California sues Amazon for alleged antitrust violation

California is suing Amazon, accusing the company of violating state antitrust and unfair competition laws by stifling competition and engaging in practices that push sellers to maintain higher prices for products on other sites.

The 84 lawsuit pages The San Francisco Supreme Court on Wednesday reverses another complaint filed last year by the District of Columbia, which was dismissed by a district judge earlier this year and is now undergoing an appeal process.

But California officials say they believe they will not face a similar fate, in part because of information gathered during a more than two-year investigation that included subpoenas and interviews with sellers and Amazon competitors as well as current and former employees of the e-commerce giant.

In the lawsuit, California’s attorney general’s office, Rob Ponta, said Seattle-based Amazon used contract provisions to prevent third-party sellers and wholesale suppliers from offering low prices for products on non-Amazon sites, including on their own. This, in turn, is detrimental to the competitiveness of other retailers.

The lawsuit maintains that merchants who fail to comply with the policy can have their products stripped from Amazon’s prominent listings and face other penalties such as suspension or termination of their accounts. It claims that Amazon’s policy is essentially forcing merchants to list higher prices on other sites, which helps it maintain its dominance in e-commerce.

Among other things, the lawsuit in California seeks to prevent Amazon from entering into contracts with sellers that harm price competition. It is also seeking a court order to force Amazon to pay damages to the state over the price hike. State officials did not say how much money they were seeking.

The company has said in the past that sellers set their own prices on the platform. It also said it has the right to avoid highlighting products that are not priced competitively. In a statement sent on Wednesday, Amazon reiterated those points and said Punta has “the exact opposite.”

“The relief that AG is seeking will force Amazon to offer customers higher prices, in strange contravention of the core objectives of antitrust law,” the company said. “We hope that the California court will reach the same conclusion as the metropolitan court and immediately dismiss this lawsuit.”

Amazon controls nearly 38% of online sales in the United States, more than Walmart, eBay, Apple, Best Buy and Target combined, according to research firm Insider Intelligence. About two million sellers list their products on Amazon’s third-party marketplace, which represents 58% of the company’s retail sales.

During a press conference on Wednesday, Ponta said that some sellers have expressed that they will offer lower prices on other sites with lower seller fees, but not do so to avoid punishment from Amazon.

“Amazon has stifled its competition for years, not by winning competition, but by preventing price competition,” Ponta said. “As a result, families in California have paid more, and now Amazon has to pay the price.”

The lawsuit is also a message to other companies that “unlawfully skew the market to the detriment of California consumers, small business owners and the economy,” he said.

Technology industry allies also criticized the lawsuit. Adam Kovacevich, chief executive of the Chamber of Commerce Industry Group, which receives funding from Amazon and other tech companies, said the case would force Amazon to raise prices.

“This makes no sense while consumers are shopping for deals to counter inflation, and it is based on a legally incorrect theory that has already been rejected by federal courts,” Kovacevic said.

Despite this defense, Amazon’s market power has been the subject of scrutiny from lawmakers and advocacy groups calling for stricter antitrust regulations. Earlier this year, congressional lawmakers urged the Department of Justice to investigate whether the company collects data on sellers to develop competing products and display them more prominently on its site. Critics also criticized Fee increase imposed on sellers, making it more difficult for traders to enter the market.

Lawmakers on Capitol Hill have been pushing bipartisan legislation aimed at restricting Amazon and other big tech companies, including Apple, Meta and Google, from favoring their products and services over competitors. The bill cleared the main committees but remained in Congress for several months amid fierce opposition from corporations.

Meanwhile, regulators were also looking into Amazon’s business practices and deals. In July, the company introduced concessions to settle Two antitrust investigations in the European Union, including a promise to apply equal treatment to all sellers when classifying product offerings on the site’s “buy box”, a desirable placement that makes items more visible to shoppers.

In the United States, the Federal Trade Commission Amazon’s $3.9 billion acquisition investigated Primary Health One Medical as well as Amazon Prime’s registration and cancellation practices, the company’s paid subscription service that offers deals and faster shipping.