- Prime is a crucial way Amazon encourages consumers to keep spending money on its platform.
- Prime growth has for years spurred investors to pile into Amazon stock.
In 2018, Amazon founder Jeff Bezos said he expected his company to be scrutinized by regulators because big tech had become so large. On Wednesday, he was proved right.
The Federal Trade Commission sued Amazon, accusing the e-commerce behemoth of luring unwitting customers into Prime subscriptions, and creating a "labyrinthine" process to cancel it. The company "knowingly duped millions of consumers," the FTC said in its complaint filed in federal court in Washington state.
The suit was the result of an Insider investigation in early 2022. Citing internal Amazon documents, reporter Eugene Kim and then-editor Graham Starr revealed that the company had been concerned since at least 2017 that user interface designs on Amazon.com led customers to feel manipulated into signing up for Prime.
Amazon was aware of these complaints for years but did not take serious action, according to the previously unreported internal documents and six current and former employees who spoke to Insider.
Even worse: In several cases, fixes for these issues were proposed and considered, but resulted in lower subscription growth when tested, and were shelved by executives, the documents showed.
After the story ran, the FTC revived a dormant probe into the issue, according to the regulator's complaint on Wednesday.
"On March 14, 2022, Business Insider published information leaked from current and former Amazon employees regarding the problems with Amazon's Prime checkout enrollment flow and the Iliad Flow," the FTC wrote in its suit. "The Commission quickly ascertained that Amazon had failed to disclose much of the now-leaked documents and information to the Commission, despite the fact that at least some of it was responsive to the outstanding CID. Amazon withheld the information."
In an email to Insider on Wednesday, Amazon's spokesperson said the FTC's claims are "false."
"The truth is that customers love Prime, and by design we make it clear and simple for customers to both sign up for or cancel their Prime membership," the statement said. "We also find it concerning that the FTC announced this lawsuit without notice to us, in the midst of our discussions with FTC staff members to ensure they understand the facts, context, and legal issues, and before we were able to have a dialog with the Commissioners themselves before they filed a lawsuit."
Civil Investigative Demand
Around the spring of 2022, the regulator reached out to current and former Amazon employees and sent out subpoena letters in some cases. One of those letters, reviewed by Insider, said the FTC made a Civil Investigative Demand to Amazon in March 2021. A CID is a legal document enforceable in court that seeks documents or other information related to an FTC investigation. The agency sends CIDs to get information from companies it thinks may have violated the law, according to the FTC website.
In April 2022, the FTC sent more correspondence about the issue to Amazon lawyers, according to the letter, which cited Insider's original story from March 2022.
At that time, an Amazon spokesperson said in a statement that "we continually listen to customer feedback and look for ways to improve the customer experience."
"Customers love Prime and by design we make it clear and simple for customers to both sign up for or cancel their Prime membership," the Amazon representative added.
Harassment accusation
Later in 2022, the FTC ramped up its probe. The regulator asked Amazon to dig up any relevant disappearing messages sent by the company's executives, including Bezos and CEO Andy Jassy. Other Amazon executives subpoenaed in the investigation included former retail boss Dave Clark and his successor Doug Herrington, SVP of international Russ Grandinetti, and former Prime VP Greg Greeley.
Amazon's law firm accused the FTC of harassing the company's top executives. The firm argued that the FTC should "quash or limit" the subpoenas due to "unworkable and unfair" procedures that it described as a "one-sided effort to force Amazon to meet impossible-to-satisfy demands."
It looks like that argument has failed so far.
Do you work at Amazon? Are you concerned about the company's behavior? Reach out to reporter Eugene Kim via the encrypted messaging apps Signal or Telegram (+1-650-942-3061) or email (ekim@insider.com). Use a non-work device.