Antitrust Lawyer Blog Commentary on Current Developments

Articles Tagged with amazon

On May 25, 2021, the D.C. Office of the Attorney General (DC AG) filed an antitrust complaint against Amazon.com, Inc. in the Superior Court of the District of Columbia. The complaint accuses the company of monopolization and illegal restraints of trade. Interestingly, the complaint does not include allegations of federal antitrust violations.

The complaint alleges that Amazon “fair pricing policy” requires third-party sellers who sell products through Amazon to agree to what is really a most-favored-nation (“MFN”) provision. According to the complaint, this fair pricing policy restrains third-party sellers, which wish to sell on Amazon’s platform, from selling their products on other websites, including their own websites, at prices lower, or on better terms, than offered through Amazon. This fair pricing policy replaced Amazon’s price parity provision, but the claim is that this new policy has the same effect as Amazon’s old policy.  It is considered a platform most-favored nation agreement and allows for Amazon to penalize third parties found in violation of these policies. Allegedly, the provisions have the effect of creating a price floor with Amazon’s prices being the lowest. Because these third-party sellers incorporate Amazon’s fees – which can be up to 40% of the product’s price – into their prices, they are forced to inflate their product prices on other platforms since they must account for the fees in their sale price. The claim of the Office of the Attorney General is that this policy suppresses competition and unnaturally inflates prices for consumers across all online retail platforms. The complaint asserts that these unreasonably high fees are built into prices market wide, due to the alleged price floor caused by the most-favored nation provisions.

According to the complaint, Amazon allegedly violates D.C. antitrust law in a variety of ways. First, Amazon is alleged to be engaged in unlawful horizontal agreements because Amazon horizontally competes with many third-party sellers (i) as online retailers, and (ii) in particular products. Second, Amazon is alleged to be engaged in unlawful vertical agreements because the most-favored-nation provisions eliminate competition in online retail. Third, Amazon, accounting for 50-70% of all online retail sales and benefiting from network effects, is alleged to monopolize and attempt to monopolize the online retail sales market.

On January, 17, 2020, smaller rivals such as PopSockets, Basecamp, Sonos, and Tile testified to the the House antitrust subcommittee about how they have been bullied by big tech giants such as Google, Apple, Facebook, and Amazon and called for swift action.

According to the New York Times, the smaller rivals, which have largely been publicly quiet until the hearing, finally stepped up to the plate and sounded off on big tech at a hearing in Boulder, Colorado.  The Congressional subcommittee heard stories of technology giants wielding their massive footprints and platforms as weapons, allegedly copying smaller competitors’ features or tweaking their algorithms in ways that stifle competition.

The pleas for regulatory relief resonated with lawmakers, led by Rep. David N. Cicilline (Democrat – Rhode Island), the chairman of the House’s antitrust subcommittee. Cicilline noted that “it has become clear these firms have tremendous power as gatekeepers to shape and control commerce online.”

Commentators all over the spectrum have recognized antitrust is increasingly becoming a game of political football.

The notion that antitrust enforcement is motivated by politics has hung over the Trump administration since the Department of Justice’s failed attempt to block AT&T’s acquisition of CNN’s owner, Time Warner and some antitrust experts might point out that the Obama administration also influenced the DOJ’s decisions to sue or settle cases.

While politics has always played a role in setting the antitrust agenda, typically antitrust investigations and enforcement decisions are based on the facts.  Indeed, there is no credible evidence that the big tech firms have engaged in unlawful monopolization or that they have stifled innovation.  In fact, Iowa’s Attorney General Tom Miller, who is well known for his role of leading 20 states in the DOJ’s antitrust suit against Microsoft, said this past July that “[w]e are struggling with the law and the theory,” to bring a case against the big tech firms.

On August 20, 2019, it was reported that the states are set to join forces to investigate Big Tech.

On the same day, Assistant Attorney General Makan Delrahim of the Antitrust Division of the U.S. Department of Justice (“DOJ”) said the DOJ is working with a group of more than a dozen state attorneys general as it investigates the market power of major technology companies.  Delrahim said at a tech conference that the government is studying acquisitions by major tech companies that were previously approved as part of a broad antitrust review announced in July of major tech firms with significant market power.  “Those are some of the questions that are being raised… whether those were nascent competitors that may or may not have been wise to approve,” he said.

On July 23, the DOJ said it was opening a broad investigation into whether major digital technology firms engaged in anticompetitive practices, including concerns raised about “search, social media, and some retail services online.”  The investigations appear to be focused on Alphabet Inc.’s Google, Amazon.com, Inc. and Facebook, Inc. (“Facebook”), as well as potentially Apple Inc.

On June 27, 2108, the Department of Justice’s Antitrust Division announced that The Walt Disney Company (“Disney”) agreed to divest 22 regional sports networks (“RSNs”) to resolve antitrust concerns with its approximately $71 billion acquisition of certain assets from Twenty First Century Fox (“21CF”).

Speedy Antitrust Approval

DOJ’s announcement of the settlement agreement is noteworthy because of the speed at which Disney was able to negotiate a remedy to a combination that raised a number of antitrust issues.  Though the parties received second requests on March 5, 2018, and Disney had only recently entered into a new agreement with 21CF on June 20, 2018, the DOJ and Disney were able to negotiate a divestiture worth approximately $20-23 billion within 6 months of review and 4 months after issuing information requests.  The dollar value of the Disney/21CF divestiture will likely double what the DOJ characterized as the largest divestiture in history in Bayer/Monsanto.

On June 20, 2018, the Federal Trade Commission (“FTC”) announced that it will hold a series of public hearings on whether broad-based changes in the economy, evolving business practices, new technologies, or international developments might require adjustments to competition and consumer protection enforcement law, enforcement priorities, and policy.  The multi-day, multi-part hearings will take place this fall and winter.

It is expected that a lot of time will be devoted to the dominant digital two sided platforms (Google, Facebook, and Amazon) as well as the associated network effects.  The FTC is interested in learning more about how their conduct hinders competition and innovation or how their services actually benefit consumers and enhance competition and innovation.

The hearings and public comment process will provide opportunities for FTC staff and leadership to listen to interested persons and outside experts representing a broad and diverse range of viewpoints.  Additionally, the hearings will stimulate thoughtful internal and external evaluation of the FTC’s near- and long-term law enforcement and policy agenda.  The hearings may identify areas for enforcement and policy guidance, including improvements to the agency’s investigation and law enforcement processes, as well as areas that warrant additional study.

On April 19, 2018, Makan Delrahim, Assistant Attorney General of DOJ’s Antitrust Division delivered the keynote address at the at the University of Chicago’s Antitrust and Competition Conference. The focus of his remarks was “evidence-based enforcement.” He said that “an evidence-based approach requires enforcement built on credible evidence that a practice harms competition and the American consumer, or in the case of merger enforcement, that it creates an unacceptable risk of doing so.”

Delrahim noted that outside of flat out price fixing and naked restraints of trade, which are clearly illegal, “antitrust demands evidence of harm or likely harm to competition, often weighed against efficiencies or procompetitive justifications.”  He added that “taking an evidence-based approach to antitrust law should not be mistaken for an unwillingness to bring enforcement actions.” He said that if there is clear evidence of harm, the antitrust enforcers should vigorously prosecute the antitrust laws. He noted that antitrust enforcers that failed to take action when they had credible evidence and accepted behavioral “band-aid” fixes to anticompetitive mergers should accept some blame.  Delrahim noted that “the Microsoft case proved that an evidence-based antitrust enforcement approach can be flexible in its application to new types of assets and markets—in that case, the computer code and software markets.”

His message was that the U.S. and international antitrust agencies should not simply go to war with digital platform companies rather a more effective approach would be grounded in evidence.  He added that “in certain platform markets involving network effects, there may be barriers to entry or a tendency toward a single firm emerging as the sole winner” and in those situations, “antitrust enforcers may need to take a close look to see whether competition is suffering and consumers are losing out on new innovations as a result of misdeeds by a monopoly incumbent.”

On August 23, 2017, the Federal Trade Commission cleared Amazon.com Inc.’s acquisition of Whole Foods Market Inc. without a second request investigation. As mega mergers go, this antitrust review was fast and furious.

When the deal was announced, consumer groups and politicians questioned whether the combination was anticompetitive. Even President Trump, during the campaign, had been quoted as saying “Amazon had a huge antitrust problem”.

Many others were outspoken that the deal should at the very least undergo a thorough investigation because as they saw it, Amazon was adding groceries to its mix in an effort to cement its position as the go to platform where most online commerce takes place. The argument goes that Amazon is a monopolist in online retailing (46% of online retail sales) and it was acquiring Whole Foods, an organic and premium food grocery brick & mortar retailer providing Amazon with additional infrastructure that would allow Amazon to sell and deliver groceries in more cities. Indeed, AmazonFresh is available only in a handful of cities, and doesn’t have the same range of offerings as Whole Foods. Whole Foods delivers through Instacart, but not in a number of of cities. Amazon Prime offers free delivery and Instacart’s delivery fees can add up. Therefore, the deal raised both vertical (online platform along with brick & mortar stores) and horizontal (both firms competed in the retail distribution of food) issues, but combined the merged firm was still a very small retail grocer and the addition of Whole Foods tiny share of the grocery business was trivial.

Andre P. Barlow
Few missions are as important to the U.S. Department of Justice’s Antitrust Division as preventing anti-competitive mergers or permitting them with adequate conditions to prevent competitive harm. After all, a merger is forever — fixing it after the fact is too messy.

The DOJ is currently investigating Anheuser-Busch InBev SA/NV’s (“ABI”) acquisition of SABMiller PLC, the largest beer merger in history, as well as its proposed divestiture of SABMiller’s interest in the MillerCoors LLC Joint Venture to Molson Coors Brewing Company. These proposed transactions lock in place the two largest beer competitors in the United States while fundamentally changing the dynamics in the beer industry for smaller brewers, distributors, wholesalers and retailers. While ABI maintains that the proposed transactions do not change the competitive landscape, the DOJ knows better.

Indeed, the DOJ’s recent approach in approving Charter Communications Inc.’s acquisition of Time Warner Cable Inc. (“TWC”) and its related acquisition of Bright House Networks LLC to create New Charter, the merged firm, is instructive. Despite no geographic overlap in any local market, the DOJ required comprehensive behavioral conditions to prevent New Charter from engaging in future anti-competitive conduct against its smaller rivals. The DOJ should take the same tough and sophisticated approach to protecting consumers from the much larger ABI/SABMiller merger and the new ownership by Molson Coors, which will create two beer giants that will dwarf its rivals.

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