The Federal Trade Commission sued Amazon on Wednesday, accusing it of illegally persuading consumers to sign up for its Prime service and then preventing them from canceling the subscription, in the most aggressive action against the company to date by the chairman of the bureau, Lina Khan.
The lawsuit, filed in U.S. District Court for the Western District of Washington, argued that Amazon “defrauded millions of consumers” into enrolling in Prime by using “manipulative, coercive, or deceptive” design tactics on its website known to stands as “dark patterns”. And when consumers wanted to cancel, Amazon “knowingly” complicated the process with byzantine procedures.
“Amazon tricked and tricked people into recurring subscriptions without their consent, which not only frustrated users but also cost them a lot of money,” Khan said in a statement.
Amazon did not immediately comment on the matter.
The lawsuit is against a key Amazon program that has become ubiquitous in the lives of more than 200 million customers. Prime members pay $139 a year to get packages shipped faster from the Amazon store, stream movies and series from their own studio, and get discounts when they checkout at Amazon’s Whole Foods grocery chain. The company has added more perks to Prime over time, including live sports, and has also increased annual subscription fees.
The FTC’s move marked the first time the agency had taken Amazon to court under the leadership of Ms Khan, who rose to fame with a viral critique of the company and is stepping up scrutiny on the e-commerce giant. Ms Khan has said the power big tech companies wield over online trading requires regulators to be much more aggressive, and she has taken action against them.
Under Ms. Khan, the FTC continued a lawsuit against Meta, the owner of Facebook, arguing that it was cutting off nascent competitors by buying Instagram and WhatsApp. The agency also sued to block Microsoft’s $69 billion blockbuster deal for video game publisher Activision Blizzard.
Ms. Khan has yet to file the kind of sweeping antitrust suit against Amazon that the company’s critics are demanding. The FTC’s antitrust office has spent years investigating Amazon’s practices, and critics and supporters of the company are closely watching how it proceeds with the findings.
Amazon recently settled matters with the FTC that began before Ms Khan’s tenure. The company agreed to pay $25 million last month to settle commission claims that its Alexa Home Assistant devices illegally collected data from children. The company also settled another privacy suit with the FTC over its home security subsidiary Ring.
The new lawsuit is part of a larger effort by regulators to limit the power of tech giants like Amazon, Apple, Google, Microsoft and Meta. The Justice Department has filed multiple antitrust cases against Google in recent years. European regulators have also scrutinized giant tech companies, passing privacy laws, working on proposals to rein in artificial intelligence, and filing charges against Google and others.
Prime has been attracting subscribers with its perks menu for years, making the service one of the keys to Amazon’s dominance. The service was introduced in 2005 for $79 per year. Over time, the company added more benefits to the program, such as streaming video, and increased the price. It increased the fee to $139 per year in 2022.
In 2021, Amazon said it had more than 200 million Prime members. Customers spent $35 billion last year on Amazon subscriptions, mostly Prime memberships, according to the company’s financial disclosures.
On Wednesday, the FTC said Amazon had made it particularly difficult to purchase a product from its store without also subscribing to Prime during checkout. In one example, it said the company had used “repetition and color” to shift customers’ attention to Prime’s promise of free shipping and away from the price of the service, leading some to subscribe to Prime without “informed consent.”
The agency also said Amazon made it difficult to find the page where consumers could cancel the service. Once they found it, the company bombarded them with offers designed to change their mind. The lawsuit said Amazon named the process for canceling Prime after the Iliad, the long Greek epic poem that narrates the Trojan War.
Amazon “significantly revamped its Prime cancellation process for at least some subscribers” shortly before the lawsuit, the heavily redacted complaint said. But “before then, the primary purpose of the Prime cancellation process was not to enable subscribers to cancel, but rather to thwart them.”
The FTC asked the court to stop Amazon from these practices and force the company to pay an unspecified financial penalty.
Questions about how difficult it is to cancel Prime have increased in recent years. In a 2021 complaint to the Attorney General of the District of Columbia, the Electronic Privacy Information Center, an advocacy group, said Amazon had used manipulative designs to “disguise the intentions of users who intend to cancel their Amazon Prime subscription, to frustrate”.
The FTC recently pledged to crack down on drafts designed to nudge consumers or confuse their attempts to cancel a service.
“It needs to catch up big time because these practices have been developing for years without serious attention and enforcement,” said John Davisson, senior counsel at the Electronic Privacy Information Center. “When you go after a company as big as Amazon, you send a message to other players in the industry.”
Critics view Prime as central to Amazon’s business, as it keeps customers within the company’s storefront by offering them other benefits, such as access to exclusive Amazon streaming such as “Tom Clancy’s Jack Ryan” and “The Lord of the Rings”. : The Rings of Power.”
Amazon has said Prime offers benefits to consumers. In recent years, as the company lobbied against antitrust reforms targeting the tech giants, it regularly told lawmakers and the media that the changes would bog down Prime.
Ms Khan’s next moves on Amazon will be closely watched. She rose to prominence after publishing a 2017 article in the Yale Law Journal when she was a law student at Yale. That article, “Amazon’s Antitrust Paradox,” argued that modern interpretations of antitrust law should be broadened to address tech companies like Amazon, effectively upending decades of established antitrust doctrine.
“As Amazon continues to deepen its existing control over key infrastructure and reach new industries, its dominance requires the same scrutiny,” she wrote.
