The First Federal Attack on Amazon’s Monopoly Power: A Conclusive Moment in Assessing Antitrust Efficacy in the Digital Age

On September 26, 2023, the Federal Trade Commission (FTC) and 17 states filed a lawsuit in the U.S. District Court for the Western District of Washington against Amazon.com, Inc. accusing the company of violating antitrust law by inhibiting the growth of its third-party sellers and causing inflated prices of consumer goods on and off its platform. In the 172-page complaint filed to initiate the first federal lawsuit against Amazon, plaintiffs asked the court to “put an end to Amazon’s illegal course of conduct, pry loose Amazon’s monopolistic control, deny Amazon the fruits of its unlawful practice, and restore the lost promise of competition.” [1] Compared to previous lawsuits by states and private parties, the FTC’s suit is of particular importance because the Commission has more mandated authority to reign in monopolistic practice in its founding history and statutory language. Amazon's operations clearly constitute a violation of federal antitrust law, and courts must interpret the FTC's lawsuit as a meritorious challenge of exclusionary conduct. If the district court holds Amazon’s anti-competitive business strategies as lawful under Section 5 of the FTC Act, the FTC’s regulatory purpose and authority will be severely undermined—calling into question the effectiveness of existing laws for antitrust enforcement in the age of digital commerce.

Antitrust law has, for the past 150 years, been crucial to protecting consumers by ensuring free and fair competition. However, in recent years, there has been increasing doubt in legislative politics about how well-equipped current antitrust law is to ensure accountability for corporate giants in the digital age. For example, the House Judiciary Committee’s antitrust subcommittee held a high-profile investigation into Apple, Amazon, Google, and Facebook in 2021, spurring political discussion of “modernizing” antitrust law. [2] The first federal antitrust law, the Sherman Act, was passed in response to the advocacy of rural farmers and urban laborers against the massive nineteenth-century trusts that emerged during the Gilded Age. [3] Trusts were monopolies that held exclusive control over a specific product or industry by entrusting control over competing firms to a small group of men—or trustees. In her book on antitrust history, Democratic Senator Amy Klobuchar emphasizes the populist origins of federal antitrust law: The Sherman Act unanimously passed the House of Representatives in 1890, demonstrating how the entire body felt the necessity of federal antitrust legislation. [4]

In 1914, the Clayton Act was enacted to bolster the Sherman Act, outlawing business conduct such as mergers and acquisitions that substantially reduced competition. [5] The same year saw the passage of the Federal Trade Commission Act of 1914, which outlined the newly established Commission’s investigative powers and enforcement and rulemaking authority. Since then, the Commission has been able to police unfair methods of competition on the basis of the Sherman Act, Clayton Act, and the Federal Trade Commission Act Act of 1914. [6] In 2021 and 2022, Amazon was sued by both Washington, D.C. and California for antitrust violations, but the D.C. case was tossed by a lower court and the California case was partially dismissed. [7] History has proved that federal lawsuits are better suited for legal action for large-scale business operations—as with the busting of John D. Rockefeller’s Standard Oil Company in 1911. Although ten states brought a total of 24 cases against the company between 1890 and 1906, it took a federal case to break up Rockefeller’s oil empire into 43 smaller companies. [8] Hence, in comparison to state, local, and private parties, the FTC finds itself in a stronger position to challenge Amazon. Consequently, court proceedings on the FTC suit against Amazon will demonstrate whether or not current antitrust laws are equipped to tackle the challenges of digital age business and customer protection.

The district court in Washington State will presumably judge the case through the rule of reason test because the FTC’s complaint charges Amazon for violating Section 2 of the Sherman Act. The rule of reason test is a theoretical apparatus of the Sherman Act that supposedly helps make the distinction between lawful and unlawful elimination of competition. [9] Section 1 of the Sherman Act, dealing with exclusive contracts, can be judged through per se rule, meaning the accused conduct can be automatically deemed as an unlawful elimination of competition. [10] Section 2, which protects against monopoly power or the dangerous probability of successful monopolization, is judged through the rule of reason test. Amazon removed its price parity contracts with third-party sellers in March of 2019 after rumored antitrust investigations, though its business strategies still effectively bar sellers from increasing their sales elsewhere. [11] As a consequence, no plaintiff can accuse Amazon of violating Section 1 of the Sherman Act and prove that Amazon’s monopolistic practice is illegal through per se rule. Instead, plaintiffs must demonstrate the illegality of Amazon’s stifling of competition through the rule of reason test. The first step of this litigation requires the FTC to demonstrate how Amazon’s behavior is harmful to competition in the relevant market. 

The ruling in Ohio v. American Express Co. (2018) demonstrated that providing sufficient evidence to prove market dominance in violation of Section 2 of the Sherman Act is difficult due to the court’s strict requirements for market definitions. In 2010, the federal government and 17 states sued American Express, Visa, and MasterCard for using anti-steering provisions to suppress competition from rival credit-card transaction networks. With a 5-4 decision for American Express and the other credit card companies, the Court affirmed the opinion of the Second Circuit that American Express did not violate federal antitrust law because the plaintiffs only proved anti-competitive effects on the merchants but not on cardholders, who the judges argued are also part of the “defined market.” [12] However, the FTC’s complaint presents a clear definition of the market, meaning the FTC should successfully shift the burden of proof to Amazon to establish pro-competitive benefits for the judges. Instead of leaving it up to the court to define the relevant market, the FTC explicitly defined Amazon’s relevant market as “online superstores” in the complaint. [13] They excluded brick-and-mortar stores, online stores with little diversity in products, and online supermarkets that sell only perishable goods from the relevant market. [14] This more narrow definition of the market strengthens the assertion of Amazon’s dominance and anti-competitive impacts as a monopoly power, making it less likely for the court to find fault with market definitions.

Addressing the potential for the court to find fault in the lack of direct evidence for monopolizing conduct, the FTC’s complaint shows that their deeper investigation yielded a more thorough collection of evidence of Amazon’s anti-competitive business strategies. The Commission uses language such as “feedback loop” to describe that Amazon is able to use algorithmic business strategies to achieve the same effect as the contracts they used to sign with third-party sellers barring them from selling their products cheaper elsewhere. [15] An example of an algorithmic punitive tactic the FTC identifies is the “Buy Box” reward system. The retailer earns the “Buy Box,” which is the display option to “Add to Cart” or “Buy Now” and Amazon-selected offers for a product when they do not offer lower prices elsewhere. Another punitive tactic is to make a product ineligible for Amazon Prime deals if the seller does not pay Amazon’s fulfillment fees and let Amazon package the orders. [16] The vast majority of U.S. Amazon shoppers are Prime members incentivized to only shop for Prime products, so sales inevitably tank if a product is not Prime-eligible. Coercing sellers to store their products with Amazon effectively prevents them from increasing their sales elsewhere. [17] The Commission argues that the synergistic impact of these tactics demonstrates Amazon’s suppression of competition in the market of online superstores.

In addition to proving Amazon’s harmful practice in a defined relevant market per the rule of reason test, the FTC’s complaint is further strengthened by its charge against Amazon under Section 5 of the FTC Act. Section 5 is designed to fill the “statutory gaps” in the Sherman and Clayton Acts, according to law professor Ronny Hauck. [18] When the FTC Act was passed in 1914, Congress meant for it to be broader in scope, such that “unfair or deceptive acts or practices in or affecting commerce” can be declared unlawful as stated in Section 5(a). [19] The FTC’s broad character was articulated by former Commissioner Jon Leibowitz on the matter of Rambus in 2006. The FTC had charged computer technology developer Rambus, Inc. for unlawfully distorting a critical standard-setting process, and as a result, gaining monopoly power in the four computer memory technologies markets. [20] Leibowitz, in a concurring opinion, states that Rambus’s conduct constitutes an unfair method of competition in violation of the broader reach of the FTC Act. To strengthen his argument, he gave the court a review of Section 5’s legislative history, statutory language, and Supreme Court interpretations that reveal an Agency mandate that is broad in scope. He argued that Section 5 of the FTC Act “was not confined to the collection of violations then-recognized in antitrust or common law, but rather conferred a broader and more adaptable authority on the Commission.” [21] In addition, as seen in the rulings of Boise Cascade Corp v. FTC (1980) and E.i. Du Pont De Nemours & Company, Petitioner, v. FTC (1984), appellate courts have almost always reaffirmed the breadth of the FTC’s Section 5 jurisdiction. [22]

Although there has yet to be a ruling reaffirming the FTC Act’s effectiveness at antitrust enforcement in the online retail market, the broader scope of Section 5 makes the Act suitable to be applied to new or more complex markets. In FTC v. Motion Picture Advertising Svc. Co (1953), Justice Felix Frankfurter of the Supreme Court held that “the Commission should be allowed ample discretion in developing the law of unfair methods of competition to meet the exigencies of a particular situation without undue hampering by the court.” [23] Following this reasoning, the U.S. District Court for the Western District of Washington should allow the Commission to flexibly extend Section 5 to Amazon’s innovative business strategies in the online retail market without precedent applications of the FTC Act in this relevant market.

The court must maintain the FTC Act’s Congressionally-granted ability to flexibly define what constitutes an “unfair” practice by affirming that Amazon’s business practices are a violation of antitrust laws. The FTC’s investigation concluded that Amazon has well above 60% dominance in the relevant market. Reports on Gross Merchandise Value (GMV), which measures the total sales of goods and is commonly used to track the market share of online stores, reveal that Amazon has an estimated market share of 69% of GMV across the top 4 online superstore platforms – itself, Walmart, Target, and eBay. [24] Statistics from eMarketer Insider Intelligent, likewise cited in the FTC’s complaint, estimate Amazon’s market share as more than 82% of GMV in 2022, reflecting Amazon’s ever-growing dominance. [25]

The concentration of corporate power under the tech giants is apparent, and it is negatively affecting the health of the economy and American democracy. Supreme Court Justice Thurgood Marshall, in his deliverance of the opinion of the court in United States v. Topco Associates, Inc. (1972), emphasized that antitrust laws are as important to the preservation of economic freedom as the Bill of Rights is to the protection of our personal freedoms, stating that “the freedom guaranteed to each and every business, no matter, how small, is the freedom to compete.” [26] A healthy market can also put the United States in a better position to confront the challenges of wealth inequality – Klobuchar logically argues that the proper enforcement of antitrust laws lowers prices for consumers and increases previously stagnant wages for workers. [27] The proceedings and ruling of this case will shed light on whether current antitrust laws, as written and interpreted, are equipped to handle the antitrust challenges of the twenty-first century. The Commission’s definition of the relevant market and thorough explanation of Amazon’s punitive tactics makes for an especially robust case. Further, if Section 5 of the FTC Act fails to hold Amazon accountable for market dominance, it will be strong evidence of the improper deterioration of antitrust law enforcement and the need for antitrust reform.

Edited by Stella Tallmon

[1] Federal Trade Commission, “Amazon, Inc. Complaint For Relief,” filed September 26, 2023,

https://www.ftc.gov/system/files/ftc_gov/pdf/1910129AmazoneCommerceComplaintPublic.pdf

[2] “House Judiciary Antitrust Subcommittee Announces Series of Hearings on Proposals to Curb Dominance of Online Platforms, Modernize Antitrust Law,” Targeted News Service, February 19, 2021, http://ezproxy.cul.columbia.edu/login?url=https://www.proquest.com/wire-feeds/house-judiciary-antitrust-subcommittee-announces/docview/2490959574/se-2.

[3] Amy Klobuchar, Antitrust: Taking on Monopoly Power From the Gilded Age to the Digital Age (New York: Vintage, 2021), 62.

[4] Klobuchar, Antitrust, 81.

[5] “Clayton Antitrust Act,” Cornell Law Legal Information Institute, https://www.law.cornell.edu/wex/clayton_antitrust_act.

[6] Klobuchar, Antitrust, 13.

[7] David McCabe, “D.C. Suit Accusing Amazon of Controlling Prices Is Thrown Out,” New York Times, March 18, 2022, https://www.nytimes.com/2022/03/18/technology/amazon-dc-antitrust-suit.html; Rob Bonta, “Attorney General Bonta Secures Court Decision Denying Amazon’s Attempt to Evade Responsibility in California’s Antitrust Lawsuit,” Press Release, March 30, 2023, https://oag.ca.gov/news/press-releases/attorney-general-bonta-secures-court-decision-denying-amazon%E2%80%99s-attempt-evade.

[8] Klobuchar, Antitrust, 100.

[9] Robert H. Bork, “The Rule of Reason and the Per Se Concept: Price Fixing and Market Division,” The Yale Law Journal 74, no. 5 (1965): 776.

[10] Bork, “The Rule of Reason and the Per Se Concept,” 776.

[11] Federal Trade Commission, “Amazon, Inc. Complaint For Relief,” 88.

[12] Ohio v. American Express Co., 585 U.S. (2018)

[13] Federal Trade Commission, “Amazon, Inc. Complaint For Relief,” 44-48.

[14] Federal Trade Commission, “Amazon, Inc. Complaint For Relief,” 48-56.

[15] Federal Trade Commission, “Amazon, Inc. Complaint For Relief,” 65-71.

[16] Federal Trade Commission, “Amazon, Inc. Complaint For Relief,” 109.

[17] Federal Trade Commission, “Amazon, Inc. Complaint For Relief,” 110-117.

[18] Ronny Hauck, “FTC v. Google: The Enforcement of Antitrust Law in Online Markets,” in Competition on the Internet, 2014, https://link.springer.com/chapter/10.1007/978-3-642-55096-6_5.

[19] Federal Trade Commission, “A Brief Overview of the Federal Trade Commission's Investigative, Law Enforcement, and Rulemaking Authority,” Revised May 2021.

[20] Federal Trade Commission, “FTC Finds Rambus Unlawfully Obtained Monopoly Power,” Press Release, August 2, 2006, https://www.ftc.gov/news-events/news/press-releases/2006/08/ftc-finds-rambus-unlawfully-obtained-monopoly-power.

[21] Jon Leibowitz, “Concurring Opinion of Commissioner Jon Leibowitz in the Matter of Rambus, Inc. Docket No. 9302,” https://www.ftc.gov/sites/default/files/documents/cases/2006/08/060802rambusconcurringopinionofcommissionerleibowitz.pdf.

[22] Boise Cascade Corp v. Federal Trade Commission, 637 F.2d 573 (9th Cir. 1980); E.i. Du Pont De Nemours & Company, Petitioner, v. FTC, 729 F.2d 128 (2d Cir. 1984).

[23] FTC v. Motion Picture Advertising Svc. Co., Inc., 344 U.S. 392 (1953)

[24] Federal Trade Commission, “Amazon, Inc. Complaint For Relief,” 57.

[25] Federal Trade Commission, “Amazon, Inc. Complaint For Relief,” 58.

[26] United States v. Topco Assocs., Inc., 405 U.S. 596 (1972)

[27] Klobuchar, Antitrust, 352.