Amazon just got sued by the FTC in one of the biggest legal challenges it has ever faced

Amazon is being sued by U.S. regulators and 17 states over allegations that the company abuses its position in the marketplace to inflate prices on other platforms, overcharge sellers, and stifle competition.

The lawsuit, filed Tuesday in U.S. District Court for the Western District of Washington, is the result of a yearslong investigation into Amazon’s businesses and one of the most significant legal challenges brought against the company in its nearly 30-year history.

According to a news release sent by the agency, the Federal Trade Commission (FTC) and states that joined the lawsuit are asking the court to issue a permanent injunction that they say would prohibit Amazon from engaging in its unlawful conduct and loosen its “monopolistic control to restore competition.”

They allege the company engages in anti-competitive practices through anti-discounting measures that deter sellers from offering lower prices for products on non-Amazon sites, mirroring allegations made in a separate lawsuit last year by the state of California. The complaint says Amazon can bury listings that are offered at lower prices on other sites.

The complaint also says the company degrades the customer experience by replacing relevant search results with paid advertisements, biasing its own brands over other products it knows to be of a better quality and charging heavy fees that force sellers to pay nearly half of their total revenues to Amazon.

“The complaint sets forth detailed allegations noting how Amazon is now exploiting its monopoly power to enrich itself while raising prices and degrading service for the tens of millions of American families who shop on its platform and the hundreds of thousands of businesses that rely on Amazon to reach them,” FTC Chairman Lina Khan said in a prepared statement.

Many had wondered whether the agency would seek a forced break-up of the retail giant, which is also dominant in cloud computing and has a growing presence in other sectors like groceries and healthcare. In a briefing with reporters, Khan dodged questions of whether that will happen.

“At this stage, the focus is more on liability,” she said.

Some estimates show Amazon controls about 40% of the e-commerce market. A majority of the sales on its platform are facilitated by independent sellers consisting of small- and medium-size businesses and individuals. In return for the access it provides to its platform, Amazon rakes in billions through referral fees and other services like advertising, which makes products sold by sellers more visible on the platform.

The vast majority of third-party merchants also use the company’s fulfillment service to store inventory and ship items to customers. Amazon has been consistently raising fees for those reliant on the program and more recently imposed—and then abandoned—another fee on some who don’t, a move that was blasted by the company’s critics.

Last quarter, Amazon reported $32.3 billion in revenue from third-party services. According to the anti-monopoly organization Institute for Local Self-Reliance, the fees cost U.S. sellers 45% of their revenue in the first half of this year—up from 35% in 2020 and 19% in 2014.

Amazon has also long faced allegations of undercutting businesses that sell on its platform by assessing merchant data and creating its own competing product that it then boosts on the site. In August, the company said it was eliminating some in-house brands that weren’t resonating with customers and would relaunch some items under existing brands like Amazon Basics and Amazon Essentials. Booksellers and authors have also been urging the Department of Justice to investigate what they’ve called Amazon’s “monopoly power over the market for books and ideas.”

“Today’s suit makes clear the FTC’s focus has radically departed from its mission of protecting consumers and competition,” Amazon said in response to the lawsuit. “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 for Amazon customers and greater opportunity for the many businesses that sell in Amazon’s store. If the FTC gets its way, the result would be fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small businesses—the opposite of what antitrust law is designed to do. The lawsuit filed by the FTC today is wrong on the facts and the law, and we look forward to making that case in court.”

If successful, a court case could be a big boost for the FTC’s Khan, a Big Tech critic who gained prominence as a Yale law student in 2017 for her scholarly work, “Amazon’s Antitrust Paradox.” In 2021, Amazon had sought to get her recused from agency probes against the company because of her earlier criticism.

Under Khan’s watch, the FTC has aggressively attempted to blunt Big Tech’s influence but has been unsuccessful recently in some of the most high-profile cases, including its bid to block Microsoft’s takeover of the video game maker Activision Blizzard and Meta’s acquisition of the virtual reality startup Within Unlimited. The agency is currently in the middle of a protracted lawsuit against Facebook parent Meta, which it alleges to have engaged in monopolistic behavior. The Justice Department is also challenging Google’s market power in court.

Some of the agency’s allegations in the Amazon case mirrors those made in a separate lawsuit last year by the state of California. A similar case filed by the District of Columbia was thrown out by a federal judge earlier last year and is currently under appeal.

The federal complaint follows other actions the FTC has taken against Amazon in the past few months. In June, the agency sued the company, alleging it was using deceptive practices to enroll consumers into Amazon Prime and making it challenging for them to cancel their subscriptions. Amazon disputes the allegations.

In late May, the company agreed to pay a $25 million civil penalty to settle allegations that it violated a child privacy law and misled parents about data deletion practices on its popular voice assistant Alexa.

—HALELUYA HADERO, AP Business Writer

—Fast Company added reporting