Amazon Duped Millions of Customers Into Signing Up for Prime, Says US Regulator in a Lawsuit

The US Federal Trade Commission on Wednesday accused Amazon.com of enrolling millions of consumers into its paid subscription Amazon Prime service without their consent and making it hard for them to cancel, the agency's latest action against the ecommerce giant in recent weeks.

The FTC sued Amazon in federal court in Seattle, alleging that the company has "knowingly duped millions of consumers into unknowingly enrolling in Amazon Prime." In a statement, Amazon called the FTC's claims "false on the facts and the law."

Amazon has used "manipulative, coercive or deceptive user-interface designs known as 'dark patterns' to trick consumers into enrolling in automatically renewing Prime subscriptions," the FTC said as it seeks civil penalties and a permanent injunction to prevent future violations.

The lawsuit is one of several actions taken by President Joe Biden's administration intended to rein in the outsized market power of Big Tech firms as it tries to increase competition to protect consumers.

The FTC said Amazon Prime is the world's largest subscription program, generating $25 billion (roughly Rs. 2,05,135 crore) in revenue annually. It offers fast, free shipping on millions of items, various discounts and access to movies, music and television series, as well as other benefits.

Prime members in the United States pay $139 (roughly Rs. 11,500) per year and drive much of Amazon's sales volume. Prime, which has more than 200 million members worldwide, is crucial to Amazon's other businesses including its streaming service Prime Video and its grocery delivery service.

In its statement, Amazon said, "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 Prime membership."

Amazon added it finds "it concerning that the FTC announced this lawsuit without notice to us, in the midst of our discussions with FTC staff members to ensure they understand the facts, context, and legal issues, and before we were able to have a dialog with the commissioners themselves."

Wednesday's lawsuit came on the day Amazon announced the July dates of its major sales event Prime Day.

The lawsuit said that under substantial pressure from the FTC, Amazon changed its cancellation process in April but that "violations are ongoing" and that it still "requires five clicks on desktop and six on mobile for consumers to cancel from Amazon.com."

Amazon's shares were up 0.2 percent in afternoon trading.

The FTC has been investigating sign-up and cancellation processes for the Prime program since March 2021.

Consumers who attempted to cancel Prime were faced with multiple labyrinthine steps to accomplish the task of cancelling, according to the complaint. The FTC complaint said Amazon used the term "Iliad Flow" to describe the process it began in 2016, referencing Homer's epic poem about the lengthy Trojan war.

Amazon also committed "intentional misconduct" meant to delay the FTC's investigation by providing "bad faith" responses to requests for documents, the agency said.

Insider Intelligence senior analyst Evelyn Mitchell-Wolf said that the "FTC is making an example of Amazon, but it's quite common for companies to make it more difficult to cancel an account than it is to create one."

"Amazon's market power might work against it in this instance, as the FTC won't have a hard time proving that consumers are, indeed, harmed if Amazon impedes their ability to exercise their choice to cancel their Prime membership," Mitchell-Wolf added.

The FTC on May 31 announced a $5.8 million (roughly Rs. 47 crore) settlement with Amazon's Ring doorbell camera unit after the agency said cameras had been used for spying on some customers. On the same day, the FTC said Amazon agreed to pay $25 million to settle allegations that it violated children's privacy rights by failing to delete Alexa virtual assistant technology recordings at the request of parents and keeping them longer than necessary.

The new lawsuit is "emblematic of efforts by governments across the globe to rein in the excess influence of big tech," including Amazon, Apple and Meta, according to Tom Forte, managing director at D.A. Davidson Companies.

But Forte also pointed to other retailers and subscription services that make it difficult to end memberships.

© Thomson Reuters 2023