The Federal Trade Commission sued Amazon on Wednesday, accusing it of illegally inducing consumers to sign up for its Prime service and then hindering them from canceling the subscription, in the most aggressive action against the company to date by the agency’s chair, Lina Khan.
In its lawsuit, the F.T.C. argued that Amazon had “duped millions of consumers” into enrolling in Prime by using “manipulative, coercive or deceptive” design tactics on its website known as “dark patterns.” And when consumers wanted to cancel, Amazon “knowingly complicated” the process with byzantine procedures.
“Amazon tricked and trapped people into recurring subscriptions without their consent, not only frustrating users but also costing them significant money,” Ms. Khan said in a statement.
Amazon said in a statement that the F.T.C.’s “claims are false on the facts and the law” and that “by design we make it clear and simple for customers to both sign up for or cancel their Prime membership.” The company accused the F.T.C. of filing the lawsuit without advance notice, while the two sides were still in conversation about the case.
The lawsuit, filed in U.S. District Court for the Western District of Washington, takes aim at a key Amazon program that has become ubiquitous in the lives of more than 200 million customers. Prime members pay $139 a year to get packages shipped faster from Amazon’s retail store, to stream movies and series from its in-house studio and to receive discounts when they check out at Amazon’s Whole Foods grocery chain. The company has added more perks to Prime over time, including live sports, and has raised the annual subscription fee.
The F.T.C.’s action was the first time that the agency took Amazon to court under Ms. Khan, who rose to fame with a viral critique of the company and who is ramping up scrutiny of the e-commerce giant. Ms. Khan has said the power that big tech companies exert over online commerce requires regulators to be far more aggressive, and she has taken actions against them.
Under Ms. Khan, the F.T.C. continued a lawsuit against Meta, the owner of Facebook, arguing that it cut off nascent competitors by buying Instagram and WhatsApp. The agency also sued to block Microsoft’s blockbuster $69 billion deal for the video game publisher Activision Blizzard.
Ms. Khan has yet to bring the kind of sweeping antitrust case against Amazon that the company’s critics have demanded. The F.T.C.’s antitrust bureau has investigated Amazon’s practices for years, and critics and supporters of the company are closely watching to see how she will move forward with the findings.
Amazon recently settled cases with the F.T.C. that began before Ms. Khan’s tenure. The company agreed to pay $25 million last month to settle commission claims that its Alexa home assistant devices had illegally collected children’s data. The company also settled another privacy case with the F.T.C. over its Ring home security subsidiary.
The new lawsuit is part of a larger effort by regulators to limit the power of tech giants like Amazon, Apple, Google, Microsoft and Meta. The Department of Justice has in recent years filed multiple antitrust cases against Google. European regulators have also scrutinized behemoth tech companies, passing privacy laws, working on proposals to rein in artificial intelligence and filing charges against Google and others.
Prime has for years attracted subscribers with its menu of benefits, turning the service into one of the keys to Amazon’s dominance. The service was introduced in 2005 for $79 a year. Over time, the company added more perks to the program, like streaming video, and increased the price. It raised the fee to $139 a year in 2022.
In 2021, Amazon said it had more than 200 million Prime members. Customers last year spent $35 billion on Amazon subscriptions, primarily Prime memberships, according to the company’s financial disclosures.
On Wednesday, the F.T.C. said Amazon had made it particularly difficult to buy a product in its store without also subscribing to Prime while checking out. In one example, it said, the company used “repetition and color” to push customers’ focus to Prime’s promise of free shipping and away from the service’s price, leading some to subscribe to Prime without “informed consent.”
The agency also said Amazon made it hard to find the page that allowed consumers to cancel the service. Once they found it, the company bombarded them with offers intended to change their mind. The lawsuit said Amazon had named the process for canceling Prime after the Iliad, the lengthy Greek epic poem that recounts the Trojan War.
Amazon “substantially revamped its Prime cancellation process for at least some subscribers” shortly before the lawsuit, the heavily redacted complaint said. But “prior to that time, the primary purpose of the Prime cancellation process was not to enable subscribers to cancel, but rather to thwart them.”
The F.T.C. asked the court to stop Amazon from engaging in those practices and to force the company to pay an unspecified financial penalty.
Questions over how hard it is to cancel Prime have increased in recent years. In a 2021 complaint to the District of Columbia attorney general, the Electronic Privacy Information Center, an advocacy group, said Amazon used manipulative designs to “frustrate the intentions of users who intend to cancel their Amazon Prime subscriptions.”
The F.T.C. has recently pledged to crack down on designs meant to nudge consumers or confound their efforts to cancel a service.
“It’s having to play a lot of catch-up because these practices have evolved for many years without serious attention and enforcement,” said John Davisson, a senior counsel at the Electronic Privacy Information Center. “Going after a company as big as Amazon is sending a message to other players in the industry.”
Critics consider Prime central to Amazon’s business because it keeps customers inside the company’s retail store by offering them other perks, like access to Amazon streaming exclusives like “Tom Clancy’s Jack Ryan” and “The Lord of the Rings: The Rings of Power.”
Amazon has said Prime provides benefits for consumers. When the company lobbied in recent years against changes to antitrust laws focused on the tech giants, it regularly told lawmakers and the media that the changes would hobble Prime.
Ms. Khan’s next steps on Amazon will be closely watched. She rose to prominence after publishing a 2017 article in The Yale Law Journal when she was a Yale law student. That paper, “Amazon’s Antitrust Paradox,” argued that modern interpretations of antitrust law should be widened to address tech companies like Amazon, effectively upending decades of established antitrust doctrine.
“As Amazon continues both to deepen its existing control over key infrastructure and to reach into new lines of business, its dominance demands the same scrutiny,” she wrote.
