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When Confronting Amazon’s Anticompetitive Conduct, The FTC Should Invoke Its Section 5 Authority

At some point soon, the Federal Trade Commission is very likely to sue Amazon over the many ways the e-commerce giant abuses its power over online retail, cloud computing and beyond. If and when it does, the agency would be wise to lean hard on the useful and powerful law at the core of its anti-monopoly authority. 

The agency’s animating statute, the Federal Trade Commission Act and its crucial Section 5, bans “unfair methods of competition,” a phrase Congress deliberately crafted, and the Supreme Court has interpreted, to give the agency broad powers beyond the traditional antitrust laws to punish and prevent the unfair, anticompetitive conduct of monopolists and those companies that seek to monopolize industries. 

Section 5 is what makes the FTC the FTC. Yet the agency hasn’t used its most powerful statute to its fullest capability for years. Today, with the world’s most powerful monopolist fully in the commission’s sights, the time for the FTC to re-embrace its core mission of ensuring fairness in the economy is now.

The FTC appears to agree. Last year, the agency issued fresh guidance for how and why it will enforce its core anti-monopoly law, and the 16-page document read like a promise to once again step up and enforce the law against corporate abuse just as Congress had intended. 

Why Section 5?

The history of the Section 5—why Congress included it in the law and how lawmakers expected it to be enforced—is clear and has been spelled out in detail: Congress set out to create an expert antitrust agency that could go after bad actors and dangerous conduct that the traditional anti-monopoly law, the Sherman Act, could not necessarily reach. To do that, Congress crafted Section 5 so that the FTC could stop tactics that dominant corporations devise to sidestep competition on the merits and instead unfairly drive out their competitors. Congress gave the FTC the power to enforce the law on its own, to stop judges from hamstringing the law from the bench, as they have done to the Sherman Act. 

As I’ve detailed, the Supreme Court has issued scores of rulings since the 1970s that have collectively gutted the ability of public enforcement agencies and private plaintiffs to sue monopolists for their abusive conduct and win. These cases have names—Trinko, American Express, Brooke Group, and so on—and, together, they dramatically reshaped the country’s decades-old anti-monopoly policy and allowed once-illegal corporate conduct to go unchecked. 

Many of these decisions are now decades old, but they continue to have outsized effects on our ability to policy monopoly abuses. The Court’s 1984 Jefferson Parish decision, for example, made it far more difficult to successfully prosecute a tying case, in which a monopolist in one industry forces customers to buy a separate product or service. The circuit court in the government’s monopoly case against Microsoft relied heavily on Jefferson Parish in overturning the lower court’s order to break Microsoft up. More recently, courts deciding antitrust cases against Facebook, Qualcomm and Apple all relied on decades of pro-bigness court rulings to throw out credible monopoly claims against powerful defendants. 

Indeed, the courts’ willingness to undermine Congress was a core concern for lawmakers when drafting and passing Section 5. Three years before Congress created the FTC, the U.S. Supreme Court handed down its verdict in the government’s monopoly case against Standard Oil, breaking up the oil trust but also establishing the so-called “rule of reason” standard for monopoly cases. That standard gave judges the power to decide if and when a monopoly violated the law, regardless of the language of, or democratic intent behind, the Sherman Act. Since then, the courts have marched the law away from its goal of constraining monopoly power, case by case, to the point that bringing most monopolization cases under the Sherman Act today is far more difficult than it should be, given the simple text of the law and Congress’ intent when it wrote, debated, and passed the act.

That’s the beauty and the importance of Section 5. Congress knew that the judicial constraints put on the Sherman Act meant it could not not reach every monopolistic act in the economy. That’s now truer than ever. Section 5 can stop and prevent unfair, anticompetitive acts without having to rely on precedent built up around the Sherman Act. It’s a separate law, with a separate standard and a separate enforcement apparatus. What’s more, the case law around Section 5 has reinforced the agency’s purview. In at least a dozen decisions, the Supreme Court has made clear that Congress intended for the law to reach unfair conduct that falls outside of the reach of the Sherman Act.

So the law is on solid footing, and after decades of sidestepping the job Congress charged it to do, the FTC appears ready to once again take on abuses of corporate power. And not a moment too soon. After decades of inadequate antitrust enforcement, unfairness abounds, particularly when it comes to the most powerful companies in the economy. Amazon perches atop that list. 

A Recidivist Violator of Antitrust Laws

Investigators and Congress have repeatedly identified Amazon practices that appear to violate the spirit of the antitrust laws. The company has a long history of using predatory pricing as a tactic to undermine its competition, either as a means of forcing companies to accept its takeover offers, as it did with Zappos and Diapers.com, or simply as a way to weaken vendors or take market share from competing retailers, especially small, independent businesses. Lina Khan, the FTC’s chair, has called out Amazon’s predatory pricing, both in her seminal 2017 paper Amazon’s Antitrust Paradox, and when working for the House Judiciary Committee during its big tech monopoly investigation. 

Under the current interpretation of predatory pricing as a violation of the Sherman Act, a company that priced a product below cost to undercut a rival must successfully put that rival out of business and then hike up prices to the point that it can recoup the money it lost with its below-cost pricing. Yet with companies like Amazon—big, rich, with different income streams and sources of capital—it might never need to make up for its below-cost pricing by hiking up prices on any one specific product, let alone the below-cost product. Indeed, as Jeff Bezos’s vast fortune can attest, predatory pricing can generate lucrative returns simply by sending a company’s stock price soaring as it rapidly gains market share. 

If Amazon wants to sell products from popular books to private-label batteries at a loss, it can. Amazon makes enormous profits by taxing small businesses on its marketplace platform and from Amazon Web Services. It can sell stuff below cost forever if it wants to–a clearly unfair method of competing with any other single-product business–all while avoiding prosecution under the judicially weakened Sherman Act. Section 5 can and should step in to stop such conduct. 

Amazon’s marketplace itself is another monopolization issue that the FTC could and should address with Section 5. The company’s monopoly online retail platform has become essential for many small businesses and others trying to reach customers. To wit, the company controls at least half of all online commerce, and even more for some products. As an online retail platform, Amazon is essential, suggesting it should be under some obligation to allow equal access to all users at minimal cost. Of course, that’s not what happens; as my organization has documented extensively, Amazon’s captured third-party sellers pay a litany of tolls and fees just to be visible to shoppers on the site. Amazon’s tolls can now account for more than half of the revenues from every sale a small business makes on the platform. 

The control Amazon displays over its sellers mirrors the railroad monopolies of yesteryear, which controlled commerce by deciding which goods could reach buyers and under what terms. Antitrust action under the Sherman Act and legislation helped break down the railroad trusts a century ago. But if enforcers were to declare Amazon’s marketplace an essential facility today, the path to prosecution under the Sherman Act would be difficult at best. 

Section 5’s broad prohibition of unfair business practices could prevent Amazon’s anticompetitive abuses. It could ban Amazon from discriminating against companies that sell products on its platform that compete with Amazon’s own in-house brands, or stop it from punishing sellers that refuse to buy Amazon’s own logistics and advertising services by burying their products in its search algorithm. The FTC could potentially challenge such conduct under the Sherman Act, as a tying case, or an essential facilities case. But again, the pathway to winning those cases is fraught, even though the conduct is clearly unfair and anticompetitive. If Amazon’s platform is the road to the market, then the rules of that road need to be fair for all. Section 5 could help pave the way. 

These are just a few of the ways we could see the FTC use its broad authority under Section 5 to take on some of Amazon’s most egregious conduct. If I had to guess, I imagine the FTC in a potential future Amazon lawsuit will likely charge the company under both the Sherman Act and the FTC Act’s Section 5 for some conduct it feels the traditional anti-monopoly statute can reach, and will rely solely on Section 5 for conduct that it believes is unfair and anticompetitive, but beyond the scope of the Sherman Act in its current, judicially constrained form. For example, while the FTC could potentially use the Sherman Act to address Amazon’s decision to tie success on its marketplace to its logistics and advertising services, the agency’s statement makes clear that Section 5 has been and can be used to address “loyalty rebates, tying, bundling, and exclusive dealing arrangements that have the tendency to ripen into violations of the antitrust laws by virtue of industry conditions and the respondent’s position within the industry.”

Might this describe Amazon’s conduct? Very possibly, but that will ultimately be up to the FTC to decide. Suing Amazon under both statutes would invite the court to make better choices around the Sherman Act that are more critical of monopoly abuses, and help develop the law so that the FTC can eagerly embark on its core mission under Section 5: to help ensure markets are fair for all.

Ron Knox is a Senior Researcher and Writer for ILSR’s Independent Business Initiative.

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