Amazon Accused of Antitrust Violations

Amazon may soon face potential liability for an alleged antitrust violation.  Recently, a third-party merchant accused Amazon of forcing the merchant to utilize Amazon’s logistics services at much higher rates than offered by competitors or risk incurring penalties.  Such behavior is referred to as tying and may qualify as a violation of antitrust law.  An antitrust violation occurs when a company uses its market power in one sector to obtain an advantage in another where it is less established.

Standards for determining when tying rises to the level of an antitrust violation were defined in a Supreme Court ruling in 1992 against Kodak.  In that case, Kodak was accused of forcing customers who bought its products to also use its parts and repair services.  The Kodak case established that tying is illegal when it causes measurable harm in the form of increased prices to customers.

In its letter to Congress, the online merchant accused Amazon of using its influence in the online marketplace to gain an advantage for its logistics business by pressuring it, through the threat of penalties, to utilize Amazon’s logistics services.  The merchant further stated the increased costs for the merchant and customers.

Amazon’s Market Share

Amazon currently controls 70% of the online marketplace, with 210 million shoppers visiting its site on a monthly basis in the U.S. alone. Independent merchants utilize Amazon’s vast market presence to sell their wares and pay Amazon a commission for the privilege of using its platform.

Merchant’s Complaint Against Amazon

The merchant stated that even though Amazon raised logistics fees, it expected merchants to continue utilizing its logistics services.  The merchant claimed that logistics costs had risen by 20% over the past four years and that, if it did not use Amazon’s logistics services, it feared that it would either be suspended from participating on Amazon’s site or be marginalized so that customers may not be able to see its products.

The merchant also claimed that if it utilized other logistics companies, these companies could offer cheaper products to their customers.  According to the merchant, however, if it used a competitor’s logistics services, it could be penalized by Amazon for late deliveries.  However, if the merchant used Amazon’s delivery services, it would not be penalized, even if the delivery was late.  Due to the penalty associated with delays when using other logistics companies, many merchants opt to use Amazon’s logistics services to avoid such penalties.

The legal team at SFMS has significant experience litigating antitrust matters. If you have any questions regarding this subject or this posting, please contact John Roberts (jroberts@sfmslaw.com) or Alec Berin (aberin@sfmslaw.com). We can also be reached toll-free at 866-540-5505.

Shepherd, Finkelman, Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, and Pennsylvania. SFMS is an active member of Integrated Advisory Group (www.iag.global), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.