Judge deals Amazon costly defeat ahead of FTC trial

SEATTLE (CN) —  The Federal Trade Commission scored a partial victory in its case against Amazon after a federal judge found the company broke consumer protection law by revealing Prime’s terms only after collecting customers’ payment information.

U.S. District Judge John Chun, a Joe Biden appointee, concluded Wednesday evening that “no reasonable jury could find in favor of Amazon” when presented with evidence showing the order in which billing information is collected in the checkout flow.

Amazon argued that it obtains consent to use a customer’s billing information at the same time it discloses Prime’s terms, but Chun found the retailer’s arguments were at odds with the text of the Restore Online Shoppers’ Confidence Act and “miss the mark.”

The Restore Online Shoppers’ Confidence Act requires that the material terms of a transaction be disclosed clearly and conspicuously before billing information is collected.

“Today’s decision affirms that Amazon defrauded American consumers by failing to disclose all terms of Prime before collecting consumers’ payment information,” Chris Mufarrige, director of the Bureau of Consumer Protection, said in a statement. “The Trump-Vance FTC intends to make them whole."

The win comes less than a week before the FTC and Amazon are set to enter court for an expected three-week trial centered around accusations of deceptive practices.

The judge ruled that two Amazon executives who had the authority to control the enrollment and cancellation flow of Prime can be held personally liable for any violations the federal regulators prove at trial.

Chun also barred Amazon from raising certain affirmative defenses and from arguing that the Restore Online Shoppers’ Confidence Act doesn’t apply to Prime enrollment.

“Prime is subject to [the Restore Online Shoppers’ Confidence Act] because it is a service ‘sold in a transaction effected on the Internet through a negative option feature,’” Chun wrote. “Defendants’ artful application of contract law does not allow them to avoid this straightforward understanding of [the Restore Online Shoppers’ Confidence Act].”

However, Chun declined to grant summary judgment on the remainder of the FTC’s claims, finding that there remained too much in dispute to draw a conclusion at this stage.

In particular, Chun found that there was competing evidence as to the simplicity of Amazon’s cancellation process — which Amazon refers to internally as “Iliad” — and what qualifies as “simple” under the act.

To cancel a Prime membership in the Iliad flow, customers must reaffirm their intent to cancel on three separate pages. However, Amazon noted that customers have alternatives to the Iliad flow if they wish to cancel their Prime membership, such as contacting customer service or engaging in an online chat.

Amazon expressed confidence the company will prevail at trial.

“The bottom line is that neither Amazon nor the individual defendants did anything wrong — we remain confident that the facts will show these executives acted properly and we always put customers first,” an Amazon spokesperson said in a statement.

The FTC sued Amazon in June 2023 in U.S. District Court for the Western District of Washington, claiming the company tricked, coerced and manipulated consumers into subscribing to Prime by failing to disclose the material terms of the subscription clearly and conspicuously, and by failing to obtain consent before enrolling consumers.

More than a year ago, the court denied Amazon’s motions to dismiss the lawsuit, unpersuaded by the company’s arguments that the suit violated its due process rights as a matter of law because it did not have “fair notice” of the FTC’s interpretation of Restore Online Shoppers’ Confidence Act, which is designed to protect consumers from deceptive online billing practices.

At the time, the court also rejected arguments by Amazon executives, that, as a matter of law, “they did not have fair warning that the ordinary performance of their jobs could subject them to personal liability.”

The court also later denied two motions seeking to compel the FTC to produce internal documents and participate in a deposition.

In May, the company asked the court for permission to appeal these specific orders to the Ninth Circuit before the case was over, warning that the judge’s previous decisions were “inconsistent with the law, significantly prejudice defendants and could require redoing this litigation years down the road if not reviewed immediately.”

But Chun ruled in July that Amazon would have to wait to appeal, over concerns that the appeal would delay the upcoming trial.

Earlier this year, the FTC accused Amazon of hiding evidence, claiming the company wrongfully withheld documents where an executive referred to former CEO Jeff Bezos as Amazon’s “chief dark arts officer” when it came to the “shady world” of driving Prime subscriptions.