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Amazon Antitrust Lawsuit: DC AG Targets Wholesale Policies

Washington D.C. Attorney General Karl A. Racine is expanding his antitrust lawsuit against Amazon. While the initial suit in May focused on alleged anticompetitive pricing agreements that the e-commerce giant imposes on third-party sellers, the new claims assert that Amazon also illegally suppresses competition by requiring first-party sellers to enter similar pricing agreements. The legal maneuvering might shed some light on why Nike famously severed wholesale ties with the highly trafficked e-commerce destination.

Racine’s main point of contention in the new suit involves Amazon’s “minimum margin agreement,” which first-party wholesalers must agree on when they sell products to Amazon. Under this sales agreement, Amazon gets a certain minimum profit when it sells the products it purchased from the first-party seller on its own online marketplace.

If Amazon ultimately sells the product for a price at which it achieves less than the agreed minimum profit, the first-party seller must compensate the tech giant for the difference.

“This agreement can at times result in an FPS (first-party seller) incurring millions of dollars in ‘true up’ costs to Amazon,” the suit stated. “As a practical effect of this agreement, FPSs have an incentive to maintain higher prices on other online marketplaces to ensure that Amazon does not drop its price based on lower prices elsewhere, thereby triggering the FPS’s ‘true up’ requirements. Indeed, FPSs have raised their prices to competing online marketplaces to prompt the maintenance of higher prices on those marketplaces and even asked those marketplaces to raise prices to online consumers to avoid triggering Amazon’s minimum margin protection. These agreements reduce other online marketplaces’ ability to compete with Amazon by offering lower prices to consumers.”

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Racine argues that the reduced competition from the “minimum margin agreement” is comparable to Amazon’s “most favored nation” clauses that were attacked in the first suit. These provisions prevent third-party sellers that offer products on Amazon from selling them at lower prices on any other online platform, including their own websites.

“Amazon has continued to use its dominant position as an online marketplace to rig the system, leading to higher prices for consumers and less competition among online marketplaces,” Racine said in a statement. “As we further investigated Amazon’s anti-competitive practices that harm consumers and further entrench Amazon’s monopoly, we learned it was also engaging in anti-competitive agreements with first party sellers, or wholesalers—in addition to third-party sellers. I filed this antitrust lawsuit to stand up for consumers, hold Amazon accountable for its anti-competitive practices, and protect competition. We’re continuing to do just that with this amended complaint that adds more of Amazon’s misconduct.”

The suit alleged that the agreements across third-party and first-party sellers do harm in multiples ways: they artificially inflate prices on other online marketplaces; enable Amazon to charge higher fees and commissions to third-party sellers; reduce profits to third-party and first-party sellers and suppress innovation and reduce investment in potentially competing online marketplaces.

With these allegations levied, the suit seeks to enjoin Amazon from engaging in these and similar anticompetitive practices; provide other appropriate injunctive relief; order relief for harmed consumers; impose civil penalties to deter future misconduct by Amazon and others; and award attorneys’ fees and costs.

Amazon has maintained the same position it had when the AG filed the first suit, with a spokesperson referring to the company’s previous statement.

“The DC Attorney General has it exactly backwards—sellers set their own prices for the products they offer in our store,” the spokesperson initially told Sourcing Journal. “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.”

Racine’s expansion comes as The U.S. House of Representatives is engaged in its own battle with the e-commerce giant. The bipartisan antitrust subcommittee introduced legislation in June that could potentially mandate structural separation of Amazon into separate marketplaces for its first-party and third-party business, or at least divest its private brands. If this bill were to pass, it would make it illegal for Amazon to effectively sell its own branded products and sell competing products on the same marketplace.

But prior to Racine’s latest move, the bulk of the investigations into Amazon’s business practices have largely been related to its relationship with third-party sellers and the data the company collects from them. These third-party orders represent approximately 56 percent of total orders on its marketplace. With the first-party sellers now in the crosshairs in one lawsuit, a whole new portion of Amazon’s business will be under the microscope for future court proceedings.

State attorneys general in Massachusetts, Pennsylvania, New York and California are also examining whether Amazon has violated antitrust laws, Bloomberg reported. The Federal Trade Commission is also currently pursuing an open antitrust investigation into Amazon’s business practices.

As part of the U.S. House Judiciary Committee’s 16-month antitrust investigation into not just Amazon, but all four “Big Tech” firms including Google, Apple and Facebook, PopSockets CEO David Barnett testified that Amazon strong-armed its wholesalers for pricing. Despite PopSockets striking a deal with Amazon for the e-commerce giant to sell its products, the marketplace lowered the selling price on them and demanded that the smartphone grip manufacturer pay for the lost profit margin.