Will the FTC’s Lina Khan succeed in breaking up Amazon?

The FTC’s latest antitrust lawsuit accuses Amazon of using a web of anticompetitive strategies to maintain a monopoly, cut potential rivals off at the knees and generally make the market less friendly to consumers, but the process of getting a result will be complicated.

The complaint asks the court for “structural relief,” which could entail court-ordered restructuring of the company that would break parts of its business into separate entities. The suit is one of several of its kind in the news in recent weeks, taking its place alongside two different antitrust cases filed by the Department of Justice against Google, the first of which is currently being tried in federal district court in D.C.

Key to the suit is Amazon’s habit of increasing fees for sellers on its vast online marketplace. The FTC argues that this forces vendors to raise their prices. Furthermore, Amazon’s alleged policy of penalizing – and sometimes simply removing – vendors who sell goods at a lower price on other platforms is another highly anticompetitive policy.

FTC head Lina Khan is a long-standing Amazon critic, who wrote a highly regarded analysis of the company’s competitive profile while still at Yale Law School. Her tenure at the FTC has been marked by aggressive challenges to major tech companies, moving to block Microsoft’s acquisition of Activision Blizzard, suing to halt Meta’s buyout of virtual reality company Within Unlimited, and filing several lawsuits against Amazon.

FTC’s antitrust lawsuits yield mixed results

Those actions, however, have yielded mixed results. The FTC lost the Meta lawsuit, and ended up settling earlier suits over data privacy issues — involving Amazon’s Ring security camera business and the Alexa devices — for around $30 million. A separate lawsuit against Amazon involving the company’s alleged practice of “duping” consumers to sign up for its Prime service and then hindering them from canceling the subscription is still to be set for trial.

Meanwhile, efforts to block the Activision buyout continue. Earlier this year, after the US District Court for the Northern District of California rejected the FTC’s lawsuit requesting an injunction to stop the merger, the agency filed an appeal, which is still pending. Last week, the FTC reinstated its own administrative proceedings to stop the merger, essentially an in-house trial, which had temporarily been put on hold when it appealed the injunction.

FTC chief Khan’s new approach to antitrust

Khan’s approach to her regulatory role has been characterized by a lack of fear over courtroom losses, and a willingness to use novel legal arguments in an attempt to rein in enormously powerful tech companies.

Whereas traditional antitrust cases focused on specific actions that have direct links to consumer harm — for example, certain business practices that raise prices for consumers — Khan has argued that regulators should look at the totality of a company’s actions that have the effect of quashing competition.

That novelty, however, is less evident in the latest suit against Amazon, according to Boston College Law School associate professor David Olson.

“The FTC’s complaint here seems careful to make traditional antitrust arguments that center on harm to consumers,” he said. “If the facts are as the government asserts, it may have a strong case at least on the allegation that Amazon punishes sellers who sell at lower prices on other online stores.”

There’s still a degree of legal boundary-pushing present, however, Olson noted. The FTC’s complaint says, in part, that the anticompetitive behavior from Amazon is essentially a product of the company’s overall activities. A similar argument was advanced in the DOJ’s ongoing Google trial over that firm’s search dominance, but was rejected at the summary judgment stage — where a case or parts of a lawsuit are decided on by judicial review, without a trial being held — which is why the Amazon complaint is worded to highlight specific underlying behaviors in more detail.

“So the FTC is pushing towards its theory that a combination of factors can be an antitrust violation, but is not asserting that they can be a violation unless at least some of the underlying factors amount to violations on their own,” Olson said.

If the court does agree to structural remedies, they could take several different forms, including stopping the company from both operating and competing on Amazon Marketplace or actually spinning out parts of Amazon into independent entities, Olson said.

An uphill battle to break up Amazon

Despite the renewed focus on more traditional grounds for its antitrust allegations, the FTC still faces an uphill battle if it hopes to prevail in its suit against Amazon. According to Richard Pierce, a professor at George Washington University Law School, the government’s allegations are going to be highly difficult to prove, particularly as the company doesn’t have the type of market share that is usually required to raise antitrust concerns.

“Amazon has only 6% of the retail goods market and 38% of the online retail market,” he said. “Neither of those come close to the 60-plus percent that courts consider the minimum market share required to establish a monopoly.”

Pierce asserted that the FTC stands “virtually no chance” of winning the case on the merits.

Behavioral, not structural, remedies for Amazon

Boston College’s Olson agreed that it would be a major ask to get a court to sign off on structural remedies.

“I think the court would have to be convinced that the anticompetitive harm from Amazon doing both [operating and selling on Marketplace] is very significant,” he said. “Especially because there are clearly consumer-benefiting features to Amazon having Prime and being able to control the process to ensure goods get delivered within two days with no shipping charges.”

If the court does not order Amazon split into online store and online services, the FTC’s allegations could be resolved solved by “behavioral remedies,” Olson noted. “For instance, the court could simply order Amazon to get rid of its lowest price on Amazon requirement, tell Amazon that non-prime sellers must have access to the add-to-cart and buy now features, and prohibit Amazon from requiring fulfilment by Amazon.”

A more cautious Amazon in the future?

Even if the FTC loses, however, the case is likely to make Amazon much more careful in its future decision-making.

Whether the outcome is favorable to the company or not, it’s likely that any future policy changes will go through considerably more legal review, making Amazon less competitive in the marketplace, said George Washington’s Pierce

“That seems to be the main goal of the FTC these days,” Pierce said. “They know that they cannot prevail on the merits but they take actions that are designed to pressure the large firms that they dislike into taking actions they want them to take to avoid the high cost of defending their behavior in court.”

Copyright © 2023 IDG Communications, Inc.


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