FTC Sues Amazon Over ‘Manipulative’ Tactics Used to Enroll Millions in Prime

From The Wall Street Journal:

The Federal Trade Commission sued Amazon.com Wednesday, alleging the retail giant worked for years to enroll consumers without consent into Amazon Prime and made it difficult to cancel their subscriptions to the program.

The FTC’s complaint, filed in federal court in Seattle, alleged that Amazon has duped millions of consumers into enrolling in Amazon Prime, a $139 annual subscription service with more than 200 million members worldwide that has helped Amazon become an integral part of many American households’ shopping habits.

“Amazon tricked and trapped people into recurring subscriptions without their consent, not only frustrating users but also costing them significant money,” FTC Chair Lina Khan said.

The complaint, which is partially redacted, is the culmination of an investigation that began in March 2021. The FTC, a federal agency tasked with enforcing antitrust laws and consumer protection laws, seeks monetary civil penalties without providing a dollar amount.

An Amazon spokesman dismissed the FTC’s allegations as “false on the facts and the law.”

The complaint alleged that Amazon used “manipulative, coercive, or deceptive user interface designs known as dark patterns” to dupe users into automatically renewing Prime subscriptions.

“Amazon leadership slowed or rejected changes that would’ve made it easier for users to cancel Prime because those changes adversely affected Amazon’s bottom line,” the FTC added.

The FTC has been examining the use of dark patterns—a term for design tactics that prompt users into actions that benefit the company but not necessarily the user—in online commerce for several years.

The agency has been looking for cases in which companies entice consumers into subscriptions with misleading offers and then create obstacles for them to cancel payments. Vonage last year paid $100 million to settle FTC allegations that it imposed hurdles for customers to cancel the internet-based telephone service and charged unexpected termination fees.

For years, Amazon made it easy to enroll in Prime with one or two clicks, but created a “four-page, six-click, fifteen-option cancellation process” known internally as “the Iliad Flow,” the FTC said, in an apparent reference to Homer’s epic about the Trojan War. The agency said the “labyrinthine” procedure was designed to make it cumbersome and confusing for customers to cancel Prime.

Amazon revamped its Prime cancellation process for some subscribers in April, shortly before the FTC filed the case, according to the complaint. Amazon knew its policies were “legally indefensible,” the agency alleged.

“By design we make it clear and simple for customers to both sign up for or cancel their Prime membership,” he said. “We look forward to proving our case in court.”

Amazon said the FTC filed the lawsuit without allowing the company to explain to the agency’s three commissioners why it shouldn’t be sued, bypassing a step that is typically part of the process for companies facing an enforcement action.

. . . .

 Amazon has said that it had it more than 200 million paid Prime members worldwide at the end of 2020.

. . . .

About 72% of all U.S. households, or 96 million, have a paid Prime membership, according to recent estimates from market research firm Insider Intelligence.

. . . .

The FTC is separately preparing a potential antitrust lawsuit against Amazon to be filed in the coming months that could challenge an array of the tech giant’s business practices as anticompetitive, The Wall Street Journal reported in February.

Link to the rest at The Wall Street Journal

PG acknowledges that there is likely a political element influencing the Federal Trade Commission”s decision. President Biden, a Democrat, nominated the Chairman of the FTC.

But Amazon management lives and works in a Democratic party stronghold.

The last time a non-Democrat held the office of Seattle mayor was in 1990 when it elected an Independent candidate. The last time Seattle elected a Republican mayor was 1969.

PG understands similar party affiliation patterns extend into most of the Seattle suburbs as well.

Thus, PG suspects that most Amazon employees in middle and upper management are Democrats.

Per PG’s search for Amazon-originated campaign information, Jeff Bezos has donated only to candidates who were Democrats.

Opensecrets.org shows the Democrat candidates received about 5X the Amazon-originated political donations that Republican candidates during the 2020 elections.

The last time PG checked, a Democrat was occupying the White House and President Biden chose the Chairman of the Federal Trade Commission, which agency has filed this antitrust suit.

Evidently, political contributions originating from Amazon were not enough to keep the Feds from suing the Zon for antitrust violations.

12 thoughts on “FTC Sues Amazon Over ‘Manipulative’ Tactics Used to Enroll Millions in Prime”

  1. The FTC nuttiness has nothing to do with the party or the pres.
    It is all about the political ambitions and prejudices of the FTC chair. She probably has her eyes set on a congressional seat from California. Or maybe Feinstein’s.

    Look up Kahn’s (campaign) speech when nominated where she swore she intended to go after big companies for being big. “Too big already.”

    And her favorite tactic is to refuse all contact with her targets. No discussion needed since sye already knows what she wants to do.

    In the Microsoft-Activision buyout, the FTC refused all contact with either company for over a year after announcing they were calling dibs over the DOJ. The intent was to slow roll the internal process, keeping it in limbo until_after the execution date (July 18). She talked over 26 times with the UK CMA, the only one of over 40 countries to evakuatevand approve a deal welcomed by Activision employees, labor unions, and *competitors*. After the CMA grudgingly admitted the deal woukd not harm consumers or competitors in console or PC gaming, signaling an intent to apprive, one last FTC talk resulted in an intent to block over the almost nonexistent cloud gaming market. When it was suggested MS leave the UK market and Nadella admitted it wasvan ootion, the CMA was called before parliament where the FTC (which had done nothing) connection came up. And then after China joined Japan, South Korea, and the *EU* approved the deal rumors surfaced that MS and Activision would execute the deal and dare Kahn (the inhouse staff is reportedly okay with it) to try to unwind it in federal court. A month after that, with barely a month to go, they finally filed for an injunction asking for a court date in august.
    The judge set the date for this week, with judgment due friday.

    One can only hope the judge knows *something* about economics and the gaming markets.
    It would help if they knew the longband messy history at Activision that led *them* to put themselves up for sale and rip Microsoft’s arm off when offer a pure cash deal at a 25% premium.
    The deal was welcomed by everybody except Sony and the FTC.

    Not hopeful, though.
    All or nothing in one week. Would make for a half decent movie, too.

    Going after Amazon over the price of Prime is pretty much in line with her ideology.
    So, Amazon?
    Good luck. They’ll need it.
    They should start by double the size of the legal team.

  2. In this instance, what the FTC is doing is to attack the biggest target and hope that the lesser ones will fall in line. It might work; it can’t work any worse than the methodology since the early 1980s of going after a few much smaller targets in hopes that others would take the hint. (Needless to say, it hasn’t worked too well. But then, what does?)

    The complaint is interesting. Without the redacted material, I’m withholding judgment. The FTC Act does not restrict itself to antitrust; it reaches all unfair/deceptive business practices. The redacted material is essential to connecting “purposeful inconvenience” to “unfair and deceptive to the specific financial disadvantage of identifiable consumers.” (And unlike antitrust, the FTC Act applies only in favor of “consumers.”)

    The standard that will have to be met is an interesting one: That the practices surrounding the Prime membership are of a kind that would more probably than not deceive the “least sophisticated consumer.” (That’s the statutory language.) The fun arguments are always about who is the “least sophisticated consumer” of that particular product or service; and what their preexisting knowledge or sophistication level is; and whether what is in admissible evidence of what was done more probably than not meets that standard.

    It is not a slam-dunk matter either way without knowing what’s behind those redactions — and, more particularly, what’s going to come up in discovery on how the membership/renewal rates relate to other, comparable membership/renewal rates that don’t use the same methods. In short, please take the ideological dispositions elsewhere and await more facts.

    • The problem is the publicly expressed ideological disposition of Kahn muddied the waters as to intent. Is the FTC as an organization acrually carrying out its mission or is it headhunting to burnishing the political credentials of its ideologue chief? The judge wilo have to judge. 🙂

      Amazon is sure to raise the matter as part of its defehse.

      It looks no better than the FAA blocking Spacex from launching Starship for 18 months, after the leak from friends of the party, and then restating its original findings plus ordering Spacex to give money to another friends of the party uninvolved NGO. The clear intent wasn’t carrying out its mission but keeping them from progressing until after the $26B boondoggle SLS launched. Can’t have a cheap $5B project advance the state of the art and make the pork barrel rocket look obsolete on day one, now can we?

      The gerontocracy’s bureaucrats haven’t shown much subtlety in their actions, like they don’t care how obvious their motivations become.

      If one truly wanted to protect consumers from dubious business practices at amazon, there are easily a half dozen cases one could plausibly make (Audible and KU first of all) but as you noted the went for the biggest, most noticeable practice at Amazon; their subscription service. Gotta get the big media attention before campaign season starts and Kahn quits to run for office.

      The intent is obvious by the tectics and timing.

      • Oh, and the timing of the announcement might have something to do with the exchange of filings on the ACTIVISION deal. Political insurance in case the judge doesn’t go for their stonewalling approach to merger killing.
        Still no hopeful about actual facts prevailing but their slip is showing.

      • As the article points out, “…to encourage the others.” is a common tactic among authoritarian regimes who don’t believe in the force of law.

        No surprise to see it in use here these days.

        • There are no heroes here: Amazon’s (and Starbuck’s, and Uber’s, and…) treatment of potential union organizers is rather similar.

          This is not “whataboutism”, but a “pot/kettle/black” issue.

          • Microsoft, on the other hand has a detente with the CWA.
            As the highest paying software development outfit they don’t care if salaries are set individually or collectively. With 40% profit margins staff costs are noise.

            https://www.axios.com/2022/06/13/microsoft-labor-union

            At present timecard workers at Zenimax, the MS unit that includes Bethesda Softworks (Fallout, Elder Scrolls, Starfield, etc) voted to form a union last back in 2022, over 300 employees at Bethesda Softworks announced they intended to form a union. Three days into 2023, the union was successfully formed, with Microsoft keeping its word and voluntarily recognizing the union instead of fighting it.

            A company that writes $68.7B checks doesn’t sweat negotiating with a union.

            Their hands may not be clean but neither do they fall in with Amazon or Apple. (Remember Apple’s other antitrust loss? Jobs “brilliant” anti “poaching” conspiracy with Google, Adobe, and others in silivalley, to depress staff salaries.)

            The games they do play are over “real money.
            (As in ” A billion here, a billion there…”)

            They learned how to deal with political lynch mobs 25 years ago.

  3. Admittedly Amazon does shove subscribing to Prime in one’s face a bunch. However, I have regularly signed up for Prime every time they offer it free for a month and canceled it before the month is over without problem. The cancellation process isn’t exactly burdensome. This strikes me as a made up problem.

    • Or they’ve never bothered to try it.
      The FTC is this week showing an appalling degree of technical iliteracy:

      https://www.windowscentral.com/gaming/xbox/the-ftc-claims-cloud-streaming-and-subscription-markets-are-one-and-the-same-in-case-against-microsoft

      They see no difference between Game Pass–the subscription service that comes in 3.5 flavors (XBOX, PC, ULTIMATE with both and added features, and Friends and family, still in testing in Ireland and Colombia)–and cloud gaming, a minor feature of Game Pass ultimate and a separate service from Amazon (LUNA), NVIDIA (Geforce now), Google’s defunct STADIA (dead for cause), and a half dozen other services world wide. Hardly one and the same. Game Pass is a product and cloud gaming is a (minor, to date) feature.

      The UK CMA floated the same disinformation, claiming GAME PASS’s 30m subscribers as Microsoft Cloud gaming users. Game Pass has been around for six years, Cloud gaming less than two and still in Beta.

      The assertion is so eggregious it has to be intentional misinformation. And shared to the CMA eho based their own decision on it.

      Google Stadia died precisely because nobody was willing to pay solely for cloud gaming. It is simply not a viable market. It requires high speed, low latency broadband that is far from common, still. Not knowing this, yet basing a lawsuit on it, is close to malpractice.

      And yet, odds are they’ve shopped for a judge that will give them their injunction.

      As I said, I’m not hopeful. On either count.

      • The problem here is that everyone here at PV is more sophisticated than the “least sophisticated consumer,” so that fact that none of us have trouble exiting from the free periods (and, BTW, that’s not what this complaint concerns) is merely a data point under the FTC Act’s standard.

        This is always a huge problem explaining things to the general public. The entire point of the FTC Act is that it shouldn’t require an inquiring mind and college education to be free of fraud. And neither is that a guarantee, because there are almost always hidden customs and technical issues; one of my clients, a couple of decades back, in a publishing fraud scheme was an author addressed in his day job as “Your Honor.”

        • It’s not just about the PV crew.
          Rather it is about the generation gap between politicians still living in their minds in 1968 and the digital native population.

          https://en.m.wikipedia.org/wiki/Digital_native

          “The term digital native describes a person who has grown up in the information age. The term “digital native” was coined by Marc Prensky, an American writer, speaker and technologist who wrote several articles referencing this subject.[1] This term specifically applied to the generation that grew up in the “digital age,” predominantly regarding individuals born after the year 1980.[1][2]

          Often grouped into Millennials, and Generation Z, these individuals can consume digital information and stimuli quickly and comfortably through electronic devices and platforms such as computers, mobile phones, and social media. The term has given way to “Virtual Natives” coined in a book by Catherine D. Henry and Leslie Shannon (Wiley, 2023), to reflect Generation Alpha, who are growing up in the virtual age, or the era of the 3D web.

          Digital natives are distinguished from digital immigrants, people who grew up in a world dominated by print and television because they were born before the advent of the Internet.[3] The digital generation grew up with increased confidence in the technology that they were encircled and engulfed in.[1] This was thanks in part to their predecessors growing interest into a subject that was previously an unknown. Due to their upbringing, this digital generation of youth became fixated on their technologies as it became an engrained, integral and essential way of life.[1] Prensky concluded that due to the volume of daily interactions with technology, the digital native generation had developed a completely different way of thinking.[2] Though the brains may not have changed physically, pathways and thinking patterns had evolved, and brains had changed to be physiologically different that those of the bygone era.[4] Repeated exposure had helped grow and stimulate certain regions of the brain, while other unused parts of the brain were reduced in size.[3] The terms digital native and digital immigrant are often used to describe the digital generation gap in terms of the ability of technological use among people born after 1980 and those born before.[5] The term digital native is a highly contested concept, being considered by many education researchers as a persistent myth not founded on empirical evidence[6][7] and many argue for a more nuanced approach for understanding the relationship between digital media, learning and youth.”

          —-

          The term digital native also applies to people of any age who are comfortable navigating the constant changes in our current technological age.

          And it’s not just a matter of the internet or social media or smartphones. Everything around us is evolving and surviving modernity is about adapting. Seen anybody tuning their car’s carburator lately? Or gapping spark plugs? My father was a mechanic so I learned those skills as a kid. Haven’t used them this century. Times change and the minimum skillset for survival changes with it.

          Luddites not withstanding, the world is not stopping for the tech iliterates. At most it will navigate around them.

          My own most recent “future shock” was with air fryers.
          My original impression was that they were just repackaged small conventional ovens. Well, yes and no.

          The things actually deliver something close to frying distinct from ovens. With a lot less oil of any kind. Thus, healthier. They’re for real and are not going anywhere. We’re at the point that packaged frozen foods are coming with instructions for microwave, air fryer, and conventional oven last.

          So, in barely a decade they’ve gone from a Philips dog and pony show to a staple of many kitches. Much faster than microwave ovens, flat panel TvS, smartphones, etc.

          Change is not stopping.
          It is accelerating.

          And with those changes must come a parallel redefinition of “least sophisticated”. Society simply can’t afford to give veto power to ” florida man” and Darwin Award contenders.

          The proper benchmark should be the “reasonable person” standard used elsewhere in the legal system.

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