California Sues Amazon for Alleged Antitrust Violations That Inflated Prices, Stifled Competition

The suit asks the court to block Amazon from continuing those policies and to appoint a monitor to ensure the company’s compliance, according to a copy viewed by The Wall Street Journal. It also seeks unspecified damages for harm to the state economy and $2,500 for each violation of the state’s civil and professional code proved at trial.

The lawsuit represents the biggest legal challenge to date in the U.S. for Amazon, which was previously sued by the District of Columbia and is being investigated by the Federal Trade Commission, the European Union and a congressional committee.

Because it is the nation’s most populous state and biggest economy, California’s business regulations have long swayed how companies operate across the country.

Third-party merchants that offer their products on Amazon’s marketplace make up the majority of the company’s product sales, according to the complaint. California alleges that Amazon requires them to sign agreements that penalize them for offering their products at cheaper prices on competing sites such as

Walmart

or

Target.

Those who don’t comply may get pushed lower in Amazon’s search results or be disqualified from being featured in the site’s “buy box,” the suit alleges, and may even be suspended or removed.

According to the complaint, Amazon also forces wholesalers into agreements that penalize them if Amazon lowers its prices to match those of competitors and its profit margin falls below a specified minimum. In some cases, the complaint says, Amazon demands that wholesalers compensate it if competing retailers lower prices on their products.

The company’s dominance in the online retail space leaves third-party sellers and wholesalers with little choice but to agree, the suit alleges.

“Amazon coerces merchants into agreements that keep prices artificially high, knowing full-well that they can’t afford to say no,” Mr. Bonta, a Democrat, said in a statement. “Many of the products we buy online would be cheaper if market forces were left unconstrained.”

In response to a similar lawsuit filed by D.C’s attorney general last year, Amazon said its policy on merchants that work with other sites is designed to protect consumers from being overcharged. The company has said it decides which third-party merchants to feature based on price, delivery speed and other factors.

The D.C. lawsuit didn’t address Amazon’s relationship with wholesalers.

In March, that suit was tossed out by a Superior Court Judge in the District based on Amazon’s motion to dismiss. The D.C. attorney general filed a notice of appeal last month.

In 2020, The Wall Street Journal reported that California had begun an investigation into the way that Amazon treats its third-party sellers. The investigation was opened under then-Attorney General

Xavier Becerra,

who is now the U.S. Secretary of Health and Human Services.

Last year, the Journal reported that Connecticut was investigating how Amazon sells and distributes digital books. The Federal Trade Commission is also investigating Amazon’s business practices.

Earlier this year, Democratic and Republican members of the House Judiciary Committee sent a letter to U.S. Attorney General

Merrick Garland

recommending the Justice Department investigate Amazon and some of its executives for what they said was possible criminal obstruction of Congress related to a separate investigation into Amazon and other big tech companies.

In 2020, the European Commission—the European bloc’s top antitrust enforcer—charged Amazon with violating competition law. Part of the charges centered on how Amazon uses nonpublic data from sellers on its website to unfairly compete against them.

In a settlement proposed in July, Amazon said it would stop using third-party seller data that isn’t public to compete against merchants on its European sites for a period of five years. The company also promised to apply equal treatment to all sellers when deciding what to feature in its “buy box” after being accused of giving priority to those that pay for Amazon’s logistics services.

That settlement proposal is pending approval by regulators at the European Commission.

Write to Christine Mai-Duc at [email protected] and Dana Mattioli at [email protected]