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Amazon Faces Expansive California Antitrust Law in Pricing Suit

Sept. 21, 2022, 9:00 AM

Amazon.com Inc. faces rough legal terrain in California as the retail giant battles the state’s lawsuit over its pricing policies and supplier relationships.

The state’s courts are generally more pro-consumer in antitrust litigation than federal courts, and California has a law, the Cartwright Act, that is unfriendly to “vertical restraints” between a company and its suppliers, court watchers say.

Amazon’s “most favored nation policy” allegedly penalizes third-party sellers for charging customers less on competing marketplaces than on Amazon’s site. The policy kept prices artificially high across online marketplaces, California Attorney General Rob Bonta (D) said in a suit filed Sept. 14 in California Superior Court.

“California state law might be more amenable to facts that suggest a business who put products on Amazon felt that they couldn’t offer their products on rival platforms,” said UC Berkeley School of Law professor Prasad Krishnamurthy.

Amazon is facing increased legal pressure on the heels of a similar challenge in the District of Columbia. But while California’s lawsuit is nearly identical on its allegations, the state’s competition laws make it a greater threat to the e-commerce giant.

Boon to Plaintiffs

Bonta brought the case under a pair of California laws—Unfair Competition Law and the Cartwright Act.

The Seattle-based company maintains vertical relationships with third-party sellers that supply content and inventory to Amazon’s retail platforms. Bontas alleged Amazon engaged in vertical restrictions on price since its agreement applies to “suppliers” in the supply chain.

The Cartwright Act is more friendly to plaintiffs than federal laws when they challenge vertical restrictions on price, Krishnamurthy said. That “suspicion” of price-related vertical agreements between retailers and suppliers is a boon to plaintiffs in the state, he said.

Bonta’s allegations are “very similar” to a lawsuit filed by District of Columbia Attorney General Karl Racine in May 2021, Krishnamurthy said.

But the Cartwright Act places a greater skepticism on vertical restraints in specific circumstances than federal antitrust law, he said. It focuses in part on whether a marketplace’s behavior had enough of an anticompetitive effect or intent to be an unreasonable restraint of trade.

The D.C. AG also alleged that Amazon effectively fixed prices for online retail goods through a network of contracts it forged with third-party sellers.

A D.C. court dismissed the case in March for failure to state an anticompetitive effect under D.C. law. Racine has filed a notice of appeal.

Direct Evidence

Significant sections of the complaint are redacted. But the lawsuit appears to focus heavily on direct evidence of harm to sellers, said Eleanor Tyler, a Bloomberg Law legal analyst.

Most cases are forced to rely on indirect evidence derived from expert economist witnesses and economic models, Tyler said. But direct evidence—such as personal experience of the impact of agreements in restraint of trade—is easier to demonstrate in court and allows plaintiffs to partially avoid such unwieldy requirements, Tyler said.

California courts are historically more willing to aggressively protect consumers in antitrust cases, a predilection that the US Supreme Court has slapped down repeatedly, according to Tyler.

The state’s laws “still retain more of that trust-busting ethos and idea than what’s left of the Sherman Act,” Tyler said, referring to the 132-year old federal law.

“This is a strong case,” Tyler said. “It looks to me that California was watching and learning” from what went wrong in the D.C. case.

The California challenge depends on a stronger set of facts, Krishnamurthy said.

Amazon defended its policies in a Sept. 14 statement.

“The AG fundamentally misunderstands the retail industry and misconstrues Amazon’s practices,” the company said. It added that Bonta is “trying to solve a problem that doesn’t exist, namely a lack of competition in retail.”

Bonta’s case is not a slam-dunk, according to Barak Orbach, a University of Arizona law professor.

“The case will run into laws that govern supply chains during a period of high inflation and impacts to supply chains,” Orbach said. “Judges are likely to keep that in mind, and Amazon will make sure to remind them of that.”

The US Department of Justice intervened in D.C.'s case, backing Racine’s push for the court to reconsider its dismissal.

That may bolster Bonta’s position, said Sam Weinstein, a law professor at Cardozo Law School and a former DOJ antitrust attorney.

“It strikes me that California learned some lessons from what happened in D.C.,” Weinstein said. “The judge in California probably read the DOJ’s filing in D.C., so if the DOJ was convincing about the mistakes made, the judge in California will internalize it.”

The case is The People of the State of California vs. Amazon.com, Inc., Cal. Super. Ct., no. CGC22601826, 9/14/22.

To contact the reporter on this story: Dan Papscun in Washington at dpapscun@bloombergindustry.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com; Roger Yu at ryu@bloomberglaw.com