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The Federal Trade Commission (FTC) has filed a lawsuit against Amazon, alleging that the company misled consumers into subscribing to Prime memberships and hindered their efforts to cancel the service. This legal action is the latest in a series of crackdowns by U.S. authorities on major tech giants.
The lawsuit comes after a two-year investigation into Amazon’s methods of acquiring and retaining Prime subscriptions, which currently cost $139 per year or $14.99 per month and offer benefits such as free shipping. It follows a string of regulatory and legal actions aimed at addressing the dominance of prominent tech companies like Google, Microsoft, Meta, and Apple. These actions have focused on concerns regarding fair competition.
The FTC’s complaint argues that Amazon violated multiple consumer protection laws and requests a court injunction to halt the company’s practices. In response, an Amazon spokesperson stated that the claims made by the FTC are false both in terms of facts and legalities. The spokesperson expressed concern that the FTC announced the lawsuit without prior notice, as Amazon was engaged in discussions with agency staff members to ensure a comprehensive understanding of the situation. The company believes that customers appreciate Prime’s value and that signing up for or canceling the service is straightforward and transparent.
During the afternoon trading session, Amazon’s shares remained relatively stable, showing a minimal decline of less than 1% from the previous day’s closing price.
The lawsuit primarily revolves around Amazon’s Prime memberships, which contributed $25 billion to the company’s $514 billion in annual revenue for 2022. The FTC alleges that Amazon deliberately designed its sign-up and cancellation processes to confuse consumers and make it difficult for them to unsubscribe. The lawsuit refers to the cancellation process as “Iliad Flow,” a name inspired by Homer’s epic poem about the protracted Trojan War. It claims that consumers needed to click through a minimum of six steps on Amazon.com to cancel their Prime memberships.
The FTC further argues that Amazon employed manipulative design elements known as “dark patterns” on its web pages to lure in users and steer them towards decisions they might not have made otherwise. For instance, disclosures about Prime’s auto-renewal feature were allegedly buried, making them only visible after scrolling. Additionally, sign-up and disclosure icons were placed close to each other, leading consumers to unintentionally enroll in the service.
The complaint also accuses Amazon of unlawfully impeding consumers’ ability to sign up solely for the more affordable “Prime Video” subscription. Prior to June 2022, Amazon took advantage of customers’ difficulty in distinguishing between Prime Video and the flagship Prime service.
FTC Chair Lina M. Khan stated that such manipulative tactics harm both consumers and law-abiding businesses. Alongside injunctive relief, the FTC is seeking fines and monetary damages against Amazon.
Amazon’s spokesperson expressed confidence in the company’s ability to present its case in court and looks forward to doing so.
