In a significant legal battle, a federal trial is set to commence this week in Seattle, the hometown of Amazon. The trial will scrutinize the allegations that the e-commerce giant misled customers into signing up for its Prime service and created obstacles for those wishing to cancel their subscriptions. The Federal Trade Commission (FTC) initiated a lawsuit against Amazon in the U.S. District Court in Seattle two years ago, claiming the company has violated numerous laws over the past decade, including the Restore Online Shoppers’ Confidence Act, a 2010 regulation aimed at ensuring transparency in online charges.
Amazon Prime offers subscribers a range of benefits, including expedited shipping, video streaming, and discounts at Whole Foods, all for an annual fee of $139 or a monthly rate of $14.99. This service has become a vital component of Amazon's operations, boasting over 200 million members. According to Amazon's latest quarterly report released in July, the company reported more than $12 billion in net revenue from subscription services, reflecting a 12% increase compared to the previous year. This revenue includes both annual and monthly fees from Prime memberships, as well as other subscription offerings like music and e-books.
In response to the lawsuit, Amazon asserts that it provides clear explanations of Prime's terms before charging customers. The company claims to have straightforward methods for canceling memberships, available through phone, online, and chat options. Amazon stated in a trial brief, “Occasional customer frustrations and mistakes are inevitable — especially for a program as popular as Amazon Prime.” The company argues that evidence of a few customers misunderstanding the enrollment or cancellation processes does not amount to a legal violation.
Conversely, the FTC contends that Amazon has intentionally complicated the purchasing process, making it difficult for customers to buy items without also enrolling in Prime. In certain instances, consumers encountered a transaction button that did not clearly indicate it would also enroll them in Prime. The FTC's trial brief noted, “Amazon has long known that millions of its customers struggled with enrollment and cancellation of its subscription service, Prime,” highlighting that many consumers inadvertently enrolled without their knowledge or consent. The agency alleges that Amazon ignored this issue, describing it as an “unspoken cancer” within the company.
The complaint details that the cancellation process for Prime is overly complicated, requiring customers to affirm their desire to cancel through three separate pages. Internally, Amazon referred to this confusing process as “Iliad,” a nod to the lengthy siege of Troy depicted in the ancient Greek epic. U.S. District Judge John Chun, appointed by former President Joe Biden, recently ruled that the Restore Online Customers’ Confidence Act applies to Prime, limiting some of Amazon's defenses at trial.
Judge Chun has restricted Amazon's legal defenses and agreed with the FTC's claims regarding violations related to billing information and the clarity of Prime's terms. However, critical issues remain for the jury, including whether Amazon's disclosures about Prime membership are "clear and conspicuous" and if the cancellation method adheres to legal simplicity requirements. Additionally, two Amazon executives, Neil Lindsay and Jamil Ghani, are named as individual defendants and may face personal liability depending on the jury's decision.
Amazon has maintained its innocence, stating on Monday, “The bottom line is that neither Amazon nor the individual defendants did anything wrong — we remain confident that the facts will show these executives acted properly and we always put customers first.” The FTC, which declined to provide comments during the trial, began its investigation into Amazon’s Prime practices in 2021 during the Trump administration but filed the lawsuit under the leadership of former FTC Chair Lina Khan, known for her antitrust expertise.
In conjunction with the ongoing legal challenges, Amazon has faced criticism for withholding approximately 70,000 documents from the FTC, including those improperly marked as containing internal legal advice. Judge Chun characterized this conduct as “tantamount to bad faith.” As the trial unfolds, Amazon is also working to mend relations with political figures, including former President Donald Trump, who has publicly criticized the company in the past.
