fair Pricing” policy. But Amazon in court papers says that provision is aimed at preventing price gouging (remember vultures in the early days of the pandemic selling hand sanitizer for $50 a bottle?)

Nor is it clear what a satisfactory remedy would look like if the suits succeed, notes Adam Kovacevich, founder and CEO of the Chamber of Progress, which describes itself as a “center-left tech industry policy coalition.”

As-is, Amazon “factors in the seller’s price elsewhere in deciding what to feature” in its coveted "Buy Now" box where most sales happen, he told me, a practice that he sees as benefiting consumers.

Pricier offerings can still be sold on its platform, Amazon says -- they’re just not showcased in the Buy Now box. It would “only hurt consumers and sellers in Amazon’s store” if it was forced to “highlight higher, uncompetitive prices to customers,” the company says.

Penn State Law professor John Lopatka adds that Amazon could also argue its practices are designed to prevent “free riding,” where people browse on Amazon but purchase from a cut-rate rival. Amazon is “providing a service for which it does not charge -- easy comparative shopping,” Lopatka said in an email.

He added, “And on a practical level, the plaintiffs are going to have a difficult time convincing consumers who have come to depend on Amazon that they are really being ripped off by it.”

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Jenna Greene writes about legal business and culture, taking a broad look at trends in the profession, faces behind the cases, and quirky courtroom dramas. A longtime chronicler of the legal industry and high-profile litigation, she lives in Northern California. Reach Greene at jenna.greene@thomsonreuters.com