Why are Amazon’s practices in its “market” in Brussels’ crosshairs?

Accused of ruin local tradeto generate heavy traffic and from treat your employees badlyAmazon does it too the subject of two European Commission investigationsOn November 10, Brussels informed the US online retail giant that it had “violated European Union rules on anti-competitive practices by distorting competition in online retail markets.”

These two surveys have the advantage of updating the relationships it maintains with third-party sellers to whom it offers its services on the market, which represent a significant and growing part of its turnover. If in 2019, product sales brought in $ 160.4 billion, the revenue from services, such as the monthly fee of 39.99 euros charged to third-party sellers for access to the platform, amounted 120 billion dollars.

These are the same anti-competitive practices that were also condemned by the Court. Paris Commercial Court on September 2, 2019 regarding the complaint filed by the Ministry of Economy and Finance as the guarantor of economic public order.

Third-party sellers reported to Amazon

The judgment is particularly captivating because it details Amazon’s practices towards third-party sellers, the source of 80% of the goods sold on its website. These third-party sellers do not negotiate contracts signed with Amazon: intermediary platforms have automated procedures to offer consumers identical conditions and services for all products.

However, these clauses remain significantly unbalanced to the disadvantage of sellers. They reveal the discretionary power of the platform, which can modify the contract, including in vital aspects such as the amount of commission to be paid by the seller, suspend it, terminate it, prohibit or limit access to any Amazon service, delay the sale or refuse it.

In each case, Amazon reserves the right to act at its sole discretion, without prior notice or individual notification to the seller concerned and without giving reasons for its decision.

These clauses are censured by the judge because they create a significant imbalance in the rights and obligations of the parties. In the future, they will no longer be possible. TO European Regulation 2019/1150 of 20 June 2019aimed at promoting fairness and transparency for businesses using online intermediation services, it now requires that decisions be reasoned, reported individually to each seller and that a notice period (at least 15 days) be respected.

The requirement puts an end to Amazon’s practice of simply notifying users through a “central seller” interface that they were supposed to consult regularly to stay informed about contract changes.

Amazon’s argument of hiding behind the necessary market automation guaranteeing a uniform service to manage 170,000 sellers was therefore rejected by the court. The European justice notes that if Amazon is able to send an email notification to millions of consumers to inform them that their order has been taken into account and that their account will be charged, it must be possible to do the same for third-party sellers!

Unfair competition

Another area of ​​contention is the clauses regarding performance factors. These factors (defective order rate, order cancellation rate before processing, delayed shipping rate) affect the seller’s account directly: if their performance rate drops, suspending their account will prevent them from selling for the entire period of suspension; their funds will be blocked from the proceeds of previous sales for up to 90 days.

However, not only do performance calculation indicators not appear in the contract, but their criteria are considered to be imprecise, unstable and their evolution entirely discretionary.

Finally, the “Guarantee from A to Z” clause is being censored, which allows customers of a third-party seller to return products and get a refund of the purchase price in various situations (non-compliant product, defective, delivered delayed, etc.); the third-party seller is charged from his account for the refund made by Amazon, even if, after reviewing the complaint, it is considered unfounded and even if the product is not returned. However, Amazon, in the case of its own products that directly compete with those of third-party sellers, only refunds the consumer if the product is returned.

The regulation will have little effect here, except in the form of individual notification of any decisions to limit or suspend the provision of online intermediation services to the user’s company. The platform must “refer to specific facts or circumstances, including the content of third-party reports.”

Article 5 of the European Classification Regulation simply requires that the main parameters and the reasons justifying the relative importance of these main parameters compared to other parameters are included in the general conditions and whether they may be influenced by direct or indirect remuneration paid by the user of the companies and in this case describe these possibilities and their effects. The European Commission should issue guidelines on transparency requirements.

Article 7 of the Differential Treatment Regulation concerns the case where the platform itself offers goods and services that are in direct competition with third-party sellers, as is the case with Amazon. In such a case, there is a risk that it will apply its position to give its own offers a technical or economic advantage that it could deny to competing user companies.

This is precisely the subject of the European Commission’s investigation into abuse of dominant position. Brussels accuses Amazon of using non-public trade data from third-party sellers (number of product units ordered and shipped, seller revenues on the marketplace, number of visits to seller listings, shipping data, seller past performance) to build its own offer and make it more attractive to the detriment of third-party sellers. But the regulation does not prohibit such practices, it simply requires transparency.

A Breakthrough for Third-Party Sellers

Ultimately, the court, after conducting an overall assessment of the imbalance, will sentence Amazon to a civil penalty of 4 million euros. Rejecting the logic of the American giant, which believed that all the services offered to sellers balance the disputed clauses, the court emphasized that if Amazon’s services are truly effective, they also remain profitable for sellers.

The judge further specifies that “certain violations, particularly those relating to commercial performance metrics, are likely to allow Amazon to apply a stipulation that, once a up-to-date product introduced by a third-party seller has been tested in the market, favors its own sales to the detriment of the third-party seller once a price has been agreed.”

The same performance criteria are also taken into account when determining access to the renowned Buy Box, which presents third-party seller products that “compete for this access with identical products from Amazon.” However, the criteria for access to the “buy box” are currently the subject of a second investigation launched by the European Commission, which aims to determine “whether the criteria established by Amazon to select the winner of the “buy box” and which allow sellers to offer products to Prime members under the Amazon Prime loyalty program lead to preferential treatment of Amazon’s retail business or sellers using Amazon’s logistics and delivery services.”

In conclusion, we must commend the strenuous work of national judges despite the absurd fine compared to Amazon’s financial strength. The up-to-date regulation represents progress for third-party sellers, but it does not constitute a form of regulation of the platforms’ economic model.

It would seem that the Treaty on the Functioning of the EU and its Article 102 on abuse of dominant position are much more effective. However, the time factor works against this, the duration of the investigation depending on the complexity of the case, the degree of cooperation of the companies concerned with the Commission and the exercise of the rights of defence.