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Amazon sued by DC attorney general on antitrust grounds

Washington, DC Attorney General Karl Racine speaks after a press conference at the U.S. Supreme Court on September 9, 2019 in Washington, DC.

Alex Wong

Washington, DC Attorney General Karl Racine announced Tuesday that he is suing Amazon on antitrust grounds, alleging the company’s practices wrongly raised prices for consumers and stifled innovation.

Racine seeks to end Amazon’s allegedly illegal use of pricing agreements to crowd out competition, seek compensation, and impose penalties to prevent similar behavior. The lawsuit seeks the court to halt Amazon’s ability to harm competition through a number of required remedial measures, including structural easements, often referred to as a form of segregation.

Amazon’s shares barely moved on the announcement, falling 1% on Tuesday afternoon.

The lawsuit filed in the DC Superior Court alleges that Amazon illegally maintained monopoly power by using contractual clauses to prevent third-party vendors on its platform from selling their products at lower prices on other platforms. The attorney general claimed the contracts created “an artificially high floor price in the online retail market,” according to a press release. The AG claimed these agreements ultimately harm both consumers and third-party sellers by reducing competition, innovation and choice.

Amazon requires third party vendors wishing to do business in the online marketplace to adhere to the Business Solutions Agreement. By 2019, Amazon added a clause to this document called “Price Parity Fixing” that prohibits sellers from listing their products on a competitor’s online marketplace at a lower price than what their products were selling on Amazon.

Amazon tacitly lifted this provision in March 2019 as antitrust scrutiny increased.

According to the complaint, even after Amazon removed the price parity rule from its agreement with third parties, Amazon added a nearly identical clause called the “Fair Pricing Policy”. The policy of fair pricing enables Amazon to impose “sanctions” on a seller who sells his product on a competing online marketplace at a lower price.

Amazon’s third-party marketplace, made up of millions of merchants, has become a vital part of Amazon’s e-commerce business. The marketplace now accounts for more than half of Amazon’s total sales.

Amazon’s pricing agreements were also an issue under consideration in the House Judiciary’s subcommittee on the cartel’s comprehensive antitrust report, which was released last fall. Legislators agreed that Amazon is using its dominant position in e-commerce as a lever for third-party vendors to require them to adhere to most-favored-nation clauses.

Racine said his lawsuit relies on what are known as the MFN agreements because he sees them as “a clear policy that leads to higher prices for third-party sellers”.

“We know these clauses are legally unfavorable, especially when a company like Amazon has monopoly power,” said Racine. “And we know that Amazon has been criticized for this type of clause in the past.”

The lawsuit comes months after federal and state authorities filed antitrust lawsuits against Google and Facebook.

Both lawsuits concerned grand coalitions of states that had come together to file the lawsuits, but Tuesday’s action comes solely from Racine’s office.

Racine said on a call with reporters Tuesday that the central focus of the lawsuit, the contracts known as “most favored nation” agreements, was an issue that he believed his office could take care of itself. It is common for states to collaborate or work with federal agencies on antitrust lawsuits, especially in companies that have well-funded businesses, as there is a lot of work involved in bringing such lawsuits. But Racine said the MFN problem was “sufficiently discreet” that his office could handle it on its own.

Even so, he didn’t rule out the possibility of other states or federal agencies being involved, saying it was common for others to join or make their own claims once a state files a lawsuit. But he did not indicate any knowledge of such plans.

Amazon didn’t respond to a request for comment early Tuesday afternoon.

This story evolves. Check for updates again.

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