This is Bloomberg Law with June Brusso from Bloomberg Radio. Please hold for a representative. Hi there, this is Matthias with Spectrum Cable. Is this Brad Herman? Yeah? Hi? Hi? And what can I help you with today? Mister Herman? I just need to cancel my cable. I'm so sorry to hear that before we begin. Would you like to add a telephone landline to your current package for twelve ninety nine a month? No, I'm good. I just need to cancel the cable. I tried to do it online,
but they said I had to call. Of course, mister Herman.
We've all been through it, the time consuming hassles of trying to cancel a membership, whether it's cable as in this SNL skit, or a subscription to a newspaper, a magazine,
a streaming service. The list goes on and on. Well, the Federal Raid Commission says Amazon not only duped consumers into signing up for its Prime membership service, but also deliberately made it hard to cancel Prime, with consumers having to click through five pages on the desktop web store or six on the mobile app in order to cancel Prime, and the FTC has filed a lawsuit against the e commerce giant in Washington State federal court using a twenty
ten consumer protection law designed to protect online shoppers. Joining me is antitrust law expert Harry First, a professor at NYU Law School, tell us about what the FTC claims Amazon is doing wrong.
The easiest thing is just to read from the very beginning of the complaint that Amazon filed in federal court in Washington State of Washington, and it's basically an argument that they've been engaged in this deceptive practice to sign people up really without their knowing exactly what they're getting into when they sign up for Prime, and then making it really hard for them to get out of it.
So they start out and this is a little colorful language, knowingly duped millions of consumers for years into unknowingly enrolling in Prime and using manipulative, coercive, or deceptive interface design. So they purposefully designed their platform, and this kind of design has come to be known as dark patterns. It's a nice label to put on things, maybe not so nice, but certainly is descriptive dark patterns that trick consumers into
enrolling and automatically renewing subscriptions. So the idea is they've basically designed the website in a way that it's not so clear to many people what they've signed up for, what their choices are, and then it's really hard to get out of it. And they even referred to and a lot of times companies put names on things that later turn out to bite them that they wish they had named them something like one or two, but instead they named it the Iliad Flow, a reference to Homer's
epic poem about the Trojan Wars. And really, in the Trojan Wars, the gods were constantly manipulating the humans, So why would you name your process for getting out of these subscriptions the Iliad Flow? So maybe not the best move, but maybe an insight into how Amazon was seeing what it was trying to do. And as we all know, Amazon Prime is hugely profitable for Amazon. They've taken a
lot of revenue. I shouldn't say profitable because their arguments about this, but it does generate a lot of revenue and of course a lot of sales on the Amazon platform.
So Harry, let me ask you this because there are so many times when I've tried to cancel a subscription to something, and you have to go through sometimes several different people before you can cancel. There are a lot of subscriptions where you can't cancel online. You have to call them up. So why is this any different?
Well, I mean, one answer is maybe it's not that different, but that doesn't make it awful. The second answer maybe is from the FTC's point of view, this particular practice by Amazon does have a high economic impact. The third maybe is that the Commission is now engaged in a rulemaking proceeding to try to deal with this general problem and to make it as easy to get out of something as it was to get into something, to require
online marketplaces to do this. But this is an ongoing process that they yet to adopt the rule, and you know this will take time before assuming they adopt some sort of a rule, before it ever takes effect, and of course, as you might imagine, the industry will fight it. So I guess an answer to your question, we've all experienced this kind of effect of being very difficult to get off things once you've gotten on them, and it's become a serious problem with online commerce.
Now, this lawsuit is under a twenty ten consumer Protection law.
Is all of it.
Under that law.
Well, it's sort of an interesting way the Commission reaches this. So the Commission has charged violation of two statutes. One is the Federal Trade Commission Act, which was originally passed in nineteen fourteen, and that prohibits unfair or deceptive acts or practices in commerce, so you know, deceiving consumers basically. In addition, there is this bill goes by the acronym of Roska God help us with these acronyms, that was passed in twenty ten, the Restore Online Shoppers Confidence Act,
which basically outlawed the negative option. You know, where you buy things but the only way you can unbuy them is by saying no. So you're constantly buying more unless you say no. So there's an effort to undo that. So the charges are technically filed under both statutes, and you actually legally need both because it's the combination of the two statutes that will give the FTC the power
to ask for civil penalties for these violations. So they need both of them together, and that's what they've charged.
Amazon said the fgc's claims are false on the facts and the law. The truth is that customers love Prime, and by design, we make it clear and simple for customers to both sign up for or cancel their Primest membership. Pretty standard reply.
I guess my reaction as well. That's what they say. And you know, a lot of the specifics in the complaint, in fact, a huge amount have been redacted blacked out. See if one wanted to read this eighty seven page complaint from beginning to end, you really can't get a full sense of what they've done and how purposeful their behavior has been. So you know, that's yet to be seen. The FTC, I think, wants to unredact the complaint. They have to deal with Amazon whether they've got any privileged
documents that they're referring to. But you know, we'll see in court. I mean, you can say people love Prime, people love lots of things. That doesn't mean that everything they do with regard to Prime is fine.
The agency previously used this law against Movie Pass into its credit Karma and Ericsson's Internet phone service vantage over subscription auto renewal and cancelation practices. Vontage paid one hundred million to settle the suit, Credit Karma three million to reimburse consumers but in this case with Amazon, according to Bloomberg sources, Amazon was trying to reach a settlement with the FTC but was rebuffed. Why do you think the FTC wouldn't want to reach a settlement here?
Well, this is always hard to say. It may be that the settlement offer the Commission thought was too low. The law gives them the right to impose the civil penalty of ten thousand dollars per violation, and a violation is deemed to occur every day during which this behavior occurs, So I don't know what numbers they're looking for. So a standard explanation is Amazon's offer was too low.
You know.
Another explanation maybe is that the Commission is less willing to settle things than previous commissions have been. So I don't know how much that plays into it as well. So you know, all that's yet to be seen, and it doesn't mean the case won't settle in any event, just because the Commission has filed its complaint. You know, there may still be a settlement, and the Commission may view it important to have a precedence set in court as to what's proper behavior, so that also goes into it.
There is value to litigating, because that's the only way you really create legal precedent. So there is a cost to a government enforcer when it settles, even if it looks like the deal's good.
Amazon changed its process for canceling Prime subscriptions in the EU last summer after pressure from the European Commission and national consumer watchdogs, and they introduced a simplified two click process so it can be done. Why do you think they held out in the US?
As I read this, I think they may have put some changes in in the US, but that doesn't cure past behavior, so I'm not certain. And since my Amazon Prime seems to just renew all by itself, Oh my gosh, I don't know, you know exactly what they've put into effect in the United States, whatever it is, if it's been done recently, Again, that doesn't cure pass violations. And again it may be the Commission really feels it's time to,
you know, to have litigation that makes law. I'm not sure if that's what's going on here, but that could explain Europeans often are much more settlement prone than USA any trust and forces.
This is the third suit the FTC has filed against Amazon in the past month, the company agreed to pay thirty point eight million to settle allegations it failed to delete data about kids collected by its Alexa and to settle allegations it's ring doorbells and cameras illegally spied on users. So is the FTC sort of targeting Amazon?
Well, Amazon is a major company. Hard to know. Amazon certainly will want to argue that it is a target in the sense of being picked out unfairly. The other side might be Amazon is what is it third by market cap in the United States? Fourth, It's a huge company in many many businesses. It's very important in many ways to the US economy. You could argue it's particularly appropriate for the Commission to be concerned about what it does. Should it take up its time looking at, you know,
mattress sellers. I mean, what should it be doing with the money that it has in its budget? So there are two ways to cut that, Oh my god, we're the target or oh thank god the Commission is engaged in cost effective enforcement.
And how would you describe Lena Khan's tenure at the FTC.
I vacillate between I shouldn't feel this way because she's an adult, you know, sort of feeling bad that she was put into a very difficult position. She's clearly been a lightning rod for conservative critics Wall Street Journal. You know, it's it's not a day if they don't go after her. And you know, some of it may be sort of bad moves politically, I don't know. Some of it may be just a very big agency that she's you know,
trying to manage. You know, she's appointed three years out of law school, I mean, pointed chair, thank you very much, President Biden. So it's a big job she's got. But she has very strongly held and important views about competition law and enforcement policy, and she has not hesitated to write about them. She has important scholarship in the area. So in some ways her being a lightning rod has I'm sure not made her life the easiest. But she also is a bit fearless. We'll wait for the motion
to disqualify her, but that will fail. And what we're waiting for actually is the anti trust I was going to say shoe to fall, but it's I don't know, it's bigger than a shoe. The Commission is reportedly investigating, you know, a major anti trust suit against Amazon. And you know, money is one thing, but an any trust suit that strikes it the way Amazon does business is
really quite a different challenge to Amazon. And whether they ever bring that case or what that case looks like, we have yet to see, but that's the one, you know, I think we should be on the lookout for. These are important. These consumer protection cases are important, but they don't in the end, really strike at Amazon's business model and whether it can continue to be both a platform and a seller and constant buyer of businesses, you know, how it can operate.
They would attempt to disqualify her from working on the case or what would they discall?
No, that's the thing. See, the Commission has brought this as a complaint in federal district court. There was a motion to disqualify her in a prior case involving Meta's acquisition of the virtual reality company Within, and the district court judge said, well, she's acting as a prosecutor in that case, not as a judge, whatever her views were originally. Prosecutors aren't disqualified from being prosecutors because they held views before. So that's the position that she's in in this case.
The Commission voted three commissioners to zero to bring the case. So I don't know whether Amazon will even bother to file. But you know, they had originally moved to disqualify from everything, and that was emotion that got nowhere because it was not in connection with any particular decision that the commission had made. But you know, whether they'll choose that route in this case, we'll see. It doesn't seem to me to be illegally promising one, but as they say, hey, you never know it.
Zohy's a pleasure to have you on the show. Harry. That's Professor Harry First of NYU Law School. About one hundred and sixty seven million Amazon shoppers had Prime memberships as of March, according to market research firm Consumer Intelligence Research Partners, and in the US, prime members spend about twice as much on Amazon as non Prime members. Amazon's revenue from subscription services, which is mostly from Prime memberships, was nine point sixty six billion dollars in the quarter
that ended March thirty First. That's about seven point six percent of its overall revenue for the period. And that's it for this edition of The Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Law Podcast. You can find them on Apple Pop, Spotify, and at www dot bloomberg dot com, slash podcast slash Law, and remember to tune into The Bloomberg Law Show every weeknight at ten pm Wall Street Time. I'm Jim Grosso and you're listening to Bloomberg