by InfoLawGroup

Amazon has once again found itself in the crosshairs of the California Attorney General, this time over allegations that the retail giant implements “price floor” restrictions on its merchants. Last week, the California AG filed suit against Amazon, alleging that it is imposing artificial price floors by imposing strict contract requirements that prohibit Amazon vendors from selling their goods on other websites or elsewhere at lower prices than what are offered on Amazon.

In a press announcement, Attorney General Rob Bonta alleged that Amazon stifled competition and caused increased prices across California through anticompetitive contracting practices in violation of California’s Unfair Competition Law and Cartwright Act.

There is an underlying assumption in the marketplace that online platforms cannot compete with Amazon on price – given the size, scope and market power that it wields. As the theory goes, with other e-commerce platforms unable to compete on price, customers are forced to turn to Amazon as a “one-stop shop,” which furthers Amazon's market control and permits it to attempt to make more and more allegedly unreasonable demands on its third-party vendors, who make up the balance of transactions on Amazon. The AG alleges that this is leading to higher prices across California retailers and is hurting customers.

The AG alleges in its Complaint that Amazon has “orchestrated the substantial market power….through agreements at the retail and wholesale level that prevent effective price competition in the online retail marketplace.” If vendors fail to abide by these agreements, they risk potentially losing online display space in the of the coveted Amazon “Buy Box” or other potential financial penalties. Non-compliant vendors also face penalties like less prominent listings and even the possibility of termination or suspension their seller Amazon accounts.

There have long been concerns that Amazon's market power essentially leaves its vendors with no real alternatives other than to comply with Amazon’s demands. Amazon is the largest retailer in the United States, and reportedly has over 20 million customers in California alone.

According to the AG, Amazon sellers have reported that they could sell their products for lower prices on other websites due to lower fees charged by those sites, but they actively choose not to for fear that Amazon will take action against them. As alleged in the Complaint, Amazon has been implementing these pricing requirements since at least 2012, until quietly removing the controversial contract provisions in 2019 after attention from legislators. The Complaint goes on to allege, however, that Amazon has continued to implement and enforce these same types of restrictions through enforcement of other provisions of its seller agreements.

The Attorney General’s lawsuit seeks an order from the San Francisco Superior Court that stops Amazon's alleged anticompetitive behavior and seeks to recover damages for California consumers.

Specifically, the lawsuit asks 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.

A copy of the Complaint can be found here.

At ILG, we have deep and nuanced experience in all types of e-commerce related legal issues, including online marketplace pricing, promotion, sales and fulfillment. If you have any questions or if you’d like any additional information, please feel free to reach out to us for help.

Originally published by InfoLawGroup LLP. If you would like to receive regular emails from us, in which we share updates and our take on current legal news, please subscribe to InfoLawGroup’s Insights HERE.