Amazon vendor blows the corporate’s obligatory arbitration coverage in Congress
An Amazon seller on Thursday complained to lawmakers about unfair compulsory arbitration clauses the platform is using to prevent potentially harmful outcomes in court.
Jacob Weiss, founder and president of homeware retailer OJ Commerce, told the House of Justice’s Antitrust Subcommittee that he, like many other e-commerce entrepreneurs, relies on Amazon to survive. Because of Amazon’s large presence in the online shopping market, retail sellers have often stated that they feel dependent on the platform to drive sales.
Weiss said this gave him “no choice” but to sign the contract with Amazon that allowed him to sell on its platform, which included a compulsory arbitration clause that also prevented him from bringing class action lawsuits against the company.
“Amazon’s compulsory arbitration clauses made it impossible to get a fair shock,” Weiss told the subcommittee. “The system is aimed against small and medium-sized online entrepreneurs.”
Weiss is just one of the more than 2.5 million third-party providers that make up Amazon’s vast marketplace. The marketplace now accounts for more than half of the company’s e-commerce sales and has helped Amazon generate record revenue. It has also been a focus of antitrust investigators in the US and abroad who believe Amazon is using its market power to pressure the merchants who sell on its platform.
In order to start selling products on the Amazon market, small and medium-sized businesses must sign and agree to the company’s business solution agreement, which contains a number of provisions related to doing business on the platform.
In one section of the contract, sellers must agree to resolve disputes with Amazon through “binding arbitration … not in court.” The agreement also provides that sellers must conduct arbitration “only on an individual basis and not in a class, consolidated, or representative action”.
By preventing sellers from banding together to file a complaint, “companies cannot share the cost of arbitration against Amazon,” Weiss said during the hearing, adding that those with “arbitration, legal and expert fees” Associated costs can rise up to tens of thousands of dollars. In one case, Weiss said, he spent more than $ 50,000 on arbitration fees, not including the legal fees. Weiss said he had prevailed in some cases but still “recovered very little” from what he had lost.
Weiss said that enforced arbitration not only limits sellers’ ability to appeal, it also makes it prohibitively expensive and difficult for them to get a favorable outcome. He argued that arbitrators have a financial incentive to favor Amazon in order to keep their business going, and the limited scope of the discovery means sellers are “left in the dark, but Amazon has all the information”.
“Amazon has mastered the art of increasing the cost of arbitration,” Weiss said, adding that the class action ban alone “isolated Amazon.”
In a report last autumn, the House Democrats in the Antitrust Subcommittee identified compulsory arbitration clauses as an aspect that affects competition in the digital markets. They recommended removing compulsory arbitration clauses to strengthen private enforcement of antitrust laws.
But getting Republicans on board with this idea is likely to prove difficult. Rep. Ken Buck, R-Colo., Who is now the senior member of the subcommittee, said in his own report last year that removing compulsory arbitration clauses would be among his “non-starters.” The idea is “fraught with unintended consequences,” said Buck in the report, but added that “Congress has room to re-evaluate some parts of the arbitration clause policy.”
An Amazon spokesman pointed out to CNBC the responses Amazon submitted to the Antitrust Subcommittee as part of its investigation into Big Tech last year, but declined to comment on Thursday’s hearing.
In a response to the subcommittee on its arbitration, Amazon said the “vast majority” of sellers’ complaints and disputes are being resolved “amicably and informally” through internal teams, with 163 sellers entering arbitration between 2014 and July 2019. Amazon is trying to “negotiate a friendly solution” during the arbitration process, the company added.
The Antitrust Subcommittee investigated Amazon along with Apple, Facebook and Google for more than a year. In doing so, he found that everyone had a monopoly and recommended several updates to existing antitrust laws and their enforcement. While Republicans on the subcommittee disagreed with the scope of the Democrats’ recommendations, many agreed with the concentration of power reasoning. All four companies denied the allegations in the Congress report.
Facebook and Google are now being charged by state and federal lawmakers for illegally maintaining their monopolies. So far, Apple and Amazon have not received antitrust charges from the government, but several outlets have reported that federal agencies split oversight of the company’s investigations in 2019.
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