Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 1: Please hold for a representative. Hi there, this is Matthias
Speaker 1: with Spectrum Cable. Is this Brad Herman? Yeah? Hi? Hi?
Speaker 1: And what can I help you with today? Mister Herman?
Speaker 1: I just need to cancel my cable. I'm so sorry
Speaker 1: to hear that before we begin. Would you like to
Speaker 1: add a telephone landline to your current package for twelve
Speaker 1: ninety nine a month? No, I'm good. I just need
Speaker 1: to cancel the cable. I tried to do it online,
Speaker 1: but they said I had to call. Of course, mister Herman.
Speaker 2: We've all been through it, the time consuming hassles of
Speaker 2: trying to cancel a membership, whether it's cable as in
Speaker 2: this SNL skit, or a subscription to a newspaper, a magazine,
Speaker 2: a streaming service. The list goes on and on. Well,
Speaker 2: the Federal Raid Commission says Amazon not only duped consumers
Speaker 2: into signing up for its Prime membership service, but also
Speaker 2: deliberately made it hard to cancel Prime, with consumers having
Speaker 2: to click through five pages on the desktop web store
Speaker 2: or six on the mobile app in order to cancel Prime,
Speaker 2: and the FTC has filed a lawsuit against the e
Speaker 2: commerce giant in Washington State federal court using a twenty
Speaker 2: ten consumer protection law designed to protect online shoppers. Joining
Speaker 2: me is antitrust law expert Harry First, a professor at
Speaker 2: NYU Law School, tell us about what the FTC claims
Speaker 2: Amazon is doing wrong.
Speaker 3: The easiest thing is just to read from the very
Speaker 3: beginning of the complaint that Amazon filed in federal court
Speaker 3: in Washington State of Washington, and it's basically an argument
Speaker 3: that they've been engaged in this deceptive practice to sign
Speaker 3: people up really without their knowing exactly what they're getting
Speaker 3: into when they sign up for Prime, and then making
Speaker 3: it really hard for them to get out of it.
Speaker 3: So they start out and this is a little colorful language,
Speaker 3: knowingly duped millions of consumers for years into unknowingly enrolling
Speaker 3: in Prime and using manipulative, coercive, or deceptive interface design.
Speaker 3: So they purposefully designed their platform, and this kind of
Speaker 3: design has come to be known as dark patterns. It's
Speaker 3: a nice label to put on things, maybe not so nice,
Speaker 3: but certainly is descriptive dark patterns that trick consumers into
Speaker 3: enrolling and automatically renewing subscriptions. So the idea is they've
Speaker 3: basically designed the website in a way that it's not
Speaker 3: so clear to many people what they've signed up for,
Speaker 3: what their choices are, and then it's really hard to
Speaker 3: get out of it. And they even referred to and
Speaker 3: a lot of times companies put names on things that
Speaker 3: later turn out to bite them that they wish they
Speaker 3: had named them something like one or two, but instead
Speaker 3: they named it the Iliad Flow, a reference to Homer's
Speaker 3: epic poem about the Trojan Wars. And really, in the
Speaker 3: Trojan Wars, the gods were constantly manipulating the humans, So
Speaker 3: why would you name your process for getting out of
Speaker 3: these subscriptions the Iliad Flow? So maybe not the best move,
Speaker 3: but maybe an insight into how Amazon was seeing what
Speaker 3: it was trying to do. And as we all know,
Speaker 3: Amazon Prime is hugely profitable for Amazon. They've taken a
Speaker 3: lot of revenue. I shouldn't say profitable because their arguments
Speaker 3: about this, but it does generate a lot of revenue
Speaker 3: and of course a lot of sales on the Amazon platform.
Speaker 2: So Harry, let me ask you this because there are
Speaker 2: so many times when I've tried to cancel a subscription
Speaker 2: to something, and you have to go through sometimes several
Speaker 2: different people before you can cancel. There are a lot
Speaker 2: of subscriptions where you can't cancel online. You have to
Speaker 2: call them up. So why is this any different?
Speaker 3: Well, I mean, one answer is maybe it's not that different,
Speaker 3: but that doesn't make it awful. The second answer maybe
Speaker 3: is from the FTC's point of view, this particular practice
Speaker 3: by Amazon does have a high economic impact. The third
Speaker 3: maybe is that the Commission is now engaged in a
Speaker 3: rulemaking proceeding to try to deal with this general problem
Speaker 3: and to make it as easy to get out of
Speaker 3: something as it was to get into something, to require
Speaker 3: online marketplaces to do this. But this is an ongoing
Speaker 3: process that they yet to adopt the rule, and you
Speaker 3: know this will take time before assuming they adopt some
Speaker 3: sort of a rule, before it ever takes effect, and
Speaker 3: of course, as you might imagine, the industry will fight it.
Speaker 3: So I guess an answer to your question, we've all
Speaker 3: experienced this kind of effect of being very difficult to
Speaker 3: get off things once you've gotten on them, and it's
Speaker 3: become a serious problem with online commerce.
Speaker 2: Now, this lawsuit is under a twenty ten consumer Protection law.
Speaker 1: Is all of it.
Speaker 2: Under that law.
Speaker 3: Well, it's sort of an interesting way the Commission reaches this.
Speaker 3: So the Commission has charged violation of two statutes. One
Speaker 3: is the Federal Trade Commission Act, which was originally passed
Speaker 3: in nineteen fourteen, and that prohibits unfair or deceptive acts
Speaker 3: or practices in commerce, so you know, deceiving consumers basically.
Speaker 3: In addition, there is this bill goes by the acronym
Speaker 3: of Roska God help us with these acronyms, that was
Speaker 3: passed in twenty ten, the Restore Online Shoppers Confidence Act,
Speaker 3: which basically outlawed the negative option. You know, where you
Speaker 3: buy things but the only way you can unbuy them
Speaker 3: is by saying no. So you're constantly buying more unless
Speaker 3: you say no. So there's an effort to undo that.
Speaker 3: So the charges are technically filed under both statutes, and
Speaker 3: you actually legally need both because it's the combination of
Speaker 3: the two statutes that will give the FTC the power
Speaker 3: to ask for civil penalties for these violations. So they
Speaker 3: need both of them together, and that's what they've charged.
Speaker 2: Amazon said the fgc's claims are false on the facts
Speaker 2: and the law. The truth is that customers love Prime,
Speaker 2: and by design, we make it clear and simple for
Speaker 2: customers to both sign up for or cancel their Primest membership.
Speaker 2: Pretty standard reply.
Speaker 3: I guess my reaction as well. That's what they say.
Speaker 3: And you know, a lot of the specifics in the complaint,
Speaker 3: in fact, a huge amount have been redacted blacked out.
Speaker 3: See if one wanted to read this eighty seven page
Speaker 3: complaint from beginning to end, you really can't get a
Speaker 3: full sense of what they've done and how purposeful their
Speaker 3: behavior has been. So you know, that's yet to be seen.
Speaker 3: The FTC, I think, wants to unredact the complaint. They
Speaker 3: have to deal with Amazon whether they've got any privileged
Speaker 3: documents that they're referring to. But you know, we'll see
Speaker 3: in court. I mean, you can say people love Prime,
Speaker 3: people love lots of things. That doesn't mean that everything
Speaker 3: they do with regard to Prime is fine.
Speaker 2: The agency previously used this law against Movie Pass into
Speaker 2: its credit Karma and Ericsson's Internet phone service vantage over
Speaker 2: subscription auto renewal and cancelation practices. Vontage paid one hundred
Speaker 2: million to settle the suit, Credit Karma three million to
Speaker 2: reimburse consumers but in this case with Amazon, according to
Speaker 2: Bloomberg sources, Amazon was trying to reach a settlement with
Speaker 2: the FTC but was rebuffed. Why do you think the
Speaker 2: FTC wouldn't want to reach a settlement here?
Speaker 3: Well, this is always hard to say. It may be
Speaker 3: that the settlement offer the Commission thought was too low.
Speaker 3: The law gives them the right to impose the civil
Speaker 3: penalty of ten thousand dollars per violation, and a violation
Speaker 3: is deemed to occur every day during which this behavior occurs,
Speaker 3: So I don't know what numbers they're looking for. So
Speaker 3: a standard explanation is Amazon's offer was too low.
Speaker 2: You know.
Speaker 3: Another explanation maybe is that the Commission is less willing
Speaker 3: to settle things than previous commissions have been. So I
Speaker 3: don't know how much that plays into it as well.
Speaker 3: So you know, all that's yet to be seen, and
Speaker 3: it doesn't mean the case won't settle in any event,
Speaker 3: just because the Commission has filed its complaint. You know,
Speaker 3: there may still be a settlement, and the Commission may
Speaker 3: view it important to have a precedence set in court
Speaker 3: as to what's proper behavior, so that also goes into it.
Speaker 3: There is value to litigating, because that's the only way
Speaker 3: you really create legal precedent. So there is a cost
Speaker 3: to a government enforcer when it settles, even if it
Speaker 3: looks like the deal's good.
Speaker 2: Amazon changed its process for canceling Prime subscriptions in the
Speaker 2: EU last summer after pressure from the European Commission and
Speaker 2: national consumer watchdogs, and they introduced a simplified two click
Speaker 2: process so it can be done. Why do you think
Speaker 2: they held out in the US?
Speaker 3: As I read this, I think they may have put
Speaker 3: some changes in in the US, but that doesn't cure
Speaker 3: past behavior, so I'm not certain. And since my Amazon
Speaker 3: Prime seems to just renew all by itself, Oh my gosh,
Speaker 3: I don't know, you know exactly what they've put into
Speaker 3: effect in the United States, whatever it is, if it's
Speaker 3: been done recently, Again, that doesn't cure pass violations. And
Speaker 3: again it may be the Commission really feels it's time to,
Speaker 3: you know, to have litigation that makes law. I'm not
Speaker 3: sure if that's what's going on here, but that could
Speaker 3: explain Europeans often are much more settlement prone than USA
Speaker 3: any trust and forces.
Speaker 2: This is the third suit the FTC has filed against
Speaker 2: Amazon in the past month, the company agreed to pay
Speaker 2: thirty point eight million to settle allegations it failed to
Speaker 2: delete data about kids collected by its Alexa and to
Speaker 2: settle allegations it's ring doorbells and cameras illegally spied on users.
Speaker 2: So is the FTC sort of targeting Amazon?
Speaker 3: Well, Amazon is a major company. Hard to know. Amazon
Speaker 3: certainly will want to argue that it is a target
Speaker 3: in the sense of being picked out unfairly. The other
Speaker 3: side might be Amazon is what is it third by
Speaker 3: market cap in the United States? Fourth, It's a huge
Speaker 3: company in many many businesses. It's very important in many
Speaker 3: ways to the US economy. You could argue it's particularly
Speaker 3: appropriate for the Commission to be concerned about what it does.
Speaker 3: Should it take up its time looking at, you know,
Speaker 3: mattress sellers. I mean, what should it be doing with
Speaker 3: the money that it has in its budget? So there
Speaker 3: are two ways to cut that, Oh my god, we're
Speaker 3: the target or oh thank god the Commission is engaged
Speaker 3: in cost effective enforcement.
Speaker 2: And how would you describe Lena Khan's tenure at the FTC.
Speaker 3: I vacillate between I shouldn't feel this way because she's
Speaker 3: an adult, you know, sort of feeling bad that she
Speaker 3: was put into a very difficult position. She's clearly been
Speaker 3: a lightning rod for conservative critics Wall Street Journal. You know,
Speaker 3: it's it's not a day if they don't go after her.
Speaker 3: And you know, some of it may be sort of
Speaker 3: bad moves politically, I don't know. Some of it may
Speaker 3: be just a very big agency that she's you know,
Speaker 3: trying to manage. You know, she's appointed three years out
Speaker 3: of law school, I mean, pointed chair, thank you very much,
Speaker 3: President Biden. So it's a big job she's got. But
Speaker 3: she has very strongly held and important views about competition
Speaker 3: law and enforcement policy, and she has not hesitated to
Speaker 3: write about them. She has important scholarship in the area.
Speaker 3: So in some ways her being a lightning rod has
Speaker 3: I'm sure not made her life the easiest. But she
Speaker 3: also is a bit fearless. We'll wait for the motion
Speaker 3: to disqualify her, but that will fail. And what we're
Speaker 3: waiting for actually is the anti trust I was going
Speaker 3: to say shoe to fall, but it's I don't know,
Speaker 3: it's bigger than a shoe. The Commission is reportedly investigating,
Speaker 3: you know, a major anti trust suit against Amazon. And
Speaker 3: you know, money is one thing, but an any trust
Speaker 3: suit that strikes it the way Amazon does business is
Speaker 3: really quite a different challenge to Amazon. And whether they
Speaker 3: ever bring that case or what that case looks like,
Speaker 3: we have yet to see, but that's the one, you know,
Speaker 3: I think we should be on the lookout for. These
Speaker 3: are important. These consumer protection cases are important, but they
Speaker 3: don't in the end, really strike at Amazon's business model
Speaker 3: and whether it can continue to be both a platform
Speaker 3: and a seller and constant buyer of businesses, you know,
Speaker 3: how it can operate.
Speaker 2: They would attempt to disqualify her from working on the
Speaker 2: case or what would they discall?
Speaker 3: No, that's the thing. See, the Commission has brought this
Speaker 3: as a complaint in federal district court. There was a
Speaker 3: motion to disqualify her in a prior case involving Meta's
Speaker 3: acquisition of the virtual reality company Within, and the district
Speaker 3: court judge said, well, she's acting as a prosecutor in
Speaker 3: that case, not as a judge, whatever her views were originally.
Speaker 3: Prosecutors aren't disqualified from being prosecutors because they held views before.
Speaker 3: So that's the position that she's in in this case.
Speaker 3: The Commission voted three commissioners to zero to bring the case.
Speaker 3: So I don't know whether Amazon will even bother to file.
Speaker 3: But you know, they had originally moved to disqualify from everything,
Speaker 3: and that was emotion that got nowhere because it was
Speaker 3: not in connection with any particular decision that the commission
Speaker 3: had made. But you know, whether they'll choose that route
Speaker 3: in this case, we'll see. It doesn't seem to me
Speaker 3: to be illegally promising one, but as they say, hey,
Speaker 3: you never know it.
Speaker 2: Zohy's a pleasure to have you on the show. Harry.
Speaker 2: That's Professor Harry First of NYU Law School. About one
Speaker 2: hundred and sixty seven million Amazon shoppers had Prime memberships
Speaker 2: as of March, according to market research firm Consumer Intelligence
Speaker 2: Research Partners, and in the US, prime members spend about
Speaker 2: twice as much on Amazon as non Prime members. Amazon's
Speaker 2: revenue from subscription services, which is mostly from Prime memberships,
Speaker 2: was nine point sixty six billion dollars in the quarter
Speaker 2: that ended March thirty First. That's about seven point six
Speaker 2: percent of its overall revenue for the period. And that's
Speaker 2: it for this edition of The Bloomberg Law Show. Remember
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