Not to be outdone by the Department of Justice’s Google antitrust case, the Federal Trade Commission has sued Amazon. The FTC’s case, filed in the U.S. District Court for the Western District of Washington—Amazon’s backyard—has been joined by 17 state attorneys general, including two Republicans.
The charges against Amazon are broad. “Amazon’s actions allow it to stop rivals and sellers from lowering prices, degrade quality for shoppers, overcharge sellers, stifle innovation, and prevent rivals from fairly competing against Amazon,” the FTC alleges. But the suing parties will have to chop a lot of wood to prosecute these charges successfully.
Antitrust cases like the FTC’s hinge on “threshold” issues, fundamental elements that must be proven for a case to proceed. Here, those issues are threefold: market definition, documentary evidence, and the validity of the FTC’s legal theories.
A foundational part of any antitrust case, “market definition” refers to the economic market in which a company operates. Who does the firm consider its competitors? Which competitors constrain its prices? In this case, Amazon will argue that it competes both with online and brick-and-mortar retailers. By so defining the market, Amazon will argue that it is a minor player and certainly no monopolist, undermining the FTC’s case.
The FTC, on the other hand, claims that Amazon operates in the “online superstore market.” In that market, the charging parties argue, Amazon is a behemoth capable of controlling commerce. Amazon will likely challenge that definition, owing in part to the FTC’s failure to include groceries in its online-superstore-market definition. Think of the market-definition dispute as Amazon’s Maginot Line: if Amazon holds the line, the FTC’s case crumbles.
The second threshold issue is Amazon’s internal documents. Since an appellate court resolved the DOJ v. Microsoft antitrust case in 2001 following a Microsoft executive’s threatening to “cut off” a rival’s “air supply,” corporate America has grown adept at avoiding so-called “fighting talk” in internal company documents. Every year, companies invest millions of dollars in antitrust-compliance programs, training employees to avoid fighting talk and, when in doubt, to copy lawyers on the email in question. Then, when the antitrust cops come knocking to demand documents, those documents are either relatively devoid of fighting talk or can be withheld, due to attorney-client privilege.
Interestingly, at least some Amazon documents apparently slipped the compliance net and wound up in the FTC complaint. The complaint cites internal Amazon documents from not one but two Amazon CEOs, essentially conceding the market-definition point, making it clear that the firm itself views online and offline retail as distinct markets, and thus making the FTC’s case for it.
Other internal documents suggest that Amazon will have some explaining to do before the judge, particularly on the FTC’s floor-price charges. The FTC complaint accuses Amazon of setting a floor price on items sold not only on its own website but also on competing websites such as Walmart.com, thus “disciplin[ing]” retailers who seek to apply discounts below Amazon’s rock-bottom price. While Amazon strenuously objects to this characterization of its pricing practices, the heavily redacted FTC complaint cites multiple Amazon documents supporting the agency's pricing argument. These documents, should they become public at trial, will not only shape the judge’s view but will also influence Amazon’s perception in the court of public opinion. Expect Amazon to fight public disclosure of the documents’ content on confidentiality grounds.
The third threshold issue is the merits of the FTC’s legal theories. The commission’s complaint relies on a novel application of its enabling statute. For decades, most antitrust cases filed by the federal antitrust-enforcement agencies (the DOJ and FTC) have relied solely on the Sherman Act. In both Republican and Democratic administrations, the FTC avoided the separate legal antitrust authority given to it by Congress in its enabling statute from 1914. Last year, the Biden FTC broke with this consensus when it issued a policy statement explaining how and why it intended to use Section 5 of the FTC Act—essentially, its standalone antitrust authority—going forward. The FTC’s use of this separate legal authority in the Amazon complaint has been overlooked by most commentators but is hotly debated within the antitrust bar and will doubtless be raised by Amazon in early court filings. In these filings, the company will probably argue that the FTC is bringing antitrust charges against Amazon without prior notice and solid legal precedent.
A former Republican FTC chair, Bill Kovacic, described the Amazon filing as “the most important case that the FTC has brought in its 109-year history.” He would know. The current FTC chair, Lina Khan, established her reputation with a 2017 law-review article about Amazon. The Amazon complaint brings her article out of the academy and into contact with reality. Time will tell how it fares.