WASHINGTON, October 20, 2023 –While the Federal Trade Commission may have a hard time proving that Amazon has monopolistic power, some of its policies could be construed as anticompetitive.

That was the message antitrust experts delivered on Tuesday at an Information, Technology and Innovation Foundation panel on the FTC’s lawsuit against the online retailer in U.S. District Court in Seattle, Washington.

The agency’s complaint argues that the Amazon exerts unlawful monopoly power by forcing third party sellers to fulfill orders on Amazon and by preventing third parties selling products on Amazon from charging lower prices on other platforms.

The first policy coerces third-parties to fulfill orders on Amazon in order to get the e-commerce giant’s premium two-day shipping, the FTC has argued.

The second policy, dubbed anti-discounting, can be used as a form of price control despite having pro-competitive benefits like discouraging free riding and encouraging investment, said Kathleen Bradish, president of the Antitrust Institute.

Because Amazon requires merchants to maintain a price point on its marketplace, it can create barriers to entry when other marketplaces cannot attract merchants to sell their products at a lower price, she said.

A debate about anti-discounting

Steve Salop, professor of antitrust law at Georgetown University, added that “what Amazon does is it has algorithms that scrape all the relevant websites and if it discovers that the merchant’s product is being sold at a lower price anywhere else it contacts the merchant and says [that it has to] lower the price to [Amazon] or raise the price to” the consumer.

Herb Hovenkamp, an antitrust professor at the University of Pennsylvania, said that anti-discounting policies “only work on a product-by-product basis.”

When you look at each product Amazon sells, there may not be anticompetitive power impacting each product, said Hovenkamp.

Amazon sells almost 12 million products on their e-commerce site and its individual market shares for all those products varies, he said. That means it is hard to argue that Amazon holds a monopoly for every product it  sells.

Hovenkamp noted that while Amazon may succeed in areas such as streaming – which has no offline alternative – it struggles in “markets like try on clothing, tires, groceries…. Product by product, the question of how much competition Amazon faces from offline sellers varies immensely,” he said.

Bilal Sayyed, senior competition counsel at TechFreedom, a non-profit tech policy group, echoed this point: Anti-discounting policies can have anti-competitive consequences, but that they can also have pro-competitive benefits.

Sellers may not switch to other fulfillment companies because it does not make sense to do so given the “scale that Amazon has,” Bradish said, even if they prefer to use another e-commerce platform. But she acknowledged that having witnesses testify that those policies have impacted their behavior could favor the FTC’s point.

The role of Amazon’s fulfilment services

Amazon’s fulfillment services apply to several products it sells. But the FTC will need to demonstrate that monopoly prices are a result of those fulfillment services, said Hovenkamp.

“The hard part is going to be for the FTC to convince the fact finder that that’s a grouping of sales that’s capable of sustaining a monopoly markup,” he added. “It may be able to do that.”

While a large-scale operation like Amazon might have a cost advantage with fulfillment services, monopoly power will have to be determined by a finding of fact, he said.

By contrast, Sayyed argued that there is a clear pro-competitive justification for sellers using Amazon’s fulfillment services. That comes from the company’s reputation for quickly delivering goods to consumers.

“This idea that parties should be able to take advantage of the platform and the Amazon brand, but then [sell] their merchandise [through] a third party that may or may not meet the same fulfillment and delivery standards, really strikes me as very dangerous ground for the agency” to argue, said Sayyed.

WASHINGTON, October 2, 2023 – The chair of the Federal Trade Commission warned the artificial intelligence industry Wednesday that the agency is prepared to clamp down on any monopolistic practices, as she proposed more simplistic rules to avoid confrontation.

“We’re really firing on all cylinders to make sure that we’re meeting the moment and the enormous and urgent need for robust and vigorous enforcement,” Lina Khan said at the AI and Tech Summit hosted by Politico on Wednesday.

Khan emphasized that the FTC’s statute on consumer protection “prohibits unfair deceptive practices” and that provision extends to AI development.

The comments come as artificial intelligence products advance at a brisk pace. The advent of new chat bots – such as those from OpenAI and Google that are driven by the latest advances in large language models – has meant individuals can use AI to create content from basic text prompts.

Khan stated that working with Congress to administer “more simplicity in rules” to all businesses and market participants could promote a more equal playing field for competitors.

“It’s no secret that there are defendants that are pushing certain arguments about the FTC’s authority,” Khan said. “Historically we’ve seen that the rules that are most successful oftentimes are ones that are clear and that are simple and so a regime where you have bright line rules about what practices are permitted, what practices are prohibited, I think could provide a lot more clarity and also be much more administrable.”

Khan’s comments came the day before the agency and 17 states filed an antitrust lawsuit against Amazon, which is accusing the e-commerce giant of utilizing anticompetitive practices and unfair strategies to sustain its supremacy in the space.

“Obviously we don’t take on these cases lightly,” Khan said. “They are very resource intensive for us and so we think it’s a worthwhile use of those resources given just the significance of this market, the significance of online commerce, and the degree to which the public is being harmed and being deprived of the benefits of competition.”

Since being sworn in 2021, Khan’s FTC has filed antitrust lawsuits against tech giants Meta, Microsoft, and X, formerly known as Twitter.

WASHINGTON, April 19, 2023 — House Republicans expressed skepticism about the Federal Trade Commission’s requested budget increase during a Tuesday hearing, accusing the agency of overstepping its jurisdiction in pursuit of a progressive enforcement agenda.

The hearing of the Innovation, Data and Commerce Subcommittee showcased sharp partisan tension over Chair Lina Khan’s aggressive approach to antitrust — heightened by the fact that both Republican seats on the five-member agency remain vacant.

Khan, alongside Democratic Commissioners Rebecca Slaughter and Alvaro Bedoya, argued that the $160 million budget increase was necessary for maintaining existing enforcement efforts as well as “activating additional authorities that Congress has given us.”

But Republican lawmakers seemed unwilling to grant the requested funds, which would bring the agency’s total annual budget to $590 million.

“You seem to be squandering away the resources that we currently give you in favor of pursuing unprecedented progressive legal theories,” said Subcommittee Chair Gus Bilirakis, R-Fla.

“What is clearly needed — before Congress considers any new authorities or funding — are reforms, more guardrails and increased transparency to ensure you are accountable to the American people,” said Rep. Cathy McMorris Rodgers, R-Wash., chair of the Energy and Commerce Committee.

Rep. Frank Pallone, D-N.J., ranking member of the full committee, defended the funding request by saying the FTC has “one of the broadest purviews of any federal agency: fighting deceptive and unfair business practices and anti-competitive conduct across the entire economy.”

“Managing this portfolio with less than fourteen hundred employees is no small feat,” Pallone said, noting that the FTC currently has fewer employees than it did 45 years ago.

FTC highlights potential AI threats, other tech developments

FTC staff and Democratic lawmakers have been flagging concerns about understaffing at the agency for years, arguing that rapid technological and market changes have increased the scope and complexity of the agency’s role.

“The same lawyers who ensure that social media companies have robust privacy and data security programs are making sure labels on bed linens are correct,” testified former Chief Technologist Ashkan Soltani at a Senate hearing in 2021.

In their written testimony, commissioners detailed several emerging priorities related to technological developments — such as combatting online harms to children and protecting sensitive consumer data shared with health websites — and emphasized the corresponding need for increased resources.

The agency is also preparing to pursue violations related to artificial intelligence technologies, Khan said, as the “turbocharging of fraud and scams that could be enabled by these tools are a serious concern.”

But several tech-focused trade groups, including the Computer & Communications Industry Association, have signaled opposition to FTC expansion.

“The FTC can best carry out its mission if it heeds the committee’s call to return its focus to consumer needs and consumer fraud — rather than pursuing cases rooted in novel theories against American companies,” CCIA President Matt Schruers said after the hearing.

The Consumer Technology Association urged lawmakers to reject the requested budget increase in a letter sent Friday.

“In 2022, agency data shows consumers reported losing almost $8.8 billion to scams… Despite this mounting caseload of fraud, identity theft and related cases, the FTC appears more interested in attacking U.S. tech companies, to the detriment of consumers who have benefitted from an unparalleled explosion of innovative, online-based products and services,” CTA President Gary Shapiro wrote.