On July 2, 2021, a consumer group filed a putative class action lawsuit in Washington District Court alleging that Amazon engaged in illegal price hikes during the COVID-19 pandemic on a variety of products. The case is remarkable because Washington does not have a specific predatory pricing law. Instead, the complainants argue that the alleged price hike is an “unjust or deceptive act. or practice in conducting any trade or commerce âin violation of the Washington Consumer Protection Act (â WCPA â). Commentators have speculated that one of the purposes of the Washington filing is to pursue nationwide damages from Amazon in state court.
The lawsuit aims to hold Amazon responsible for the alleged price increases that have occurred on its platform not only for Amazon-branded products, but also for price increases on products sold by third-party sellers. The plaintiffs argue that Amazon’s pricing policies – which allow the platform to set prices and apply price caps on products from third-party sellers – make the e-commerce giant responsible for sales on its site which could violate WCPA, regardless of the vendor. This theory of liability raises many questions for companies that host online marketplaces and third-party sellers who use these platforms.
The complaint points to three of Amazon’s pricing policies. First, Amazon sells third-party products under its âSold by Amazonâ program. In this program, Amazon retains full control over pricing, and sellers receive revenue based on a minimum gross product price. It is unclear to what extent this pricing authority would make Amazon the âsellerâ for purposes of state predatory pricing laws. Most states with specific price escalation laws prohibit âsellingâ or âoffering to sellâ at prices above legal limits. Since the program is titled “Sold by Amazon”, courts could interpret Amazon as having made the sale. However, it also raises the question to what extent the third-party seller could also be held liable if the prices charged by Amazon were above the legal limit.
Next, Amazon typically negotiates most-favored-nation (âMFNâ) protections with larger third-party vendors to ensure that vendors don’t lower Amazon’s prices when selling on other platforms. Most courts have not found MFN to be inherently anti-competitive, and in fact, MFN often serves pro-competitive purposes. However, some courts have allowed plaintiffs to use MFNs as evidence of collusion, on the grounds that such agreements can sometimes facilitate pricing or discourage sellers from competing with lower prices. The antitrust implications of MFN protections are somewhat contrary to claims under predatory pricing laws. MFNs limit the downward pressure on prices since suppliers are unable to offer products at lower prices than competing retailers. Predatory pricing laws, on the other hand, restrict price increases, creating a price cap for sellers. The Complainants’ claims are somewhat new in that they allege unfair price increases but point to MFN protections, which create price floors. In states with broad unfair pricing laws, like Washington, MFN provisions will be subject to further scrutiny, as enforcement goes beyond prices charged to consumers and supply chains.
Finally, Amazon offers automated pricing to third-party sellers, where prices are set algorithmically based on rules communicated to sellers. In general, prices under this model are based on competitive benchmarks. The complaint alleges that if any of these competitive benchmarks were to increase due to the price hike, Amazon’s pricing algorithm would automatically increase prices on its platform accordingly.
The complaint illustrates how automated pricing algorithms could lead to inappropriate price increases in violation of state predatory pricing laws. The algorithms use a variety of inputs to determine price trends and allow sellers to set prices based on many market factors. In some scenarios, the input behind the price increases complained of by complainants could be beyond Amazon’s control, such as a price change at a small local retailer. The changed entry could inflate the price of a third-party product, without the seller or Amazon actively setting the price. According to the theory of the plaintiffs, however, Amazon should be held responsible for these increases. As we discussed in a previous article, plaintiffs cannot invoke a clear legal price limit in Washington. Instead, WCPA simply bans unfair trading practices, forcing complainants to argue that WCPA does include a 15% cap on emergency price increases. While the plaintiffs have only brought action against Amazon at this point, the third-party seller who, although, through an algorithm, responded to the price increase in the market by raising the price of their own product, could also be exposed to a risk of litigation.
The complaint raises significant concerns for third-party sellers who use Amazon or other marketplace websites to sell products. If a seller is bound by pricing policies like those used by Amazon, the seller could risk similar liability under predatory pricing or other laws. While some state laws allow price increases in the face of increasing costs, sellers must justify the increased costs. Simply stating a pricing algorithm similar to Amazon’s may not be enough to relieve these sellers of any liability. When engaging in sales on platforms like Amazon, sellers should carefully consider the types of protection offered by the algorithm or pricing policy to ensure compliance with predatory pricing laws and other pricing controls. .
Although still in its early stages, this lawsuit raises new concerns for those who run markets, who could be held liable when selling products on their platform, and for third-party sellers, who potentially risk litigation. ” relying on automated pricing strategies or pricing agreements. Diligent companies will continue to closely monitor these developments to understand their individual exposure under increased enforcement and fluctuating price laws, many of which remain in effect.