Amazon Antitrust Case Must Clear Amex Bar Set by Supreme Court

A five-year-old US Supreme Court antitrust decision looms over the Federal Trade Commission’s sweeping new lawsuit against Amazon.com Inc. over its allegedly illegal dominance of online retail.

At the heart of the agency’s case are allegations that Amazon violated the Sherman Act with the policies on its platform marrying sellers with buyers. In 2018, the justices held in Ohio v. American Express that the card company’s own merchant policies weren’t Sherman Act violations. Lina Khan, long before she was FTC chair, recognized any antitrust case against Amazon would have to grapple with that ruling.

Both cases involve two-sided markets, in which one company acts as the go-between for buyers and sellers of a product or service. To make its Amazon case stick, FTC will have to clear the bar the high court set for what constitutes an antitrust violation in such markets.

“I would call it the biggest stress test of AmEx yet by far,” Bloomberg Law legal analyst Eleanor Tyler said.

At stake is the fate of one of the most far-reaching antitrust cases against Big Tech since the Justice Department fought Microsoft Corp. in the 1990s. To defend itself, Amazon will benefit by drawing as many connections to the 2018 precedent as possible, while the FTC will likely seek to show the cases are dissimilar, court watchers said.

Plaintiffs suing companies that operate two-sided markets must show that alleged conduct harms both sides, the high court ruled. The states and Justice Department suing American Express didn’t clear that bar. The Supreme Court found it was legal for American Express to discourage merchants from steering card holders to other payment methods, because it benefited consumers.

Khan—whose own path to the agency’s leadership started with a seminal 2017 law review article on Amazon and antitrust law—blasted the American Express decision in a 2018 op-ed, writing that the justices had “dealt a huge blow to the ability of government and private plaintiffs to enforce existing antitrust laws.”

Although the two cases concern different parts of the Sherman Act, market definition plays an equally pivotal role in both. Khan recognized the threat, writing in Vox that “on the surface, the Court’s language suggests that the special rule would apply to Amazon’s marketplace for third-party merchants, to eBay, and to Uber.”

To prevail, the retail giant will likely highlight customer satisfaction with its marketplace to undercut the FTC’s allegations, observers said.

“AmEx would make the FTC’s job harder because it might be required to show harm on both sides of the market,” said Michael Carrier, a professor at Rutgers Law School. “In other words, not just sellers but also consumers.”

Read More: What You Won’t Learn About Amazon From FTC’s New Antitrust Suit

Dual Markets

The American Express decision has been decried by some legal professionals, who say it runs afoul of decades of antitrust precedent and raises a nearly insurmountable bar for plaintiffs.

The FTC declined to comment. Amazon didn’t immediately reply to a request for comment. In a statement responding to the lawsuit, Amazon Senior Vice President David Zapolsky said the FTC demonstrated a “fundamental misunderstanding” of retail.

The lawsuit, if successful, would “force Amazon to engage in practices that actually harm consumers and the many businesses that sell in our store—such as having to feature higher prices, offer slower or less reliable Prime shipping, and make Prime more expensive and less convenient,” Zapolsky wrote.

The FTC’s complaint contains clues about how it might try to deal with the Supreme Court test. It alleges Amazon operates two separate markets, each involving a set of violations.

One, termed the “online superstore market,” encompasses Amazon’s own retail empire, where customers can buy anything from toothpaste to televisions. The other, “the market for online marketplace services,” covers Amazon’s merchant-facing business, which gives third-party retailers a platform to sell and advertise their products.

See also: Amazon Punishes Seller for Five-Cent Price Cut, Echoing FTC Case

Although the complaint doesn’t characterize them as two sides of the same market, they appear to function as one, said Keith Hylton, a professor at Boston University School of Law. But the link between them may not be as strong as in American Express, he cautioned.

In that case, one side of the market covered consumers who use American Express cards, while the other was made up of merchants who faced fees when their goods were purchased with the cards. In effect, American Express passed to consumers the savings it derived by charging merchants higher credit card fees.

Because the card company aided consumers with the tactic, it didn’t violate Section 1 of the Sherman Act, the Supreme Court ruled.

It’s in the FTC’s best interest to keep the markets separate so it can proceed with the case without having to show consumer harm in a two-sided market. That way it has live claims in both.

But if Amazon can tie the markets together, it will be better positioned to argue the precedent, and its high bar for plaintiffs, applies. The FTC’s case then becomes won or lost in that market alone.

Tracing Transactions

Case watchers are split on how much the American Express precedent will impact the FTC’s case, due to the complexity of ruling and difficulty in pre-judging the markets alleged in the FTC’s complaint.

Amazon’s offerings to sellers go beyond American Express’ interactions with merchants. So it isn’t just facilitating the transaction like American Express is, making that case likely irrelevant, said Geoffrey Manne, president of the International Center for Law and Economics..

By choosing to define two connected markets rather than a single, two-sided one, the FTC may be trying to dodge the Supreme Court’s test, Manne said.

However, Amazon’s market is two-sided and there are customers on both sides, said John Kirkwood, an antitrust professor at Seattle University School of Law and a former FTC official. The more customers use the platform, the more merchants want to sell on it, and vice versa, he added.

“If I buy a branded or third-party product, the transaction goes from me to the ultimate seller, facilitated by Amazon,” Kirkwood said. “That suggests that AmEx does apply, or that there’s a presumptive argument that Amazon is likely to argue: that FTC has misdefined the relevant market, ignored AmEx, and therefore that the case needs to be dismissed.”

Amazon will likely dispute both of the FTC’s market definitions, and if it can connect them, invoking the American Express case, it’ll be easier to begin poking holes in the model, Tyler, the Bloomberg Law analyst, said. It appears the agency sought to hedge its bets by defining two markets. But the Supreme Court in American Express said plaintiffs have to deal with both sides together, Tyler said.

The FTC “will have to get all those pieces to fit together without a good picture on the box,” she said.

The case is Federal Trade Commission et al v. Amazon.com, W.D. Wash., No. 2:23-cv-01495, filed 9/26/23.