California Sues Amazon for ‘Taking Vengeance’ on Small Businesses

SACRAMENTO, Calif. — The state of California is suing Amazon alleging antitrust violations of how the “dominant online retail store in the United States” takes vengeance on small businesses who attempt to put their products on other websites for cheaper prices, according to the lawsuit.

“For years, California consumers have paid more for their online purchases because of Amazon’s anticompetitive contracting practices,” said State Attorney General Rob Bonta in a statement Wednesday. “Amazon coerces merchants into agreements that keep prices artificially high, knowing full well that they can’t afford to say no. With other e-commerce platforms unable to compete on price, consumers turn to Amazon as a one-stop shop for all their purchases.”

The lawsuit describes how third-party agreements bar smaller companies that use the website as a storefront from selling goods elsewhere for cheaper; otherwise, sellers face penalties, according to the lawsuit.

“Similar to the D.C. attorney general — whose complaint was dismissed by the courts — the California attorney general has it exactly backwards. Sellers set their own prices for the products they offer in our store,” according to a statement from an Amazon spokesperson.

The company was referring to a lawsuit dismissed in early August by District of Columbia Superior Court Judge Hiram E. Puig-Lugo because the district did not bring enough evidence to prove its case, and that Amazon simply used a smart business strategy.

Amazon’s prominence as a selling platform grew by 45% in 2020, adding 200,000 new sellers from across the world, according to the company’s information page. In the U.S. there are nearly 30,000 “storefronts” using the platform, the company states.

The California lawsuit alleges Amazon penalizes “storefronts” selling their products elsewhere online by removing certain buttons that make items easier to buy or place in a cart. The company also moves items to the bottom of “organic search results” — the list of items that appears after a search without the seller paying for special advertising.

“This perpetuates Amazon’s market dominance, allowing the company to make increasingly untenable demands on its merchants and costing consumers more at checkout across California,” Bonta said. “The reality is: Many of the products we buy online would be cheaper if market forces were left unconstrained. With today’s lawsuit, we’re fighting back. We won’t allow Amazon to bend the market to its will at the expense of California consumers, small business owners, and a fair and competitive economy.”

Smaller wholesale retailers on the site also sign agreements that undermine their ability to offer discounts, the lawsuit alleges.

“Amazon’s wholesale suppliers agree to be punished if they discount or fail to prevent discounting by Amazon’s rivals, thereby powerfully disincentivizing that discounting,” according to the lawsuit.

And according to the lawsuit, the company knows it is potentially breaking antitrust rules.

“Amazon’s own internal documents demonstrate that it is aware that … [the company] forbids such pricing competition by contract,” the lawsuit states. 

The California lawsuit also includes sellers’ stories about how they essentially feel locked into paying for advertisements on the site.

According to one seller, “Over time it became clear that if we did not purchase advertisements, we would not show up in search results,” the lawsuit states.

The company maintains it is trying to offer low prices.

“Amazon takes pride in the fact that we offer low prices across the broadest selection, and like any store we reserve the right not to highlight offers to customers that are not priced competitively,” according to the company spokesperson. “The relief the AG seeks would force Amazon to feature higher prices to customers, oddly going against core objectives of antitrust law. We hope that the California court will reach the same conclusion as the D.C. court and dismiss this lawsuit promptly.”

Madeline can be reached at [email protected] and @MadelineHughes