PHOENIX (CN) — Arizona Attorney General Kris Mayes filed two lawsuits Wednesday against the international online retail giant Amazon.com, accusing it of deceptive and unfair business practices.
The two lawsuits, filed in state court, say Amazon’s Prime cancellation process and the algorithm that decides whether a product is offered through a “buy now” or “add to cart” option violate the Arizona Consumer Fraud Act and the Arizona Uniform State Antitrust Act. Mayes, a Democrat, accuses Amazon of artificially inflating prices and boxing our third-party retailers that rely on the site for business.
"Amazon must be held accountable for these violations of our state laws,” Mayes said in a statement. “No matter how big and powerful, all businesses must play by the same rules and follow the same laws as everyone else."
Amazon spokesperson Tim Doyle called the suits a mischaracterization of how the business operates.
"We are surprised and disappointed by these cases, which the Arizona attorney general initiated without reviewing a single document from Amazon," Doyle wrote in an email to Courthouse News.
The first lawsuit addresses Amazon’s Prime cancellation process, which Mayes says in the lawsuit is intentionally confusing and misleading in attempts to retain customers and maximize profits.
Amazon Prime offers discounts on certain items, free shipping and free streaming of select movies and videos, but typically costs $14.99 per month to maintain. Amazon collects about $25 billion per year in Prime subscription fees, and Prime members typically spend twice as much as other Amazon customers annually.
To cancel their subscription, users are met with a “complicated and manipulative interface” with repeated nudging to maintain the subscription instead. The site repeatedly asks users if they are sure they’d like to cancel, emphasizing benefits that would be lost upon cancellation.
“This pattern of multiple redundant layers and needless sidetracks, which Amazon used throughout the cancellation process, is a dark pattern known as a ‘roach motel,’ where it is easy to get in, but almost impossible to escape,” Mayes says in the complaint.
Mayes says the method, known as “dark patterns,” exploits cognitive biases to manipulate consumer choices. In the suit, she points to internal Amazon documents regarding “Project Iliad,” the strategy Amazon employs to retain subscribers. The documents show the strategy reduced Prime cancellations by 14%.
Because Prime users typically use the site more, Mayes says, Amazon can collect more data to use for further profits. In doing so, Mayes claims, Amazon violates the Arizona Consumer Fraud Act.
Amazon fully denied the accusations.
“Prime’s sign-up and cancellation processes are clear and simple by design, meeting a high bar for customer satisfaction well above legal requirements," Doyle wrote. "Customers sign up for Prime because it’s an incredible service and a great value, and they can cancel their Prime membership with a few clicks from the home page."
The second lawsuit addresses the site’s “buy box” algorithm.
When a user wants to purchase a product, they are met with one of two choices. The box under the product description may read “add to cart” or “buy now.” Amazon publicly states the algorithm is designed to encourage consumers to buy the most preferable, cost-effective option. But Mayes says the algorithm is actually intended to maximize Amazon’s profits.
The algorithm favors Amazon’s own products and those of Fulfillment by Amazon sellers over other third-party sellers that may offer better deals. Fulfillment by Amazon is a service that allows sellers to send their products to an Amazon warehouse, in which Amazon will take care of packing, labeling and shipping to customers. It’s done for an additional fee, which Mayes says often costs more for sellers than alternative shipping methods.
She says the buy box algorithm disadvantages smaller sellers who can’t afford the extra Amazon services but may offer better products and deals, and it leaves consumers incorrectly believing they came away with the best deal.
“Arizona consumers deserve to be treated fairly and without deception by big corporations like Amazon, and small businesses deserve a level playing field,” Mayes said in the statement. “Amazon should change its business practices to comply with Arizona law."
She also says in the second suit that Amazon enforces unlawful price parity agreements that prevent third-party sellers from offering lower prices outside of Amazon, hindering competition and inflating prices for Arizona consumers. The price parity clause was part of Amazon’s Business Solutions Agreement, in effect for a decade until 2019 when it abandoned the policy in the U.S. under threat of investigation from the Federal Trade Commission. It did the same in the European Union in 2013.
Even with the clause removed from the Business Solutions Agreement, Mayes says other Amazon policies still discourage sellers from offering lower prices elsewhere, under threat of lost access to the buy box function or being removed from Amazon’s platform entirely.
“Ultimately, even though Amazon has dropped the express price parity clause from the BSA, it still maintains ‘standards for brands,’ a ‘fair pricing’ policy, and a ‘seller code of conduct’ that function as de facto price parity policies,” Mayes says.
The claims in the second complaint include violations of the Arizona Consumer Fraud Act and the Arizona Uniform State Antitrust Act.
Amazon says the practices detailed in the lawsuits are better for consumers.
“These suits would force Amazon to engage in practices that actually harm consumers and the many businesses that sell in our store—such as having to feature higher prices," Doyle wrote.
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