Lina Khan is coming for Amazon, armed with an FTC antitrust suit

Lina Khan’s Federal Trade Commission has already filed three cases against Amazon.com Inc. Now she’s gearing up for the Big One.

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Based on her public comments, Khan is unlikely to accept compromises from Amazon. (AP)

Lina Khan's Federal Trade Commission has already filed three cases against Amazon.com Inc. Now she's gearing up for the Big One.

In the coming weeks, the agency plans to file a far-reaching antitrust suit focused on Amazon's core online marketplace, according to documents reviewed by Bloomberg and three people familiar with the case. The main allegation is expected to be that Amazon leverages its power to reward online merchants that use its logistics services and punish those who don't.

FTC investigators and Khan's office have been honing the complaint for several months, two of the people said, and finalizing key details such as where to file suit. Khan and her colleagues are keen to file before personnel changes in August, according to the people, who cautioned that the timing could slip.

Based on her public comments, Khan is unlikely to accept compromises from Amazon and could seek to restructure the company — a dramatic outcome that Amazon would surely appeal.

Taking on Amazon promises to be a career-defining moment for the 34-year-old Khan, who rose to prominence articulating fresh analysis of how the Seattle-based company abuses its market power. In a prominent law review article, Khan argued that the existing antitrust enforcement framework was ill-equipped to tackle the potential harm Amazon poses to competition.

Khan's appointment to lead the FTC supercharged the Biden administration's crackdown on Big Tech, which already includes complaints against Alphabet Inc.'s Google and Meta Platforms Inc., along with an investigation into Apple Inc.

Amazon says Khan should recuse herself, owing to her public statements about the company. But when Meta made a similar demand, Khan continued to lead the case, ignoring a non-binding recommendation from the agency's top ethics official that she step aside. A footnote in a memo from the ethics counsel, earlier reported by Bloomberg, said Khan had been authorized to serve as a prosecutor on Amazon's cases.

The ethics memo said Khan's prior statements about Meta are enough to warrant recusal for cases in the agency's administrative court where commissioners ultimately have the last say, but contained no conclusions about Amazon. Two judges have ruled that there are no problems with Khan's participation in cases filed in federal court, which may push the FTC to sue there. Doing so would avoid drawn-out litigation on whether Khan has a conflict of interest, but could make the case harder to win.

Amazon executives will get a final chance to argue their case before the FTC's three commissioners, including Khan, but that “last rites” meeting hasn't been scheduled, said one of the people and another individual who requested anonymity to discuss the situation.

Both Amazon and the FTC declined to comment.

Amazon shares fell less than 1% at 11:57 a.m. in New York.

The Big One

Amazon's sprawling marketplace is the heart of the company's e-commerce operations. Third-party merchants, who now account for more than half of the company's online sales, pay a commission on each sale and can also pay Amazon for services that range from warehousing and shipping to advertising.

These fees are optional, but most merchants consider them necessary costs of doing business. Amazon's average cut of each sale on its marketplace has increased in recent years, surpassing 50% in 2022, according to a study by Marketplace Pulse, up from 35% in 2016.

The FTC has amassed evidence that the company disadvantages sellers that don't use these services, and the agency is investigating an algorithm that selects merchants for the web store's coveted “Buy Box,” where consumers can add products to their cart with one click.

The expected allegations are similar to a 2020 report from a US House subcommittee — which counted Khan as a staff member — and overlap with a European antitrust case that charged Amazon with rewarding sellers that use its fulfillment services and using merchants' sales data to boost its own retail business.

Amazon settled the European case by offering to change its Buy Box practices and restrict how it uses data from third-party sellers on its European web stores. While Amazon could make a similar offer for the US market, Khan has signaled opposition to such compromises, telling a Senate committee last year that the FTC would “strongly disfavor” such remedies.

Customer Obsessed

Amazon has long said it puts customers first — a credo employees are taught to espouse in antitrust training, according to documents viewed by Bloomberg. This antitrust suit would be the FTC's fourth case this year that seeks to call the company's famous focus on customers into question.

In May, the agency sued the e-commerce giant in two separate cases for failing to delete data about kids collected by its Alexa speakers and illegally spying on users of its Ring doorbells and cameras. Amazon said it disagreed with the FTC's allegations, but agreed to pay $30.8 million to resolve the cases.

Last week, the FTC again sued Amazon in a consumer protection case, alleging the company duped consumers into signing up for Prime membership and deliberately made it hard to cancel. The FTC's filing of that case took Amazon executives by complete surprise, according to two people familiar with the situation.

The FTC is separately investigating Amazon's proposed $1.65 billion acquisition of Roomba vacuum maker iRobot Corp.

Antitrust Probe

The FTC's big antitrust case has been a long time coming. Amazon received the initial investigation notice in June 2019, according to documents viewed by Bloomberg. The first request for records followed two months later.

That letter, a copy of which was obtained by Bloomberg, included several questions about how using Amazon warehousing and delivery services “affects the third-party seller's product placement,” including boxes on the website that give products additional prominence.

The document request also sought records regarding any arrangements with Apple Inc., including proof of the “rationale for entering into such agreements.” The two companies agreed in 2018 to allow the iPhone maker to sell its products directly on Amazon's marketplace — a deal later scrutinized by FTC for the impact on Apple resellers.

In February 2020, the FTC sent compulsory document requests seeking more information on those issues and the Amazon Web Services cloud computing division, according to internal agency documents obtained by Bloomberg through a public records request.

Amazon responded with a slew of information throughout 2020 and 2021. At the time, the FTC had only a few investigators on the probe because it was focusing most of its antitrust resources on Meta.

Khan's FTC

In June 2021, Khan took over the agency and began recasting the Amazon probe. She personally helped draft some lines of questioning for investigators and handpicked a fellow academic with Justice Department experience, John Newman, to help lead the investigation. Newman further bulked up the team.

Over the course of 2022, the FTC interviewed almost 30 Amazon employees under oath, according to the people.

When the complaint is finally filed, the FTC anticipates a barrage of criticism aimed at Khan, already the focus of business interests wary of her hardline approach and management of the agency. One person familiar with Amazon's strategy pointed to its broad attacks on Congress's tech-focused antitrust legislation. Last year, the company and its subsidiaries spent $20 million on lobbying, in addition to launching an ad campaign and an effort to mobilize sellers in lawmakers' home states to publicly oppose the bills.