Amazon Heads Into FTC Jury Trial Over Prime Cancellation Claims

Amazon.com Inc. and three executives are facing a federal regulator’s allegations in a Seattle court that they duped customers into signing up for the company’s Prime subscription service and then made it too hard to cancel.

The trial, which is expected to last about four weeks, kicked off Monday with jury selection before opening arguments Tuesday. Nine people picked from across western Washington state will decide whether Amazon broke consumer protection laws — potentially exposing the company to billions of dollars in penalties and refunds.

FTC Chair Andrew Ferguson

Photographer: Allison Robbert/Bloomberg

The civil enforcement case was launched by the Federal Trade Commission two years ago when Joe Biden was president. It now pits the the Trump administration against the world’s largest online retailer despite Amazon’s efforts to deepen ties with the White House and reset relations after years of federal scrutiny. The FTC has a separate antitrust case against the company going to trial in 2027.

The FTC claims Amazon makes it easy to enroll in Prime, but requires consumers to click through multiple steps to cancel, a process affecting nearly 40 million customers. The FTC says Amazon is aware of the difficulties users have in canceling Prime, and the process is so arduous that internally the company nicknamed it the Iliad, after Homer’s epic poem. The agency is accusing the three executives of rejecting changes to the process because it would have harmed the company’s bottom line.

Senior Vice Presidents Neil Lindsay and Russell Grandinetti and Vice President Jamil Ghani are accused of helping to orchestrate the plan and ignoring pleas by colleagues to end techniques “to mislead or trick users” into signing up for Prime without clearly stating the services’ terms and conditions, including for billing and free trials.

All three executives are expected to take the stand, along with customers called by the FTC to testify about the difficulty they experienced canceling their subscriptions and obtaining refunds.

The nine-person jury was chosen from a pool of 49 people who had a mix of views about Amazon. About a dozen people were dismissed after they expressed negative views of the company. One person picked for the panel indicated a slight bias in favor of the retailer but said she could be impartial. A user design engineer with strong feelings about the ease of online subscription cancellations didn’t make it on the jury despite FTC lawyers wanting him to be selected.

Prime Subscribers

Prime subscribers pay $139 a year for quick delivery, video streaming and other offerings. The program has helped Amazon convert occasional shoppers into loyal customers.

Amazon has defended its enrollment and cancellation processes, saying it receives consent from customers to enroll in Prime and provides “simple mechanisms” to cancel.

The FTC is accusing Amazon of breaking the 2010 Restore Online Shoppers’ Confidence Act, which allows for penalties of more than $53,000 per violation. The FTC says a violation occurs anytime a consumer isn’t provided with clear terms or cancellation procedures. Penalties could reach into the billions of dollars given the number of people at issue. The case will rest on whether jurors think a “reasonable person” could navigate their way through the company’s website.

The case will be a key legal test of the agency’s efforts to police so-called dark patterns, or tactics used to trick internet users into making unintended choices. The FTC recently sued LA Fitness and Uber Technologies Inc. for making it difficult to cancel subscriptions. The FTC is pursuing these cases after a rule that required companies to make it as easy to cancel a service as to sign up was overturned by a federal appeals court earlier this year.

Financial Penalties

If the jury finds that Amazon and its executives broke the law, it will be up to US District Judge John Chun to decide what financial penalties, including restitution and fines, should be imposed, as well as any changes to the company’s business.

The FTC already notched a significant victory days before trial. Chun ruled last week that Lindsay and Ghani are liable for Amazon’s conduct and that the company doesn’t properly disclose Prime’s terms before customers turn over their billing information. He also rejected key arguments by Amazon that the law doesn’t apply to Prime and is too vague, and that the FTC waited too long to bring the case.

The jury still will be called to decide the bulk of the case, including whether Amazon’s disclosures are adequate, if customers properly consent to being enrolled in Prime and whether the cancellation process is simple enough.

Chris Mufarrige, the FTC’s head of consumer protection, said the judge’s ruling “affirms that Amazon defrauded American consumers.” A company spokesperson said executives are confident of prevailing at trial.

Just before the trial, Chun ruled that the FTC need not prove every single example of Amazon’s sign-up and cancellation procedures are deceptive, and can instead focus on a representative sample.

The FTC claims Amazon makes it easy to enroll in Prime, but requires consumers to click through multiple steps to cancel.

Photographer: Daniel Acker/Bloomberg

“Amazon’s failure to win summary judgment hikes pressure on the company to settle,” said Matthew Schettenhelm, an analyst with Bloomberg Intelligence. Because refunds and penalties “could reach the multiple billions of dollars, a settlement is likely before Judge Chun can take on that task.”

Still, if the company rolls the dice with the jury, its best chance at winning is to dispute that it “knowingly” broke the law, Schettenhelm said. “Amazon has a solid argument rooted in the lack of precedent in this area, and in the fact that the FTC has provided little guidance about what this law requires.”

Internal Memos

In court papers, the agency cited Amazon memos dating back to 2017 citing concerns that it was too hard for Prime customers to cancel their subscriptions.

“Millions of consumers accidentally enrolled in Prime without knowledge or consent, but Amazon refused to fix this known problem, described internally by employees as an ‘unspoken cancer’ because clarity adjustments would lead to a drop in subscribers,” according to an FTC filing.

Amazon responded that the “the FTC will misinterpret internal Amazon documents discussing how some consumers signed up for Prime unintentionally or had difficulty canceling.”

--With assistance from Matt Day, Spencer Soper and Leah Nylen.

To contact the reporter on this story:
Josh Sisco in San Francisco at jsisco6@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Robin Ajello, Elizabeth Wasserman

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