Much Ado About Nothing: FTC v. Amazon on Motion to Dismiss

In a recent decision in the U.S. District Court for the Western District of Washington, District Judge John H. Chun issued a split decision on Amazon's motion to dismiss the antitrust lawsuit brought by the Federal Trade Commission (FTC) and a number of state plaintiffs alleging that the company engaged in various anticompetitive and anti-consumer practices. In a mimetic ruling that largely regurgitated, rather than critically engaged with, the allegations detailed in the FTC's complaint, Judge Chun allowed the FTC's case to proceed despite dismissing several claims brought by the states. Although the FTC's lawsuit survives for now, Judge Chun's opinion presents little reason for optimism about the overall merits of its antitrust action against Amazon.

First, Judge Chun did not discuss what may end up being the most important and difficult issue for the FTC to prevail on: whether Amazon has monopoly power in the so-defined "online superstore" and "online marketplace services" markets. In fact, not only are the FTC's factual allegations on this point nearly as long as Judge Chun's entire opinion, but courts often dismiss antitrust cases on market definition grounds. As such, and setting aside the question of whether omitting this analysis was proper, the significance of Judge Chun's decision is considerably diminished relative to an opinion that found Amazon plausibly enjoys monopoly power in the markets the FTC has defined. Indeed, as ITIF has previously explained, such a finding is unlikely to hold water in the final analysis.

Next, quoting directly from its complaint, Judge Chun rubberstamped the FTC's claim that Amazon's so-called "anti-discounting practices" serve "to limit price competition and comparison shopping for the hundreds of billions of dollars in goods sold annually in the relevant markets." But now, instead of forbearing to analyze a key issue, Judge Chun's opinion reflects much ado about nothing. That is, in the private class action against Amazon, which is also proceeding in the District of Washington, a court already upheld this claim on a motion to dismiss. What’s more, that court added an important caveat that does not reappear in Judge Chun's opinion and suggests that the FTC's theory is a loser: "No court has ever found a policy like these to violate the Sherman Act."

Moreover, Judge Chun's opinion highlights the FTC's allegations concerning Amazon's "featuring" practices, specifically how Amazon chooses to feature one offer in its Buy Box where a product has multiple sellers. Here again, the opinion principally recites the FTC's allegations, this time that "Amazon hides the best deals from customers when a seller offers the 'best deal' for a product on Amazon but offers the same product for a lower price on another website." Of course, this theory too already survived a motion to dismiss in the private class action lawsuit. In fact, by separating this "featuring" conduct from the FTC's other allegations surrounding anti-discounting, Judge Chun implicitly confirmed that the FTC should have to overcome a higher legal bar to succeed on this claim. Specifically, under Ninth Circuit precedent like Allied Orthopedic v. Tyco, product design decisions are lawful if they admit of a procompetitive justification—regardless of whether it outweighs any anticompetitive harms—which Amazon almost certainly will be able to prove up for its Buy Box practices.

In addition, and rather remarkably, Judge Chun's opinion sanctioned the FTC's convoluted accusation concerning Amazon's alleged tying of Prime with its delivery service Fulfillment by Amazon (FBA), which the FTC claims leads to sellers "splitting inventory among multiple fulfillment networks" in a way that "raises the costs for sellers to offer products for sale through multiple sales channels." But here, instead of rigorously applying the legal standard in Bell Atlantic v. Twombly, Judge Chun merely concluded "[p]laintiffs plausibly alleged that the challenged conduct is anticompetitive." And yet, even under the (false) assumption that a modified per se rule for tying applies to this conduct, more analysis should have been forthcoming to plausibly show that any benefits to FBA led to anticompetitive effects in the superstore and marketplace markets the FTC is claiming Amazon monopolized.

What's more, in considering the FTC's standalone "unfair methods of competition" (UMC) claim involving Project Nessie, through which Amazon allegedly facilitated tacit coordination with rivals—not, to be sure, the sort of behavior one typically expects from a firm with monopoly power—Judge Chun appears to have simply misapplied the relevant law. Although his opinion rightly identifies the Ethyl case as supplying the legal standard for determining when such behavior is unlawful, Judge Chun only finds that the FTC's allegations "suffice to allege anticompetitive intent and purpose," which is a necessary but not sufficient condition for finding such behavior illegal. That is, under Ethyl, anticompetitive facilitating practices must also be objectively unfair or unreasonable, which Judge Chun's opinion does not appear to expressly find to be plausibly alleged by the FTC.

Finally, the import of Judge Chun's decision is mitigated by the fact that his decision did not assess the plausibility of Amazon's procompetitive justifications for its allegedly anticompetitive behavior. This reflects, without question, another omission concerning what will undoubtedly prove to be a critical issue in the case. Put simply, it is one thing to claim that the FTC has managed to come up with plausible theories of anticompetitive harm. But it is another thing entirely to suggest that those harms will ultimately be both proven and of sufficient degree to outweigh the strong procompetitive justifications Amazon will likely be able to provide for its practices, such as providing the lowest prices and best service for consumers using its platform.

At bottom, while the FTC's case against Amazon has managed to survive a motion to dismiss, Judge Chun's epigonic opinion provides the agency no real cause for celebration. The crucial issues surrounding whether Amazon has monopoly power or procompetitive justifications for its practices were simply not discussed. Further, the Western District of Washington already concluded that Amazon's alleged "anti-discounting" and "featuring" practices could survive a motion to dismiss even if they have never been found to violate the Sherman Act. Viewed in conjunction with the problems plaguing the FTC's tying and standalone UMC claims, Judge Chun's motion to dismiss opinion may ultimately prove to be one of the few consolations for the FTC in a lawsuit it appears destined to lose.