The U.S. Federal Trade Commission (FTC) has accused Amazon.com of enrolling millions of consumers into its paid subscription service, Amazon Prime, without their consent and making it difficult for them to cancel.
The FTC filed a lawsuit against Amazon, alleging that the company intentionally deceived customers into unknowingly signing up for Amazon Prime. Amazon has been accused of using manipulative and deceptive user-interface designs, also known as “dark patterns,” to trick consumers into automatically renewing their Prime subscriptions.
The FTC seeks civil penalties and a permanent injunction to prevent further violations. This lawsuit is part of the Biden administration’s efforts to address the market power of Big Tech companies and promote competition to protect consumers.
Amazon Prime is the largest subscription program globally, generating $25 billion in annual revenue. It offers fast shipping, discounts, and access to various forms of entertainment.
Amazon responded to the allegations, stating that customers willingly sign up for and cancel their Prime memberships and expressed concern that the FTC filed the lawsuit without prior notice.
The lawsuit coincided with Amazon’s announcement of the dates for its major sales event, Prime Day, which will take place in July.
According to the lawsuit, the Federal Trade Commission (FTC) claims that despite facing substantial pressure from the FTC, Amazon made changes to its cancellation process in April but continues to violate consumer rights.
The lawsuit alleges that Amazon still requires customers to go through a cumbersome process of five clicks on desktop and six on mobile to cancel their Amazon Prime subscription.
Following the news of the lawsuit, Amazon’s shares experienced a modest 0.2% increase in afternoon trading.
The FTC has been investigating Amazon’s sign-up and cancellation procedures for its Prime program since March 2021.
The complaint filed by the FTC states that consumers who attempted to cancel their Prime membership were faced with a convoluted series of steps, making the cancellation process unnecessarily complex.
The complaint further reveals that Amazon internally referred to this process as “Iliad Flow,” drawing inspiration from Homer’s epic poem about the lengthy Trojan war.
Amazon Faces FTC Lawsuit
The FTC accuses Amazon of intentionally obstructing its investigation by providing uncooperative and evasive responses to requests for documents, alleging “intentional misconduct” on the part of Amazon.
Evelyn Mitchell-Wolf, a senior analyst at Insider Intelligence, commented that the FTC’s actions against Amazon serve as an example, but it is not uncommon for companies to make it more challenging to cancel an account compared to creating one.
Mitchell-Wolf also noted that Amazon’s substantial market power could work against the company, as the FTC can easily demonstrate harm to consumers if Amazon impedes their ability to cancel their Prime membership.
Prior to this lawsuit, on May 31, the FTC announced a $5.8 million settlement with Amazon’s Ring doorbell camera unit over allegations of spying on customers.
On the same day, the FTC revealed a $25 million settlement with Amazon regarding allegations that the company violated children’s privacy rights by retaining recordings made by its Alexa virtual assistant for longer than necessary.
Tom Forte, a managing director at D.A. Davidson Companies, stated that the new lawsuit is part of a larger global effort by governments to regulate the significant influence of big tech companies, including Amazon, Apple, and Meta.
Forte highlighted that while the focus is currently on Amazon, other retailers and subscription services also employ tactics to make it challenging for users to terminate their memberships.
Overall, the FTC’s legal action against Amazon underscores the ongoing regulatory challenges faced by major tech companies.
The outcome of this lawsuit will have significant implications not only for Amazon but also for the broader landscape of e-commerce and the practices employed by subscription-based services.
It will serve as a notable precedent in the ongoing efforts to strike a balance between fostering innovation and ensuring fair competition within the digital marketplace.
