Why Amazon Wants You to Lobby Congress: What Is S.2992?

When corporate tech giants like Amazon come directly to the sellers to try to get them to lobby Congress for or against something, it’s time to take a closer look at their ulterior motives.

With every piece of news that comes from Amazon, I always like to ask, “What’s in it for them?”

Well, this one had my alarm bells blaring! 🚨

I had to dig into all the dirty details of this news announcement, so here’s what’s happening and what I think is really going on… 🕵️‍♂️

What is The American Innovation and Choice Online Act (S.2992)?

Passed by the Judiciary Committee on January 20, 2022, The American Innovation and Choice Online Act is the newest antitrust legislation with bipartisan support (Republicans and Democrats sponsor a bill together for the common good). It targets Big Tech firms, such as Amazon, Meta (formerly Facebook), Apple, and Alphabet (parent company of Google) for potential antitrust and consumer choice violations.

The bill is sponsored by Senate Judiciary Committee Antitrust Subcommittee Chair, Senator Amy Klobuchar (D-MN), and full committee Ranking Member, Senator Chuck Grassley (R-IA).

It is also co-sponsored by Senators:

The fact that S.2992 is a bipartisan effort co-sponsored by an ideologically diverse group of Senators is a sign that there’s a growing momentum in Congress for antitrust violations to be punishable under federal law (if enacted).

The bill poses a challenge to the ecosystem business model of Big Tech firms that encourages users to utilize an interlocking suite of products or tools owned by the same company. In a report released by the Judiciary Committee, it showed that these tech giants regularly conduct anti-competitive practices to maintain monopoly or control over their respective industries.

A good example would be Amazon accessing and exploiting your seller data to create and launch competing products for their own brand. 😓

To Whom Does the Bill Apply To?

S.2992 applies to any “website, online or mobile application, operating system, digital assistant, or online service” that:

• Allows a user to generate or interact with content on the website
• Facilitates online selling among third-party sellers or customers, e.g., Amazon
• Or, one that enables user searches that show huge amounts of information, e.g., Google

But as of June 2022, the current draft is only limited to the biggest online platforms, also known as covered platforms, with:

• At least 50 million US-based monthly active users (or 100,000 US-based business users)
• Annual US net sales greater than $550 billion
• Tech platforms that serve as a “critical trading partner” for its business users

Therefore, this bill would certainly apply to Amazon, Apple, Alphabet, and Meta.

What Happens When it’s Passed into Law?

If enacted, federal antitrust agencies, Federal Trade Commission (FTC) and Department of Justice (DOJ), would have the authority to enforce the violations below and issue injunctions and penalties against the guilty party.

Under the bill, it would be unlawful to give “preference to the products, services, or lines of business of the covered platform operator over those of another business user on the covered platform in a manner that would materially harm competition,” the Justice Department explained.

For instance, Amazon could be found in violation of this law if they had algorithmically placed their branded products in more prominent places in the platform or if Amazon was found guilty of stealing your supplier information to create a knock-off version of your product.

The bill could also prohibit Amazon from exploiting the Buy Box feature, which they could use to promote their own products and directly compete with resellers. Many of us have been affected by the online retail giant essentially breaking its own rules to maintain dominance in the marketplace that they currently share with us.

Clearly, both wholesale and private label sellers feel the hurt of Amazon’s anti-competitive behavior. But if the bill is passed into law, it would potentially squash that. This could be one of the biggest reasons why Amazon would want to call out for sellers to lobby against it – though, it may be against sellers’ best interest and in Amazon’s interest more than not. ⚠️

Under Section 3: Unlawful Conduct, the bill would also create the following violations:

1. Limiting another business’s products or services to compete against the covered platform’s. This means Amazon cannot apply their policies unfairly against sellers that rely on the platform to do business with customers. For example, if a new private label brand was eating into Amazon’s market share, the bill would prohibit them from selectively implementing some policy to ban it from the marketplace.
2. Carrying out the covered platform’s Terms of Service (ToS) in a discriminatory way among similarly situated business users. We had a competitor “review stacking,” which means they were adding (completely unrelated) reviews from “dead products” to their own product listing. For a kitchen product, there were reviews about dog leashes, DVDs, books, and even exercise equipment that were added to the listing. Not only did this increase the total number of reviews on the listing, it also changed the total star rating from 4 to 4.5 stars!
   
   The seller was essentially stealing sales from us by lying about his review status. 🤦
   
   We reported this violation numerous times and each time the seller would get the reviews stripped and then a few days later, his listing would be “stacked” all over again. He would never get shut down for violating ToS, and it was a vicious cycle. And yet other sellers’ listings were suspended for much less inflammatory violations.
3. Restricting the capacity of business users to utilize different platforms’ hardware, software features, or operating systems. This provision most likely applies to Google and Apple with their suite of interoperable devices. For example, Apple AirPods are fully interoperable with iPhones through a chip that supports Siri, a communication feature that’s exclusive to the Apple ecosystem, and Bluetooth. Via Bluetooth connection, Samsung, Sony, and other smartphone brands are fully interoperable with AirPods. However, according to tech expert Aurelien Portuese, 1st-party devices (AirPods to iPhone) will always be more interoperatable than 3rd-party devices with operating systems. Therefore, under this bill, other smartphone manufacturers could use interoperability issues with Apple and Apple refusing to open up their platform to make 3rd-party devices more interoperable, as potential grounds for litigation. Unless perhaps, the restriction is absolutely necessary (see #6), e.g., to protect Apple’s trade secrets and patented technology.
4. Conditioning access to the platform or preferred status or placement on the platform on the purchase/use of other products or services offered by the covered platform that isn’t exclusive to the covered platform itself. This violation could impact Amazon’s Prime shipping, a service that makes FBA products eligible for free 1-2 day shipping. The bill would mandate the eComm giant to allow other carriers to fulfill Prime orders. Amazon says such a mandate would make delivering on their 1-2 day shipping promise “difficult” and “potentially impossible in practice,” possibly because they wouldn’t have full control over carriers outside of their own shipping network.
   
   But then again, Seller-Fulfilled Prime already exists for those who are not using FBA, so Amazon is full of it if they are trying to claim opening up Prime to other carriers would be a tragedy.
   
   Last time I checked, the Seller-Fulfilled Prime program was still operable and has not been canceled. If it had been canceled due to lack of success, then, there might be an argument to be had there. The sheer fact that Seller-Fulfilled Prime is still in operation is essentially an admission that this point can actually be adhered to. In my view, this is a disingenuous play from AMZ to try to gain support from sellers. 🙄
5. Using internal data obtained from the activities of a business user, including interactions with customers, to boost the sales of the covered platform’s own products. According to the National Association of Wholesaler-Distributors, Amazon gathers vast amounts of competitively sensitive data from third-party sellers, including product details and transaction data around product prices and customer information. The eComm giant then exploits this sensitive data to launch their own competing products to undercut sellers on the platform.
6. Restricting or prohibiting users from uninstalling applications that have been pre-installed on the covered platform or changing default settings on the website that geared customers or users towards products offered by the covered platform, unless necessary.
7. Retaliation against business users or customers who raise concerns with antitrust authorities about any potential violations.

If found guilty, the violator could face a financial penalty of up to 15% of its US revenue. 😲 No wonder Amazon and other Big Tech CEOs themselves have descended on Washington recently to influence the members of Congress to oppose the bill, CNN reports.

Supporters of the Bill

Bill sponsors, industry groups, and other supporters of S.2992 argue that the antitrust legislation would address many long-held problems with tech companies allegedly committing restrictive, self-preferencing practices online.

It would also ensure:

• Entrepreneurs and small businesses still have the opportunity to succeed in digital markets (Sen. Klobuchar)
• Large online platforms and other tech companies will be held accountable if they behave in a discriminatory manner (Sen. Grassley)
• Help level the playing field for small business owners, i.e., prohibiting Big Tech from using the intel data they collect from users on their websites, apps, or platforms to create unfair competitive advantages. (Sen. Lummis)

By combating these anti-competitive practices, covered platforms and their business users would be able to provide customers with better user experience and more product offerings with competitive prices.

Groups and Critics Who Oppose the Bill

Amazon, Apple, and other pro-tech groups such as the Information Technology and Innovation Foundation (ITIF), Chamber of Progress, TechNet and the Computer & Communications Industry Association oppose the bill – as expected, so no surprise there!

The opponents of the bill argue that it is:

Vague and overly broad with multiple ill-defined legal terms
For example, covered platforms are allowed to take “narrowly tailored” actions as an affirmative defense, which means the restriction committed was reasonably necessary for legal reasons, to protect user privacy and data security, or to maintain or improve the “core functionality” of the platform. However, the term “core functionality” isn’t well-defined in the bill. This could lead to disputes as covered platforms develop or already have existing products and services that they may claim are “core” to their business model.

Rushed
Industry groups have argued that S.2992 has not received the traditional hearing process that other antitrust-related bills have in the past (e.g., giving the members and the public an opportunity to debate the impacts of the bill before advancing it to the floor for the Senate to vote for its rejection or approval).

Carl Szabo, Vice President and General Counsel at NetChoice said that “rather than opening the floor to public input, the bill’s sponsors rushed through legislation. Lawmakers should stop this backroom wheeling-and-dealing and instead take the input of economists, experts, and businesses to better understand the impact of this rushed legislation.”

This is something that I personally can’t disagree with. It is unfortunate that if the bill passes, it may embroil Amazon in a world of unnecessary legal battles that we may see the financial brunt of. But if it fails, I wonder when we might ever find another chance to advance some of these pro-seller actions.

Still, both majority and minority floor leaders took advantage of the bipartisan support (thus getting a 16-6 vote) for the bill to pass it during the committee markup, the final step a committee takes to push the bill to the Senate chamber.

It will hurt American consumers
The Chamber of Progress recently said that the bill would “break popular consumer products,” specifically Amazon Prime, as it could become illegal due to the bill prohibiting Amazon from giving preference to those sellers who use their services–for example, displaying a Prime badge on certain products could create an unfair advantage over non-Prime items. (But, again, Seller-Fulfilled Prime should be able to combat this argument.)

To influence the public and lawmakers, the industry group has also been running an online ad saying “Senator Klobuchar wants to erase Amazon Basics,” according to Reuters. However, if Amazon was not worried about Amazon Basics not “playing fair” they wouldn’t be running these ads. This is a sure sign that we have Amazon’s number when it comes to their true motives toward lobbying sellers against this bill. 😏

A representative from Amazon wrote that the bill also threatens to destroy two of the things consumers love the most about Amazon:

1. The wide selection of products with low prices made possible by opening the eComm platform to third-party sellers. However, this argument does not hold water, as the bill doesn’t seem to aim at the heart of the 3P sellers, but rather Amazon’s own offerings. As previously discussed, the bill would prohibit Amazon to prioritize their own store branded products that they typically offer at cheaper prices. Unless, of course, this is a veiled hint that Amazon would rather become the sole seller on the platform.
   
   If that was the case, I’m sure this could create one hell of a vacuum that would splinter Amazon’s business to (1) another buying platform that included 3P sellers and (2) Amazon would become nothing more than a giant Amazon brand website. It is an empty threat by the online retail giant, but an interesting road to hypothesize down.
2. The promise of fast, free shipping through Amazon Prime. Again, FBA isn’t the only way to offer Prime shipping. Seller-Fulfilled Prime also offers 1-2 day shipping, unless Amazon suddenly stops offering this program to force sellers to go back to using FBA. But wouldn’t that be considered an anti-competitive behavior under the S.2992 bill?

Amazon reps also claim that putting these restrictions on only the biggest covered platforms gives “preferential treatment to other large retailers that engage in the same practices.”

They argue that the bill targets only one retailer, Amazon, by requiring an annual US net sales of at least $550 billion to qualify for regulation. Therefore, it would not cover Walmart and Target. But perhaps, that’s likely the point. I personally haven’t heard of Walmart and Target doing what Amazon has been doing. Perhaps when they get closer to the $550B mark, they’ll start thinking about taking the dark turns that Amazon’s been winding down. However, IMO, it would be good to lower that threshold to rope them in as well.

Many Sellers Refuse to Rally Behind Amazon’s Call to Oppose the Antitrust Bill

Dharmesh Mehta, Amazon’s Vice President of Worldwide Selling Partner Services, took to Seller Forums to encourage everyone to reject the antitrust legislation that could “harm small businesses, American consumers, and Amazon.”

However, the lobbying didn’t appear to go as intended. Many sellers replied to the announcement saying they support the bill. 👏

Third-party sellers account for 60% of Amazon’s total retail sales. But in the last few years, they’ve expressed frustration over the fees they pay to sell on the platform, fear of being suspended for little or no reason, and the platform’s inability to eliminate returns scams and bad actors (e.g., fake reviews and listing theft).

No wonder many sellers felt the need to take back control by supporting a bill that could shake up Amazon. 💪

• “Yes, I’m going to oppose that Amazon will be prohibited from undercutting, manipulating the buy box, and instituting restrictions on certain listings that unfairly bar me from selling an item. Yup, writing to my senator right now.”
• “Any informed seller is going to support massive action taken against Amazon in the antitrust arena. I am personally sick of the condescending posts by Amazon management directed at us. We are not morons and know how to read and think for ourselves.”
• “This bill is 100% pro seller. I am definitely going to call my representatives and ask them to please pass the bill! It is not going to jeopardize our ability to sell on Amazon. It’s going to give us sellers a fair shake and restrict Amazon from purposely prioritizing their products over ours. Amazon is trying to do to us what they did to those who wanted to unionize.” 👌
• “If Amazon wants my support, it will have to level the playing field, be fair, be honest and most of all be good to its workers and sellers. I oppose this email because it urges sellers to go against the creation of laws that will help level the playing field. I support better laws for Amazon, Amazon Workers Unions and Sellers.”
• “As much as we love Amazon, there must be regulation and oversight at some point. If this is passed it doesn’t mean 3P sellers will be hurt, but that Amazon and big tech cannot favor themselves 100% of the time. Small businesses struggle to keep up with low costs offered by big box stores so anyone agreeing S. 2992 is a good thing is looking out for small business and their fellow sellers. Big tech should not be favored 100% of the time.”

But obviously, not every seller expressed support for the bill. Two commenters said that the proposed legislation could hurt them just by jeopardizing the marketplace.

• “I can’t predict the future, and so neither can the gang in Washington. I can tell you that this bill is bad news for Amazon, bad news for Amazon customers, and if you think that doesn’t mean bad news for Sellers, then you must not be a third-party Seller.”
• “I understand the sentiment, but being permanently put out of business would probably hurt you more. There is a time and place to air our grievances with Amazon. They deserve it plenty. But this is not that time. Let’s not cut off our nose to spite our face.”

Another seller believes that Amazon isn’t really against S.2992.

• “Read the post and read it again. Bottom line is Amazon wants the law to also cover its physical competition – WalMart. That may be a fair criticism, but stop the hysterical nonsense. Ironic to see Amazon whining about a law intended to prevent it from unfairly taking small seller data to create competing products to wipe out the small seller is bad because it doesn’t prevent WalMart from doing the same.”

You can read the entire discussion here.

Playing the Waiting Game

There are faults with the proposed law and it’s not black and white but there are serious reasons for AMZ to be concerned and they absolutely aren’t altruistic. This law could be a major shake-up and none of us can say whether that would be in a good or bad way. 🤔

But the idea that Amazon would shatter their cash cow – third-party business – is a naive one. While they are threatening it, they know that to do so would destroy them, too.

It could mean more fees funneled down to us sellers to try to squeeze some of us out, though. Anyone who understands economics even a little bit knows that costs trickle down and any costs Amazon incurred would likely find its way down to us and to consumers, but would the benefits outweigh the risks? Who knows. 🤷

In closing, the bill is fundamentally good for 3P sellers, but there’s not going to be a clean line on this thing.

We’ll have to take the good with the bad if this ends up passing and, maybe only one thing is for certain, it’s going to make for an interesting time if it does.

If that’s the case, I suggest we all buckle up!