The FTC sued Amazon in federal court in Seattle, alleging
that the company has "knowingly duped millions of consumers into
unknowingly enrolling in Amazon Prime." In a statement, Amazon called the
FTC's claims "false on the facts and the law."
Amazon has used "manipulative, coercive or deceptive
user-interface designs known as 'dark patterns' to trick consumers into
enrolling in automatically renewing Prime subscriptions," the FTC said as
it seeks civil penalties and a permanent injunction to prevent future violations.
The lawsuit is one of several actions taken by President Joe
Biden's administration intended to rein in the outsized market power of Big
Tech firms as it tries to increase competition to protect consumers.
The FTC said Amazon Prime is the world's largest
subscription program, generating $25 billion in revenue annually. It offers
fast, free shipping on millions of items, various discounts and access to
movies, music and television series, as well as other benefits.
Prime members in the United States pay $139 per year and
drive much of Amazon's sales volume. Prime, which has more than 200 million
members worldwide, is crucial to Amazon's other businesses including its
streaming service Prime Video and its grocery delivery service.
In its statement, Amazon said, "The truth is that
customers love Prime, and by design we make it clear and simple for customers
to both sign up for or cancel their Prime membership."
Amazon added it finds "it concerning that the FTC
announced this lawsuit without notice to us, in the midst of our discussions
with FTC staff members to ensure they understand the facts, context, and legal
issues, and before we were able to have a dialog with the commissioners
themselves."
Wednesday's lawsuit came on the day Amazon announced the
July dates of its major sales event Prime Day.
The lawsuit said that under substantial pressure from the
FTC, Amazon changed its cancellation process in April but that "violations
are ongoing" and that it still "requires five clicks on desktop and
six on mobile for consumers to cancel from Amazon.com."
Amazon's shares were up 0.2 percent in afternoon trading.
The FTC has been investigating sign-up and cancellation
processes for the Prime program since March 2021.
Consumers who attempted to cancel Prime were faced with
multiple labyrinthine steps to accomplish the task of cancelling, according to
the complaint. The FTC complaint said Amazon used the term "Iliad
Flow" to describe the process it began in 2016, referencing Homer's epic
poem about the lengthy Trojan war.
Amazon also committed "intentional misconduct"
meant to delay the FTC's investigation by providing "bad faith"
responses to requests for documents, the agency said.
Insider Intelligence senior analyst Evelyn Mitchell-Wolf
said that the "FTC is making an example of Amazon, but it's quite common
for companies to make it more difficult to cancel an account than it is to
create one."
"Amazon's market power might work against it in this
instance, as the FTC won't have a hard time proving that consumers are, indeed,
harmed if Amazon impedes their ability to exercise their choice to cancel their
Prime membership," Mitchell-Wolf added.
The FTC on May 31 announced a $5.8 million settlement with
Amazon's Ring doorbell camera unit after the agency said cameras had been used
for spying on some customers. On the same day, the FTC said Amazon agreed to
pay $25 million to settle allegations that it violated children's privacy
rights by failing to delete Alexa virtual assistant technology recordings at
the request of parents and keeping them longer than necessary.
The new lawsuit is "emblematic of efforts by
governments across the globe to rein in the excess influence of big tech,"
including Amazon, Apple and Meta, according to Tom Forte, managing director at
D.A. Davidson Companies.
But Forte also pointed to other retailers and subscription
services that make it difficult to end memberships. © Reuters