WASHINGTON, June 21 (Reuters) – The U.S. Federal Trade Commission on Wednesday accused Amazon.com (AMZN.O) of signing up millions of consumers to the paid subscription Amazon Prime service without their consent, making it difficult for them to cancel, according to the agency. The latest action against the e-commerce giant in recent weeks.
The Federal Trade Commission (FTC) sued Amazon in Seattle federal court, alleging that the company “knowingly deceived millions of consumers into unwittingly enrolling them into Amazon Prime.” In a statement, Amazon called the FTC’s allegations “factually and legally wrong.”
The FTC said Amazon used “manipulative, coercive, or deceptive user interface designs known as ‘dark patterns’ to trick consumers into signing up for automatically renewing Prime subscriptions,” while seeking civil penalties and a permanent injunction to prevent future violations.
The lawsuit is one of several actions by President Joe Biden’s administration aimed at reining in the outsized market power of big tech companies as they try to ramp up competition to protect consumers.
The Federal Trade Commission said that Amazon Prime is the largest subscription program in the world, generating $25 billion in revenue annually. It offers fast and free shipping on millions of items, various discounts, and access to movies, music, and TV series, among other benefits.
Basic members in the US pay $139 annually and generate a significant amount of Amazon sales volume. Prime, which has more than 200 million members worldwide, is critical to other Amazon businesses including its Prime Video streaming service and grocery delivery service.
“The truth is, customers love Prime, and by design we’re making it clear and simple for customers whether to sign up for or cancel their Prime membership,” Amazon said in its statement.
Amazon added that it finds “disturbing that the FTC announced this lawsuit without notification to us, in the midst of our discussions with FTC staff to ensure they understood the facts, context, and legal issues, and before we could have a dialogue with the commissioners themselves.”
The lawsuit came on Wednesday, the day Amazon announced the July dates for its prime sales event, Prime Day.
Under significant pressure from the Federal Trade Commission, Amazon changed the cancellation process in April but “the violations are ongoing” and that it still “requires five clicks on desktop and six on mobile for consumers to cancel from Amazon.com,” the suit said.
Amazon shares were up 0.2% in afternoon trading.
The Federal Trade Commission has been investigating Prime enrollments and cancellations since March 2021.
Consumers who attempted to cancel Prime faced multiple maze steps to accomplish the task of cancellation, according to the complaint. The FTC complaint said Amazon used the term “Flo’s Iliad” to describe the operation that began in 2016, a reference to Homer’s epic poem about the long-running Trojan War.
The agency said Amazon also committed “willful misconduct” intended to delay the FTC’s investigation by providing “bad faith” responses to document requests.
“The FTC makes an example for Amazon, but it’s far more common for companies to make it more difficult to cancel an account than to create one,” said Evelyn Mitchell-Wolf, senior analyst at Insider Intelligence.
“Amazon’s market power may work against it in this case, as the FTC will have no difficulty proving that consumers were actually harmed if Amazon impeded their ability to exercise their option to cancel their Prime membership,” Mitchell Wolf added.
The FTC on May 31 announced a $5.8 million settlement with Amazon’s Ring doorbell camera unit after the agency said the cameras had been used to spy 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 recordings of its Alexa virtual assistant technology at parents’ request and by keeping them for longer than necessary.
The new lawsuit is “a symbol of efforts by governments around the world to rein in the excessive influence of big tech,” including Amazon, Apple and Meta, according to Tom Forte, managing director at DA Davidson Companies.
But Forte also pointed to other retailers and subscription services that make it difficult to terminate a membership.
(Reporting by David Shepardson and Chris Sanders in Washington); Additional reporting by Ariana Macklemore. Editing by Will Dunham
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