How Amazon became the target of a crackdown on anti-consumer, anti-competitive behaviour

Prime Day, the biggest day of the year for e-commerce giant Amazon and members of its loyalty program, Prime, kicked off this week, with deep discounts on everything from clothing to toys, gadgets and small appliances.

While consumers are likely to be on the hunt for deals, the most beneficial one for the company itself may be to settle a brewing dispute with regulators about some of its alleged business practices.

Last month, the U.S. Federal Trade Commission sued the company for allegedly duping customers into signing up for Prime — which brings perks such as lower prices, faster deliveries and a streaming video and music service.

The regulator said in a statement the company uses "manipulative, coercive, or deceptive user-interface designs known as dark patterns to trick consumers" into signing up for Prime subscriptions, which can cost up to $15 per month.

The company makes it easy to sign up for the service with little more than a single click, but cancelling is another matter altogether. Up until earlier this year, the FTC says the main way to stop paying for Prime online was to go through a Byzantine process that involves navigating through four different pages, clicking six different times to select through 15 different options to find the one you want: cancel.

While the company changed the process shortly before the FTC launched an investigation, Amazon's internal name for that process was "Iliad flow" — which, the FTC said, makes for an apt "allusion to Homer's epic poem set over twenty-four books and nearly 16,000 lines about the decade-long Trojan War." 

The "primary purpose" of the cancellation process was "not to enable subscribers to cancel, but to stop them," the FTC said. "Amazon leadership slowed or rejected changes that would've made it easier for users to cancel Prime because those changes adversely affected Amazon's bottom line."

Ignacio Cofone, the Canada Research Chair in AI law and data governance at McGill University, says those "dark patterns" the FTC refers to are essentially tricks to get people to sign up for products or services that they might not necessarily want or understand.

They "deceive users to get users to act in ways that are beneficial to the company, not users," he told CBC News.

"The key word there is 'deceive' ... for example, by having a 'yes' option highlighted in blue, and a 'no' option that is not highlighted — or presenting things in the way that highlight benefits and hide costs."

While Amazon is the latest and biggest target, Cofone says it is by no means the only company accused of using them.

"This is not unique to Amazon," he said. "If they are engaging with dark patterns, they're doing something that is prevalent in the permission economy," he said. 

Dark patterns are "not the disease — they're a symptom of the real disease, which is that we mechanically click 'I agree' to everything without understanding."

'False on the facts'

For its part, Amazon says it plans on fighting the lawsuit every step of the way, calling the FTC's allegations "false on the facts and the law."

"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," spokesperson Kelly Nantel said in a statement

She said Amazon was disappointed that the agency went ahead with a lawsuit without giving the company any notice of its plans.

"We look forward to proving our case in court."

While the FTC regulates a lot of consumer-related activities in the U.S, the closest Canadian comparable is the Competition Bureau, which, under its mandate to enforce competition law, investigates and prosecutes false and deceptive marketing claims. 

Spokesperson Marie-Christine Vézina would not say if the bureau is investigating Amazon, noting it is "obliged by law to conduct its work confidentially." The bureau will also not comment on "specific or hypothetical conduct in the marketplace." 

But "generally speaking, I can confirm that subscription traps are on the Competition Bureau's radar," Vézina said. 

She noted that, as recently as 2021, the bureau fined a company $15 million for a subscription trap scheme whereby customers signing up for free trials of health supplements were duped into signing up for recurring monthly payments.

The FTC's complaint is part of a broader fight by the agency under its new head, 34-year-old Lina Khan. Before being appointed by U.S. President Joe Biden in 2021, Khan had been a staffer on the House Judiciary Committee during a months-long probe into Big Tech, and prior to that, as an academic at Columbia University, she openly advocated for paring back the power of companies like Amazon using antitrust laws already on the books. 

Jennifer Rie, a litigation analyst with Bloomberg Intelligence, says it is clear the FTC is picking a fight it has been wanting to pick for a while, and will come at Amazon on numerous fronts.

"Lina Khan has made it her mission," Rie told CBC News. "She thinks the company is too big. She wants to break the company up — that's her goal and that's what she's going to try to do."

The consumer-focused complaint about Prime is likely just part of a larger battle for the FTC, one that could include allegations about monopolistic practices with things like third-party vendors and supplier agreements, she said.

"She has a litany of different business conduct that she alleges Amazon engages in that are anti-competitive," she says. "It's a matter of what parts … they going to pick to put into a complaint — where do they think they have the best evidence, what will be the type of conduct they may be able to prove in court?"

Owen Tedford, an analyst with Beacon Policy Advisors, says from the moment Khan was sworn in as FTC head, a fight with Amazon was "likely a matter of 'when' rather than 'if,' regardless of the uphill battle that the lawsuit may be."

He says it's likely no accident that the FTC announced its lawsuit on the day the company announced the Prime Day date this year, and may well try to bring about more actions while the sale extravaganza is underway.

Rie says it's common in these cases for the two sides to settle, but in this case it's less likely.

"Khan has repeatedly expressed and shown through her actions that winning outright is not always her most important objective as she often is satisfied with incremental victories or just making a point," Tedford said. "Given this, no matter how difficult it may appear to emerge victorious on paper, expect Khan to look to push the case against Amazon to its limit and extract everything from the company that she can."