On July 2, 2021, a group of consumers filed a putative class action in Washington District Court alleging Amazon engaged in unlawful price gouging during the COVID-19 pandemic on a variety of products. The case is noteworthy because Washington does not have a specific price gouging statute. Instead, plaintiffs argue that the alleged price gouging is an “unfair or deceptive act[] or practice[] in the conduct of any trade or commerce” in violation of Washington Consumer Protection Act (“WCPA”). Commentators have speculated that one of the purposes for filing in Washington is to pursue, in a state court, nationwide damages from Amazon.

The lawsuit seeks to hold Amazon accountable for alleged price gouging that occurred on its platform not only for Amazon-branded products, but also for price increases on products sold by third-party sellers. Plaintiffs argue Amazon’s pricing policies—which allows the platform to set prices and apply price ceilings on third-party seller’s products—make the e-commerce giant liable for sales on their site that might violate the WCPA regardless of the seller is. This theory of liability raises many questions for companies who host online marketplaces and third-party sellers who utilize these platforms.

The complaint points to three of Amazon’s pricing policies. First, Amazon sells some third-party products under its “Sold by Amazon” program. In this program, Amazon retains complete control of pricing and sellers receive revenue based on a minimum gross proceeds price.  It is unclear to what extent this pricing authority would make Amazon the “seller” for the purposes of state price gouging laws.  Most states with a specific price gouging statute prohibits “selling” or “offering to sell” at prices above the statutory limits.  Since the program is styled “Sold by Amazon,” courts could construe Amazon to have made the sale.  However, it also raises the question of the extent to which the third-party seller could similarly be held liable if the prices charged by Amazon are above the statutory limit.

Next, Amazon commonly negotiates most-favored-nation (“MFN”) protections with larger third-party suppliers to ensure suppliers do not undercut Amazon prices when selling on other platforms. Most courts have not found MFNs inherently anticompetitive, and in fact, MFNs often serve procompetitive purposes.  However, some courts have permitted plaintiffs to use MFNs as evidence of collusion, on the basis that such agreements can sometimes facilitate price fixing or discourage sellers from competing with lower prices. The antitrust implications of MFN protections are somewhat contrary to claims under price gouging laws. MFNs limit downward pressure on prices since suppliers are unable to offer goods at lower prices to competitive retailers. Price gouging laws, instead, restrict price increases, creating a price ceiling for sellers. Plaintiffs’ claims are somewhat novel in that they are alleging unfair price increases but pointing to MFN protections, which create price floors. In states with broad unfair pricing laws, such as Washington, MFN provisions will come under greater scrutiny as enforcement turns beyond consumer facing prices and to supply chains.

Finally, Amazon offers third-party sellers automated pricing, where prices are set algorithmically based on rules communicated to sellers. In general, prices under this model are based on competitive benchmarks. The complaint alleges that if one of these competitive benchmark prices increased through price gouging, Amazon’s pricing algorithm would automatically raise prices accordingly across its platform.

The complaint illustrates how automated pricing algorithms could result in improperly raising prices in violation of state price gouging statutes.  The algorithms use a variety of inputs to determine pricing trends and allow sellers to set prices based on numerous market factors.  In some scenarios, the input that caused the price increases plaintiffs complain of could be outside of Amazon’s control, such as a price change at a small local retailer. The changed input could inflate the price of a third-party’s product, without either the seller or Amazon actively setting the price. Under the plaintiffs’ theory, however, Amazon should be held liable for such increases.  As we discussed in a previous article, plaintiffs cannot point to clear statutory price limitation in Washington.  Instead, the WCPA merely prohibits unfair trade practices, forcing plaintiffs to argue that the WCPA effectively includes a 15% cap on price increases during an emergency. While plaintiffs have only brought suit against Amazon at this stage, third-party seller who, albeit, through an algorithm, responded to price gouging in the market by raising the price of their own product, could potentially be exposed to litigation risk as well.

The complaint raises significant concerns for third-party sellers who utilize Amazon or other marketplace websites to sell products. If a seller is bound by pricing policies like those used by Amazon, the seller could risk similar liability under price gouging or other statutes.  While some state laws permit price increases in the face of increased costs, sellers must substantiate the cost increase.  Merely pointing to an Amazon-like pricing algorithm may not be sufficient to relieve such sellers of liability.  When engaging in sales on platforms like Amazon sellers should carefully examine the types of protection the algorithm or pricing policy offers to ensure compliance with price gouging statutes and other pricing controls.

While still in its early stages, this lawsuit raises new concerns for those who run marketplaces, which could face liability when selling products on their platform and for third-party sellers, which potentially risk litigation by relying on automated pricing strategies or pricing agreements. Diligent companies will continue to monitor these developments closely to understand their individual exposure under increased enforcement and fluid price gouging laws, many of which remain in effect.

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Visit Proskauer on Price Gouging for antitrust insights on COVID-19.

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Photo of Christopher E. Ondeck Christopher E. Ondeck

Chris Ondeck is co-chair of the Firm’s nationwide Antitrust Group. He represents clients in civil and criminal antitrust litigation, defending mergers and acquisitions before the U.S. antitrust agencies, defending companies involved in government investigations, and providing antitrust counseling.

Chris has handled antitrust matters…

Chris Ondeck is co-chair of the Firm’s nationwide Antitrust Group. He represents clients in civil and criminal antitrust litigation, defending mergers and acquisitions before the U.S. antitrust agencies, defending companies involved in government investigations, and providing antitrust counseling.

Chris has handled antitrust matters for clients in a number of industries, including advertising, aerospace, alcoholic beverages, appliances, building materials, consumer products, defense, franchise, medical devices, metals, mining, natural resources, oil and gas, packaging, pharmaceuticals, software and telecommunications. He also has developed substantial experience advising clients regarding the application of the antitrust laws to the pharmaceutical industry, the agriculture industry, trade associations and the energy industry.

Photo of John R. Ingrassia John R. Ingrassia

When competition or antitrust questions arise, John Ingrassia is sought out for his knowledge, reputation and credentials.

John is a recognized authority on Hart-Scott-Rodino antitrust merger review, and for more than 20 years has counselled businesses facing the most challenging antitrust issues and…

When competition or antitrust questions arise, John Ingrassia is sought out for his knowledge, reputation and credentials.

John is a recognized authority on Hart-Scott-Rodino antitrust merger review, and for more than 20 years has counselled businesses facing the most challenging antitrust issues and helped them stay out of the crosshairs — whether its distribution, pricing, channel management, mergers, acquisitions or joint ventures.

John is a senior counsel at the Firm, advising on the full range of antitrust matters in diverse industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services and health care, among others.  His practice focuses on the analysis and resolution of antitrust issues related to mergers, acquisitions, and joint ventures, and the analysis and assessment of pre-merger notification requirements. John has extensive experience with the legal, practical, and technical requirements of merger clearance and is regularly invited to participate in Federal Trade Commission and bar association meetings regarding Hart-Scott-Rodino practice issues.

Photo of Jennifer Tarr Jennifer Tarr

Jennifer E. Tarr is a senior associate in the Litigation Department, and a member of Proskauer’s Sports Law and Antitrust Groups. She regularly litigates on behalf of sports leagues and counsels clients active in the sports industry on a variety of matters, including…

Jennifer E. Tarr is a senior associate in the Litigation Department, and a member of Proskauer’s Sports Law and Antitrust Groups. She regularly litigates on behalf of sports leagues and counsels clients active in the sports industry on a variety of matters, including issues pertaining to antitrust, team relocation, league governance, contract disputes, sponsorship and fan-league relationships.

In addition to sports antitrust work, Jennifer also has experience counseling and defending clients on issues related to mergers and acquisitions, claims related to unlawful conspiracy and anticompetitive agreements, monopolization claims, and price fixing claims. Jennifer is also a member of the firm’s price gouging team.

In 2019, she was a panelist on the Environmental Law Institute’s Managing Private Sector Environmental Initiatives panel, where she spoke about the Antitrust Implications of Corporate Environmental Collaborations.

Jennifer maintains an active pro bono practice and is a member of the Firm’s Pro Bono Committee. She received Proskauer’s Golden Gavel Award for excellence in pro bono work in 2018 and 2019.

Prior to joining Proskauer, Jennifer clerked for the Honorable Lorna G. Schofield on the United States District Court for the Southern District of New York. She also was a Staff Attorney at the Environmental Law & Policy Center, where she represented clients as lead counsel in litigation before multiple federal district and appellate courts and in federal mediation.

While in law school, Jennifer was a member of the Harvard Legal Aid Bureau, one of three honors societies at the law school and the nation’s oldest student-run legal services center. In that capacity, she argued and won a case of first impression before the Massachusetts Supreme Judicial Court. She also argued over 20 motions in state trial court and successfully represented clients in federal mediation and before federal administrative tribunals.

Photo of Shannon D. McGowan Shannon D. McGowan

Shannon McGowan earned her J.D. from the University of Virginia School of Law, where she captained the school’s Philip C. Jessup International Law Moot Court team.

Prior to law school, Shannon served as a legislative assistant to state representatives at the Oklahoma State…

Shannon McGowan earned her J.D. from the University of Virginia School of Law, where she captained the school’s Philip C. Jessup International Law Moot Court team.

Prior to law school, Shannon served as a legislative assistant to state representatives at the Oklahoma State House of Representatives.

Timothy E. Burroughs

Tim Burroughs is an associate in the Litigation Department.

Tim earned his J.D. from Vanderbilt Law School, where he was the Executive Student Writing Editor for the Vanderbilt Journal of Transnational Law and Teaching Assistant for the legal writing program. While at Vanderbilt…

Tim Burroughs is an associate in the Litigation Department.

Tim earned his J.D. from Vanderbilt Law School, where he was the Executive Student Writing Editor for the Vanderbilt Journal of Transnational Law and Teaching Assistant for the legal writing program. While at Vanderbilt, Tim interned at the U.S. Attorney’s Office for the Southern District of New York and published his student note on international anti-money laundering regulation in the fine-art market.

Prior to law school, Tim taught elementary school in the Brownsville neighborhood of Brooklyn for three years as part of Teach for America.