How Amazon became the target of a crackdown on consumer-disruptive and anti-competitive behavior

Prime Day, the biggest day of the year for e-commerce giant Amazon and members of its loyalty program, Prime, kicked off this week, with deep discounts on everything from clothing to toys, gadgets and small appliances.

While consumers are likely on the hunt for deals, the most beneficial thing for the company itself may be to settle a brewing dispute with regulators over some of its alleged business practices.

Last month, the US Federal Trade Commission sued the company for allegedly tricking customers into signing up for Prime – bringing benefits such as lower prices, faster deliveries and a streaming video and music service.

The regulator said in a statement that the company uses “manipulative, coercive or deceptive user interface designs known as dark patterns to mislead consumers” to sign up for Prime subscriptions, which can cost up to $15 per month .

The company makes it easy to sign up for the service with little more than a single click, but canceling is another matter. Until earlier this year, the FTC said the main way to stop paying for Prime online was to go through a Byzantine process where you navigate through four different pages, click six different times to choose through 15 different options to find the one that you are looking for: cancel.

Although the company changed the process shortly before the FTC launched an investigation, Amazon’s internal name for that process was “Iliad flow” — which the FTC says is an apt “allusion to Homer’s epic poem, spanning twenty-four books and nearly 16,000 Lines on the Ten Years of the Trojan War.”

The “primary purpose” of the cancellation process was “not to enable subscribers to cancel, but to stop them,” according to the FTC. “Amazon’s leadership delayed or rejected changes that would have made it easier for users to cancel Prime because those changes negatively impacted Amazon’s bottom line.”

Ignacio Cofone, the Canada Research Chair in AI law and data governance at McGill University, says those “dark patterns” referred to by the FTC are essentially ploys to get people to sign up for products or services they might not like. not necessarily want or understand.

They “trick users into getting users to act in ways that benefit the company, not users,” he told CBC News.

“The key word there is ‘mislead’…for example, by having a ‘yes’ option highlighted in blue and a ‘no’ option unmarked – or presenting things in a way that emphasizes benefits and hides costs.”

While Amazon is the latest and biggest target, Cofone says it’s certainly not the only company accused of using them.

“This is not unique to Amazon,” he said. “If they’re dealing with dark patterns, they’re doing something common in the permissions economy,” he said.

Dark patterns are “not the disease – they are a symptom of the real disease, which is that we automatically click ‘I agree’ with everything without understanding it.”

‘Incorrect about the facts’

Amazon, for its part, says it plans to fight the lawsuit every step of the way, calling the FTC’s allegations “false about the facts and the law.”

“The truth is that customers love Prime, and by design we’re making it clear and simple for customers to sign up for or cancel their Prime membership,” spokesperson Kelly Nantel said in a statement.

She said Amazon was disappointed that the agency went ahead with a lawsuit without notifying the company of its plans.

“We look forward to proving our case in court.”

While the FTC regulates many consumer-related activities in the US, the Canadian comparator is the Competition Bureau, which, under its mandate to enforce competition law, investigates and prosecutes false and misleading marketing claims.

Spokeswoman Marie-Christine Vézina would not say whether the agency is investigating Amazon, noting that it is “obliged by law to carry out its work confidentially”. The agency also won’t comment on “specific or hypothetical behavior in the market.”

But “overall, I can confirm that subscription traps are on the Competition Bureau’s radar,” Vézina said.

She noted that, as late as 2021, the agency fined a company $15 million for a subscription trap tricking customers who signed up for free trials of health supplements into signing up for recurring monthly payments.

The FTC’s complaint is part of a broader agency battle under its new head, Lina Khan, 34. Before being appointed by US President Joe Biden in 2021, Khan was a staff member of the House Judiciary Committee during a months-long investigation into Big Tech, and prior to that she was an academic at Columbia University openly advocated pushing back the power of companies like Amazon using antitrust laws that are already on the books.

Jennifer Rie, litigation analyst at Bloomberg Intelligence, says it’s clear the FTC is picking a fight it’s wanted to take on for some time, and will come to Amazon on several fronts.

“Lina Khan has made it her mission,” Rie told CBC News. “She thinks the company is too big. She wants to split up the company – that’s her goal and that’s what she’s going to try to do.”

The consumer-facing complaint about Prime is likely just part of a larger battle with the FTC, one that could include allegations of monopolistic practices involving things like third-party suppliers and supplier agreements, she said.

“She has a litany of different business conducts that she claims Amazon is engaging in that are anti-competitive,” she says. “It’s a matter of which parts… they’re going to choose to file a complaint — where do they think they have the best evidence, what’s the kind of behavior they can prove in court?”

Owen Tedford, an analyst at Beacon Policy Advisors, says that from the moment Khan was sworn in as FTC chief, a battle with Amazon was “probably a matter of ‘when’ rather than ‘if’, regardless of the uphill battle the lawsuit can be.”

He says it’s probably no coincidence that the FTC announced its lawsuit the day the company announced this year’s Prime Day date, and that it may try to take more action as the sell-off continues.

Rie says it’s common in these cases for both parties to settle, but in this case the odds are smaller.

“Khan has repeatedly expressed and shown through her actions that winning outright is not always her main goal as she is often content with accumulating wins or simply making a point,” said Tedford. “Given this, as difficult as it may seem to come out victorious on paper, expect Khan to try to push the case against Amazon to the limit and get everything she can out of the company.”