Ariz. AG Twice Sued Amazon Wednesday for Consumer Fraud, Antitrust

Amazon's "anti-competitive and monopolistic practices" have artificially inflated prices for Arizona consumers and harmed smaller third-party retailers that rely on its platform, said Arizona Attorney General Kris Mayes (D) in a news release Wednesday in which she announced two lawsuits against Amazon in Maricopa County Superior Court for violations of Arizona consumer fraud and antitrust laws.

One of Mayes' cases targets Amazon Prime's cancellation process, which Mayes alleges is “intentionally confusing and misleading, a strategy Amazon tellingly called Project Iliad.” The cancellation process requires users to navigate a “complicated and manipulative interface with skewed wording, confusing choices, and repeated nudging,” alleged the complaint. The tactics were “deceptive” because they “tended to mislead users” who wanted to end their Prime subscriptions by steering them away from doing so, it said.

Tactics include using “misdirection” to make cancellation of the Amazon Prime membership service difficult through the use of misleading graphics, said the complaint. “Brightly colored buttons offering alternatives to cancelling and whimsical graphics to depict the value of remaining with Prime were not intended to streamline the process of cancellation, but to confuse and distract the Prime member and keep him or her from quitting the subscription,” said the complaint.

Other Amazon tactics to impede customer cancellations include “confirm-shaming,” where the option to decline is worded "to shame the user into compliance” and “interface interference” that emphasizes options “that diverted the consumer from the cancellation process without cancelling,” the complaint said. Also, warning icons near the option to cancel “evoked anxiety and fear of loss in consumers,” the complaint said.

Amazon’s use of “dark patterns” in the design and implementation of the cancellation process was “inherently and materially deceptive” because it “frustrated [users’] ability to cancel in a reasonable and efficient manner,” the complaint said. The state seeks disgorgement, injunctive relief, attorneys’ fees and costs and appropriate civil penalties and fees under the Arizona Consumer Fraud Act, it said.

The other lawsuit targets Amazon's Buy Box algorithm, which determines which offer for a given product is made available via the “Buy Now” or “Add to Cart” buttons. Amazon “deliberately steers shoppers away” from offers that aren’t featured in the Buy Box, the second complaint said, while consumers “reasonably believe” that the Buy Box -- the “Buy Now” or “Add to Cart” option -- features the lowest-price offer. “But that isn’t true,” said the complaint, saying the Buy Box algorithm is “rigged in favor of offers for which Amazon fulfills and delivers the product.” That’s either because Amazon is the seller, or the seller is a third party that participates in Fulfillment by Amazon (FBA), the complaint said.

When consumers search for an item on Amazon, the Buy Box algorithm applies seven filters to determine which products are “responsive” and then applies five more factors to evaluate which of the responsive offers should win the Buy Box, said the complaint. Two of the five factors “bias the algorithm in favor of FBA offers,” including whether the offer qualifies for Amazon Prime, said the complaint, citing a report by the Italian Competition Authorities.

A House subcommittee report found third-party sellers need a Prime Badge to “maintain a favorable search result position” to win the Buy Box, and it said purchasing FBA “is functionally the only way for sellers to get the Prime Badge for their product listings,” the complaint said.

Another factor biased in favor of FBA offers is seller performance rating, said the complaint. Though the rating is supposed to incorporate data based on sellers’ customer reviews and late deliveries, the Buy Box algorithm “doesn’t apply the metric to offers where the seller participates in FBA,” it said: “Instead, it assigns such offers the maximum value, simply by virtue of being FBA offers.”

The result of the Buy Box algorithm’s “biased factors” is that offers “routinely ‘win’ the Buy Box, even though they are more expensive than other offers in the Marketplace for the same product, because their sellers participate in FBA -- and pay Amazon the requisite FBA fees,” the complaint said, citing the House report.

Amazon further ensures use of FBA “and strict compliance with price parity provisions with open threats to ‘suppress’ the Buy Box outright," alleged the complaint. If no retailer “qualifies” for the Buy Box for a product, Amazon “eliminates the Buy Box entirely, meaning a consumer cannot simply click the ‘Buy Now’ or ‘Add to Cart’ buttons to add the items to the shopping cart, the complaint said.

Amazon has “monopoly power” in the online retail marketplace, which it uses “to prevent competition and increase consumer prices,” alleged the complaint. Every third-party seller must agree to its Business Services Agreement (BSA), which has a price parity clause that prohibits third-party sellers from listing goods on other online retail platforms at prices lower than their Amazon list prices, it said. German regulators found that the “horizontal trade cooperation” between Amazon and its third-party sellers was “horizontal price-fixing” resulting in “significant price increases in e-commerce,” the complaint said. Due to proceedings by German and U.K. antitrust regulators in 2013, Amazon “abandoned its price parity clauses on an EU-wide basis,” it said.

Amazon continued to enforce the price parity clause in the U.S. until March 2019, when, under threat of an investigation by the FTC, it removed the clause from the BSA, but it didn’t stop enforcing “its expectation that third-party sellers would keep prices on other marketplaces as high as prices for the same item on Amazon,” alleged the complaint. A brands standard provision in the BSA requires sellers to “’maintain [Amazon’s] standards for customer experience,’ including ‘price competitiveness,’” it said. The provision warns sellers “unable to maintain our standards for customer experience,” that they “might lose certain privileges associated with operating as a seller in the Amazon store,” such as “having your offers featured on product detail pages,” or “lose the opportunity to operate as a seller in the Amazon store altogether,” it said.

Amazon violated Arizona’s Consumer Fraud Act, said the complaint, and the state seeks a judgment enjoining Amazon from continuing or re-engaging in unfair and deceptive conduct. It seeks equitable relief as the court finds appropriate, civil penalties up to $10,000 for each willful violation of the law, actual damages, and statutory or equitable disgorgement of profits, gains and gross receipts obtained through the allegedly unlawful conduct. The state also seeks attorneys’ fees and costs, plus pre- and post-judgment interest.