California Attorney General Rob Bonta filed a lawsuit on Wednesday against online retailer Amazon, alleging that the company was involved in anticompetitive contracting practices that illegally forced third party sellers to give only certain prices.
According to the suit, which was filed in San Francisco Superior Court, Amazon broke the California Unfair Competition Law and the Cartwright Act, the latter of which is an anti-trust law that prohibits combinations or agreements that unreasonably restrain trade. Bonta alleges that these laws were broken due to merchants being required to enter agreements that would have them list products on Amazon cheaper than other online and retail places, and would penalize them if they didn’t comply.
“Amazon makes consumers think they are getting the lowest prices possible, when in fact, they cannot get the low prices that would prevail in a freely competitive market because Amazon has coerced and induced its third-party sellers and wholesale suppliers to enter into anticompetitive agreements on price,” the complaint said. “The intent and effect of these agreements is to insulate Amazon from price competition, entrenching Amazon’s dominance, preventing effective competition, and harming consumers and the California economy.”
Bonta said in the lawsuit that he wants the court to stop Amazon’s behavior as well as give compensation for all damages. Specifically he is asking the court to prohibit Amazon from entering into and enforcing its anticompetitive contracts that harm price competition, require Amazon to affirmatively notify vendors that it does not require sellers to offer prices on par with off-Amazon prices, appoint a Court-approved monitor to ensure Amazon’s compliance with the Court’s order, order damages to compensate for the harms to consumers through increased prices, and order Amazon to return its ill-gotten gains and pay penalties to serve as a deterrent to other companies contemplating similar actions.
Bonta brought up the lawsuit over a high number of consumer complaints. With Amazon having 25 million Prime customers, which gives free shipping amongst other perks, in California alone, 96% of which head to Amazon first to buy needed things. Many sellers led the complaints, noting that Amazon was the only place they could sell due to the agreements and the market percentage they have.
“For years, California consumers have paid more for their online purchases because of Amazon’s anticompetitive contracting practices,” said Bonta in a statement. “Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can’t afford to say no. With other e-commerce platforms unable to compete on price, consumers turn to Amazon as a one-stop shop for all their purchases. This perpetuates Amazon’s market dominance, allowing the company to make increasingly untenable demands on its merchants and costing consumers more at checkout across California. The reality is: Many of the products we buy online would be cheaper if market forces were left unconstrained. With today’s lawsuit, we’re fighting back. We won’t allow Amazon to bend the market to its will at the expense of California consumers, small business owners, and a fair and competitive economy.”
At a press conference in San Francisco on Wednesday, Bonta added, “Through its illegal actions, the quote ‘everything store’ has effectively set a price floor costing Californians more for just about everything.”
In recent legal action, a Washington State investigation into Amazon prices resulted in the company paying a fine, while a Washington,DC suit similar to California’s was rejected by a DC Superior Court judge.
Amazon fired back late on Wednesday, defending their practices and calling on the San Francisco Superior Court to quickly dismiss the suit.
“The California Attorney General has it exactly backwards,” said Amazon. “Sellers set their own prices for the products they offer in our store. Amazon takes pride in the fact that we offer low prices across the broadest selection, and like any store we reserve the right not to highlight offers to customers that are not priced competitively. The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law.”
Legal experts said that California is facing an uphill battle against the company.
“This is like all those Wal-Mart suits 15-20 years ago,” explained Chuck Thomas, a legal advisor who specializes in anti-trust laws, to the Globe on Wednesday. “There’s a lot of cries of them being unfair, but it is hard to say for certain that they are breaking laws. This isn’t like Bell in the early 80’s when it was a clear-cut monopoly. Amazon, like many companies, have kept their dominance by keeping the lowest prices and offering other services. They found a way to offer the best deal, now the state wants to penalize them for it. This won’t exactly be an easy fight.”
More on the Amazon lawsuit is expected to come down from the court later this year.