One of the reasons Amazon remains the world’s leading online retailer is its Amazon Prime service. Created in 2005, Prime originally offered free two-day shipping. Today, Prime has approximately 240 million members worldwide (including 180.1 million U.S. members) who not only enjoy free one- or same-day delivery, but also have access to Amazon music and video streamingservices, as well as special deals including those offered on Prime Day.
Prime should be celebrated as an example of how successful companies can and must continue to innovate if they wish to remain at the top of the pack. Instead, both the Biden and Trump Administrations have treated Prime like a bully whose jealously towards the smarter kids expresses itself in violence. In 2023, the FTC under Chair Lina Khan (who became a progressive star for a law review article that justified government bullying of “big tech” companies) sued Amazon for alleged violations of the Restore Online Shoppers Confidence Act (ROSCA).
ROSCA prohibits internet merchants from “charging any account in an internet transaction unless it has disclosed clearly all material terms of the transaction and obtained the consumer's express informed consent to the charge.” The FTC alleged that Amazon violated ROSCA by knowingly adding millions of consumers to Prime without their consent— while also making it difficult for consumers to cancel their Prime membership. The FTC also claims that Amazon used “dark patterns” to “trick consumers into enrolling in automatically-renewing Prime subscriptions.” Dark patterns is a spooky sounding name for any practice the FTC decides is “manipulative, coercive, or deceptive”. Dark patterns include practices such as giving consumers “numerous” opportunities to subscribe to Prime during checkout.
Withdrawing from Prime is a relatively simple process. Those wishing to cancel their Prime membership simply go to their account page and select cancel. The user will then have to follow a series of prompts, designed to ensure customers leaving Prime understand they will no longer receive free shipping or free access to Amazon’s streaming services. According to Amazon, “96% of Amazon users are able to withdraw from Prime in 90 seconds or less.”
It is not surprising that the Lina Khan-led FTC brought this suit. Khan’s tenure as FTC Chair was marked by lawsuits that even the FTC’s professional staff said were lacking merit and wastes of taxpayer money. It is disappointing, but not surprising, that Andrew Ferguson, who President Trump elevated to FTC Chair in January, did not withdraw this case. Ferguson shares his predecessor's penchant for bullying big tech companies. However, unlike Lina Khan, Ferguson’s desire to bully successful tech companies has some limits. This is why Ferguson’s FTC was willing to settle the case.
Under the settlement, Amazon will pay a $1.5 billion fine. The company will also pay a total of $1.5 billion to an estimated 34 million customers who were allegedly enrolled in Prime against their wishes or who had problems cancelling their subscriptions. The number of Prime users eligible for compensation represent 0.75% of all U.S. customers. This suggests that Amazon was not engaged in an ongoing conspiracy to enroll customers in Prime or prevent them from cancelling their memberships.
The settlement requires Amazon to add “a clear and conspicuous button for customers to decline Prime [and] an easy way for consumers to cancel Prime, using the same method that consumers used to sign up." The clear and conspicuous button cannot say (as the current button for enrolling in Prime does), “no, I do no want free shipping”—even though clicking on that button just gives users the opportunity to learn more about, and enroll in, Prime. This seems like good marketing, not deception.
By settling the case, Amazon avoided having to divert time and resources to litigation. The settlement also stops the waste of taxpayer money on a case that should never have been brought. Prime is successful because millions of Amazon users value free shipping and other benefits of Prime membership—not because they were duped by Amazon. Hopefully this is the last time Chair Ferguson will bully tech and other companies whose only crime is satisfying consumers better than their competitors.
