Amazon’s most prominent antitrust critic makes her case

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After Joe Biden put Amazon critic Lina Khan in charge of the Federal Trade Commission, it seemed like only a matter of time before the antitrust regulator locked horns with the ecommerce giant.

On Tuesday the US agency put the anticipation to rest when it joined forces with 17 state attorneys-general to unveil a 172-page complaint describing a sweeping monopoly that squeezed small businesses and caused higher prices for consumers as Amazon cemented its position as one of the world’s dominant online retailers.

The lawsuit, filed on the same day the FTC was established 109 years ago, is “unmistakably the most significant challenge to Big Tech formulated during” Khan’s leadership, “no doubt”, said William Kovacic, a former Republican chair of the FTC.

The FTC has already sued Amazon, most recently in a case focused narrowly on sign-ups of the company’s Prime membership. Tuesday’s case by contrast is far more expansive, taking aim at business practices at the heart of the $1.3tn business empire. Amazon has denied any wrongdoing and signalled its intent to fight the allegations.

Khan has seemingly prepared for this case for years, rising to prominence with a 2017 academic paper in which she warned Amazon had skirted government scrutiny and called for a break-up of the online retailer.

In the paper, she argued the dominant framework in antitrust — that companies’ growth could be tolerated so long as consumers were not harmed, mainly through higher prices — was “unequipped to capture the architecture of market power in the modern economy”.

As FTC chair, she now has a chance to test her approach in the courts. Experts said while some interpretation of the law might be novel, the complaint was an important test case that could force changes in Amazon’s business if successful.

Tuesday’s lawsuit contains what experts have described as a mix of traditional and less conventional legal theories. For instance it alleges Amazon tried to manipulate merchants by stopping them from selling their products more cheaply on a rival platform, a traditional theory of antitrust harm.

But the FTC’s description of Amazon’s tactics as a “pattern of incentives” rather than explicit agreements painted a “fuzzier version of a traditional practice”, said a former federal antitrust enforcer. “To that extent, it’s a . . . boundary-pushing challenge but in a modest way. It’s what you might think of as a creative application . . . of a traditional idea.”

Among other statutes the complaint alleges Amazon violated Section 5 of the FTC Act, a broad measure that bars “unfair methods of competition”. Khan has sought to revive use of that law, which often underpinned FTC cases in the 1970s but fell out of fashion with the rise of more lenient antitrust policies.

Khan has argued that reactivating Section 5 would fulfil the FTC’s full authority to protect competition as mandated by Congress, though it is not clear how broadly the FTC will ask the court to apply the law to Amazon’s behaviour.

Other legal challenges brought by the FTC based on the statute — such as a lawsuit against pesticide manufacturers Syngenta Crop Protection and Corteva — have not yet concluded.

With consumer welfare historically deemed the “lodestar” in antitrust cases, Tuesday’s complaint “does seem to push boundaries a little more” by focusing on the harm to small businesses, said Michael Carrier, law professor at Rutgers University.

“When you hear things like Amazon is increasing price and degrading service, these could be real issues, but the question is, are they supported? . . . Is the FTC able to show that these are real harms that consumers are suffering?” he said.

What the case ultimately means for Amazon will depend on how the agency fares in court. Remedies in typical antitrust cases can include divestments, damages or changes in business practice.

Since Khan joined the FTC, there has been speculation she might seek to break up Amazon, a bold and rare request in antitrust cases. Tuesday’s complaint is more vague, asking the court to order the company from engaging in illegal conduct.

Khan has stopped short of saying the agency will seek a break-up. “Effective relief also needs to be restoring competition to this market, which we’ll be asking the judge to do as well,” she told Bloomberg on Tuesday.

Convincing a judge to go that far based on the complaint could be a challenge, said the former enforcer. “This is not a case that challenges the structure of Amazon’s business,” he said, adding he was “underwhelmed” by the complaint, which focused on “reasonably marginal practices”. He said: “It’s targeting behaviour, not structure.”

Nevertheless Kovacic said Khan’s team had “succeeded in putting together a challenge to the most significant retailing enterprise in the United States, taking on some of their very most important business practices”.

Highlighting the tricky path of translating “policy aspiration” into “realisation in practice”, he added: “That’s an astonishing transformation, whether or not this case succeeds.”