WEBVTT - FTC Says Amazon Duped Consumers

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<v Speaker 1>This is Bloomberg Law with June Brusso from Bloomberg Radio.

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<v Speaker 1>Please hold for a representative. Hi there, this is Matthias

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<v Speaker 1>with Spectrum Cable. Is this Brad Herman? Yeah? Hi? Hi?

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<v Speaker 1>And what can I help you with today? Mister Herman?

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<v Speaker 1>I just need to cancel my cable. I'm so sorry

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<v Speaker 1>to hear that before we begin. Would you like to

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<v Speaker 1>add a telephone landline to your current package for twelve

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<v Speaker 1>ninety nine a month? No, I'm good. I just need

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<v Speaker 1>to cancel the cable. I tried to do it online,

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<v Speaker 1>but they said I had to call. Of course, mister Herman.

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<v Speaker 2>We've all been through it, the time consuming hassles of

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<v Speaker 2>trying to cancel a membership, whether it's cable as in

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<v Speaker 2>this SNL skit, or a subscription to a newspaper, a magazine,

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<v Speaker 2>a streaming service. The list goes on and on. Well,

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<v Speaker 2>the Federal Raid Commission says Amazon not only duped consumers

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<v Speaker 2>into signing up for its Prime membership service, but also

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<v Speaker 2>deliberately made it hard to cancel Prime, with consumers having

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<v Speaker 2>to click through five pages on the desktop web store

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<v Speaker 2>or six on the mobile app in order to cancel Prime,

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<v Speaker 2>and the FTC has filed a lawsuit against the e

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<v Speaker 2>commerce giant in Washington State federal court using a twenty

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<v Speaker 2>ten consumer protection law designed to protect online shoppers. Joining

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<v Speaker 2>me is antitrust law expert Harry First, a professor at

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<v Speaker 2>NYU Law School, tell us about what the FTC claims

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<v Speaker 2>Amazon is doing wrong.

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<v Speaker 3>The easiest thing is just to read from the very

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<v Speaker 3>beginning of the complaint that Amazon filed in federal court

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<v Speaker 3>in Washington State of Washington, and it's basically an argument

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<v Speaker 3>that they've been engaged in this deceptive practice to sign

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<v Speaker 3>people up really without their knowing exactly what they're getting

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<v Speaker 3>into when they sign up for Prime, and then making

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<v Speaker 3>it really hard for them to get out of it.

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<v Speaker 3>So they start out and this is a little colorful language,

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<v Speaker 3>knowingly duped millions of consumers for years into unknowingly enrolling

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<v Speaker 3>in Prime and using manipulative, coercive, or deceptive interface design.

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<v Speaker 3>So they purposefully designed their platform, and this kind of

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<v Speaker 3>design has come to be known as dark patterns. It's

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<v Speaker 3>a nice label to put on things, maybe not so nice,

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<v Speaker 3>but certainly is descriptive dark patterns that trick consumers into

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<v Speaker 3>enrolling and automatically renewing subscriptions. So the idea is they've

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<v Speaker 3>basically designed the website in a way that it's not

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<v Speaker 3>so clear to many people what they've signed up for,

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<v Speaker 3>what their choices are, and then it's really hard to

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<v Speaker 3>get out of it. And they even referred to and

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<v Speaker 3>a lot of times companies put names on things that

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<v Speaker 3>later turn out to bite them that they wish they

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<v Speaker 3>had named them something like one or two, but instead

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<v Speaker 3>they named it the Iliad Flow, a reference to Homer's

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<v Speaker 3>epic poem about the Trojan Wars. And really, in the

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<v Speaker 3>Trojan Wars, the gods were constantly manipulating the humans, So

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<v Speaker 3>why would you name your process for getting out of

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<v Speaker 3>these subscriptions the Iliad Flow? So maybe not the best move,

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<v Speaker 3>but maybe an insight into how Amazon was seeing what

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<v Speaker 3>it was trying to do. And as we all know,

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<v Speaker 3>Amazon Prime is hugely profitable for Amazon. They've taken a

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<v Speaker 3>lot of revenue. I shouldn't say profitable because their arguments

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<v Speaker 3>about this, but it does generate a lot of revenue

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<v Speaker 3>and of course a lot of sales on the Amazon platform.

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<v Speaker 2>So Harry, let me ask you this because there are

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<v Speaker 2>so many times when I've tried to cancel a subscription

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<v Speaker 2>to something, and you have to go through sometimes several

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<v Speaker 2>different people before you can cancel. There are a lot

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<v Speaker 2>of subscriptions where you can't cancel online. You have to

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<v Speaker 2>call them up. So why is this any different?

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<v Speaker 3>Well, I mean, one answer is maybe it's not that different,

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<v Speaker 3>but that doesn't make it awful. The second answer maybe

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<v Speaker 3>is from the FTC's point of view, this particular practice

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<v Speaker 3>by Amazon does have a high economic impact. The third

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<v Speaker 3>maybe is that the Commission is now engaged in a

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<v Speaker 3>rulemaking proceeding to try to deal with this general problem

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<v Speaker 3>and to make it as easy to get out of

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<v Speaker 3>something as it was to get into something, to require

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<v Speaker 3>online marketplaces to do this. But this is an ongoing

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<v Speaker 3>process that they yet to adopt the rule, and you

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<v Speaker 3>know this will take time before assuming they adopt some

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<v Speaker 3>sort of a rule, before it ever takes effect, and

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<v Speaker 3>of course, as you might imagine, the industry will fight it.

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<v Speaker 3>So I guess an answer to your question, we've all

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<v Speaker 3>experienced this kind of effect of being very difficult to

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<v Speaker 3>get off things once you've gotten on them, and it's

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<v Speaker 3>become a serious problem with online commerce.

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<v Speaker 2>Now, this lawsuit is under a twenty ten consumer Protection law.

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<v Speaker 1>Is all of it.

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<v Speaker 2>Under that law.

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<v Speaker 3>Well, it's sort of an interesting way the Commission reaches this.

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<v Speaker 3>So the Commission has charged violation of two statutes. One

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<v Speaker 3>is the Federal Trade Commission Act, which was originally passed

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<v Speaker 3>in nineteen fourteen, and that prohibits unfair or deceptive acts

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<v Speaker 3>or practices in commerce, so you know, deceiving consumers basically.

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<v Speaker 3>In addition, there is this bill goes by the acronym

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<v Speaker 3>of Roska God help us with these acronyms, that was

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<v Speaker 3>passed in twenty ten, the Restore Online Shoppers Confidence Act,

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<v Speaker 3>which basically outlawed the negative option. You know, where you

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<v Speaker 3>buy things but the only way you can unbuy them

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<v Speaker 3>is by saying no. So you're constantly buying more unless

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<v Speaker 3>you say no. So there's an effort to undo that.

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<v Speaker 3>So the charges are technically filed under both statutes, and

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<v Speaker 3>you actually legally need both because it's the combination of

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<v Speaker 3>the two statutes that will give the FTC the power

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<v Speaker 3>to ask for civil penalties for these violations. So they

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<v Speaker 3>need both of them together, and that's what they've charged.

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<v Speaker 2>Amazon said the fgc's claims are false on the facts

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<v Speaker 2>and the law. The truth is that customers love Prime,

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<v Speaker 2>and by design, we make it clear and simple for

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<v Speaker 2>customers to both sign up for or cancel their Primest membership.

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<v Speaker 2>Pretty standard reply.

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<v Speaker 3>I guess my reaction as well. That's what they say.

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<v Speaker 3>And you know, a lot of the specifics in the complaint,

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<v Speaker 3>in fact, a huge amount have been redacted blacked out.

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<v Speaker 3>See if one wanted to read this eighty seven page

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<v Speaker 3>complaint from beginning to end, you really can't get a

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<v Speaker 3>full sense of what they've done and how purposeful their

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<v Speaker 3>behavior has been. So you know, that's yet to be seen.

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<v Speaker 3>The FTC, I think, wants to unredact the complaint. They

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<v Speaker 3>have to deal with Amazon whether they've got any privileged

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<v Speaker 3>documents that they're referring to. But you know, we'll see

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<v Speaker 3>in court. I mean, you can say people love Prime,

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<v Speaker 3>people love lots of things. That doesn't mean that everything

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<v Speaker 3>they do with regard to Prime is fine.

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<v Speaker 2>The agency previously used this law against Movie Pass into

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<v Speaker 2>its credit Karma and Ericsson's Internet phone service vantage over

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<v Speaker 2>subscription auto renewal and cancelation practices. Vontage paid one hundred

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<v Speaker 2>million to settle the suit, Credit Karma three million to

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<v Speaker 2>reimburse consumers but in this case with Amazon, according to

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<v Speaker 2>Bloomberg sources, Amazon was trying to reach a settlement with

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<v Speaker 2>the FTC but was rebuffed. Why do you think the

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<v Speaker 2>FTC wouldn't want to reach a settlement here?

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<v Speaker 3>Well, this is always hard to say. It may be

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<v Speaker 3>that the settlement offer the Commission thought was too low.

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<v Speaker 3>The law gives them the right to impose the civil

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<v Speaker 3>penalty of ten thousand dollars per violation, and a violation

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<v Speaker 3>is deemed to occur every day during which this behavior occurs,

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<v Speaker 3>So I don't know what numbers they're looking for. So

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<v Speaker 3>a standard explanation is Amazon's offer was too low.

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<v Speaker 2>You know.

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<v Speaker 3>Another explanation maybe is that the Commission is less willing

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<v Speaker 3>to settle things than previous commissions have been. So I

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<v Speaker 3>don't know how much that plays into it as well.

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<v Speaker 3>So you know, all that's yet to be seen, and

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<v Speaker 3>it doesn't mean the case won't settle in any event,

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<v Speaker 3>just because the Commission has filed its complaint. You know,

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<v Speaker 3>there may still be a settlement, and the Commission may

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<v Speaker 3>view it important to have a precedence set in court

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<v Speaker 3>as to what's proper behavior, so that also goes into it.

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<v Speaker 3>There is value to litigating, because that's the only way

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<v Speaker 3>you really create legal precedent. So there is a cost

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<v Speaker 3>to a government enforcer when it settles, even if it

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<v Speaker 3>looks like the deal's good.

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<v Speaker 2>Amazon changed its process for canceling Prime subscriptions in the

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<v Speaker 2>EU last summer after pressure from the European Commission and

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<v Speaker 2>national consumer watchdogs, and they introduced a simplified two click

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<v Speaker 2>process so it can be done. Why do you think

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<v Speaker 2>they held out in the US?

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<v Speaker 3>As I read this, I think they may have put

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<v Speaker 3>some changes in in the US, but that doesn't cure

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<v Speaker 3>past behavior, so I'm not certain. And since my Amazon

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<v Speaker 3>Prime seems to just renew all by itself, Oh my gosh,

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<v Speaker 3>I don't know, you know exactly what they've put into

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<v Speaker 3>effect in the United States, whatever it is, if it's

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<v Speaker 3>been done recently, Again, that doesn't cure pass violations. And

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<v Speaker 3>again it may be the Commission really feels it's time to,

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<v Speaker 3>you know, to have litigation that makes law. I'm not

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<v Speaker 3>sure if that's what's going on here, but that could

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<v Speaker 3>explain Europeans often are much more settlement prone than USA

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<v Speaker 3>any trust and forces.

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<v Speaker 2>This is the third suit the FTC has filed against

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<v Speaker 2>Amazon in the past month, the company agreed to pay

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<v Speaker 2>thirty point eight million to settle allegations it failed to

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<v Speaker 2>delete data about kids collected by its Alexa and to

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<v Speaker 2>settle allegations it's ring doorbells and cameras illegally spied on users.

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<v Speaker 2>So is the FTC sort of targeting Amazon?

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<v Speaker 3>Well, Amazon is a major company. Hard to know. Amazon

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<v Speaker 3>certainly will want to argue that it is a target

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<v Speaker 3>in the sense of being picked out unfairly. The other

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<v Speaker 3>side might be Amazon is what is it third by

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<v Speaker 3>market cap in the United States? Fourth, It's a huge

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<v Speaker 3>company in many many businesses. It's very important in many

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<v Speaker 3>ways to the US economy. You could argue it's particularly

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<v Speaker 3>appropriate for the Commission to be concerned about what it does.

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<v Speaker 3>Should it take up its time looking at, you know,

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<v Speaker 3>mattress sellers. I mean, what should it be doing with

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<v Speaker 3>the money that it has in its budget? So there

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<v Speaker 3>are two ways to cut that, Oh my god, we're

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<v Speaker 3>the target or oh thank god the Commission is engaged

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<v Speaker 3>in cost effective enforcement.

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<v Speaker 2>And how would you describe Lena Khan's tenure at the FTC.

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<v Speaker 3>I vacillate between I shouldn't feel this way because she's

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<v Speaker 3>an adult, you know, sort of feeling bad that she

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<v Speaker 3>was put into a very difficult position. She's clearly been

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<v Speaker 3>a lightning rod for conservative critics Wall Street Journal. You know,

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<v Speaker 3>it's it's not a day if they don't go after her.

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<v Speaker 3>And you know, some of it may be sort of

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<v Speaker 3>bad moves politically, I don't know. Some of it may

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<v Speaker 3>be just a very big agency that she's you know,

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<v Speaker 3>trying to manage. You know, she's appointed three years out

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<v Speaker 3>of law school, I mean, pointed chair, thank you very much,

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<v Speaker 3>President Biden. So it's a big job she's got. But

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<v Speaker 3>she has very strongly held and important views about competition

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<v Speaker 3>law and enforcement policy, and she has not hesitated to

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<v Speaker 3>write about them. She has important scholarship in the area.

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<v Speaker 3>So in some ways her being a lightning rod has

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<v Speaker 3>I'm sure not made her life the easiest. But she

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<v Speaker 3>also is a bit fearless. We'll wait for the motion

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<v Speaker 3>to disqualify her, but that will fail. And what we're

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<v Speaker 3>waiting for actually is the anti trust I was going

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<v Speaker 3>to say shoe to fall, but it's I don't know,

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<v Speaker 3>it's bigger than a shoe. The Commission is reportedly investigating,

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<v Speaker 3>you know, a major anti trust suit against Amazon. And

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<v Speaker 3>you know, money is one thing, but an any trust

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<v Speaker 3>suit that strikes it the way Amazon does business is

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<v Speaker 3>really quite a different challenge to Amazon. And whether they

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<v Speaker 3>ever bring that case or what that case looks like,

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<v Speaker 3>we have yet to see, but that's the one, you know,

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<v Speaker 3>I think we should be on the lookout for. These

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<v Speaker 3>are important. These consumer protection cases are important, but they

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<v Speaker 3>don't in the end, really strike at Amazon's business model

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<v Speaker 3>and whether it can continue to be both a platform

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<v Speaker 3>and a seller and constant buyer of businesses, you know,

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<v Speaker 3>how it can operate.

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<v Speaker 2>They would attempt to disqualify her from working on the

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<v Speaker 2>case or what would they discall?

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<v Speaker 3>No, that's the thing. See, the Commission has brought this

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<v Speaker 3>as a complaint in federal district court. There was a

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<v Speaker 3>motion to disqualify her in a prior case involving Meta's

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<v Speaker 3>acquisition of the virtual reality company Within, and the district

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<v Speaker 3>court judge said, well, she's acting as a prosecutor in

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<v Speaker 3>that case, not as a judge, whatever her views were originally.

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<v Speaker 3>Prosecutors aren't disqualified from being prosecutors because they held views before.

0:14:37.840 --> 0:14:43.120
<v Speaker 3>So that's the position that she's in in this case.

0:14:43.720 --> 0:14:47.320
<v Speaker 3>The Commission voted three commissioners to zero to bring the case.

0:14:48.000 --> 0:14:51.680
<v Speaker 3>So I don't know whether Amazon will even bother to file.

0:14:51.760 --> 0:14:55.680
<v Speaker 3>But you know, they had originally moved to disqualify from everything,

0:14:56.400 --> 0:14:59.240
<v Speaker 3>and that was emotion that got nowhere because it was

0:14:59.280 --> 0:15:02.880
<v Speaker 3>not in connection with any particular decision that the commission

0:15:02.880 --> 0:15:06.400
<v Speaker 3>had made. But you know, whether they'll choose that route

0:15:06.400 --> 0:15:09.400
<v Speaker 3>in this case, we'll see. It doesn't seem to me

0:15:09.520 --> 0:15:12.760
<v Speaker 3>to be illegally promising one, but as they say, hey,

0:15:12.800 --> 0:15:13.760
<v Speaker 3>you never know it.

0:15:13.840 --> 0:15:15.800
<v Speaker 2>Zohy's a pleasure to have you on the show. Harry.

0:15:16.320 --> 0:15:20.040
<v Speaker 2>That's Professor Harry First of NYU Law School. About one

0:15:20.120 --> 0:15:24.360
<v Speaker 2>hundred and sixty seven million Amazon shoppers had Prime memberships

0:15:24.440 --> 0:15:29.000
<v Speaker 2>as of March, according to market research firm Consumer Intelligence

0:15:29.040 --> 0:15:33.000
<v Speaker 2>Research Partners, and in the US, prime members spend about

0:15:33.040 --> 0:15:37.360
<v Speaker 2>twice as much on Amazon as non Prime members. Amazon's

0:15:37.400 --> 0:15:41.640
<v Speaker 2>revenue from subscription services, which is mostly from Prime memberships,

0:15:42.000 --> 0:15:45.000
<v Speaker 2>was nine point sixty six billion dollars in the quarter

0:15:45.040 --> 0:15:48.440
<v Speaker 2>that ended March thirty First. That's about seven point six

0:15:48.520 --> 0:15:52.240
<v Speaker 2>percent of its overall revenue for the period. And that's

0:15:52.280 --> 0:15:54.920
<v Speaker 2>it for this edition of The Bloomberg Law Show. Remember

0:15:54.960 --> 0:15:57.040
<v Speaker 2>you can always get the latest legal news on our

0:15:57.040 --> 0:16:01.200
<v Speaker 2>Bloomberg Law Podcast. You can find them on Apple Pop, Spotify,

0:16:01.400 --> 0:16:06.440
<v Speaker 2>and at www dot bloomberg dot com, slash podcast slash Law,

0:16:06.840 --> 0:16:09.440
<v Speaker 2>and remember to tune into The Bloomberg Law Show every

0:16:09.480 --> 0:16:13.400
<v Speaker 2>weeknight at ten pm Wall Street Time. I'm Jim Grosso

0:16:13.520 --> 0:16:15.119
<v Speaker 2>and you're listening to Bloomberg