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The Federal Trade Commission (FTC) plans to sue Amazon over allegations the company illegally collected and used children’s data via its Alexa-powered smart speakers, according to reports by Politico and Bloomberg.
Citing individuals familiar with the issue, the two media outlets said the FTC recommended filing a complaint against Amazon on the basis that the collection of data from children under age 13 violated the Children’s Online Privacy Protection Rule (COPPA).
The U.S. Department of Justice (DOJ) may file the lawsuit on the FTC’s behalf as early as next month, Bloomberg reported.
The FTC is obligated to first refer its complaint to the DOJ’s civil division, which will then have 45 days to bring a case, according to Politico. If the DOJ declines to sue, the FTC can then opt to proceed on its own.
This potential lawsuit comes four years after several advocacy organizations, including the Campaign for a Commercial-Free Childhood (now known as Fairplay) and the Center for Digital Democracy, filed a complaint with the FTC against Amazon, citing two products: the Echo Dot Kids Edition and FreeTime (since rebranded Kids+).
The news also comes amid a push by the FTC to target Big Tech firms for a range of alleged anti-competitive practices.
According to the 2019 complaint, Amazon held onto voice recordings indefinitely and also kept children’s personal data — even after users attempted to delete it.
Following the submission of the complaint in 2019, Amazon claimed the two products in question were compliant with COPPA, Bloomberg reported.
COPPA penalties are limited to slightly over $50,000 per violation. However, each affected user is legally considered a separate violation, meaning the total fine against Amazon could be significantly higher.
FTC Chair Lina Khan, in remarks made last week, said existing law “prohibits firms from conditioning access to certain services on endless collection of data,” adding that the law includes “substantive limitations on when firms can be collecting data.”
Khan has developed a reputation as a Big Tech skeptic. In 2017, she published a legal paper in the Yale Law Journal characterizing Amazon as a modern monopolist whose market power required “addressing.”
The paper referred to an “antitrust paradox,” wherein Amazon has been able to amass significant market power, attaining an anticompetitive position even as it uses its logistical advantages to provide consumers with lower prices.
The paper argued in favor of restoring “traditional antitrust and competition policy” or applying “common carrier obligations and duties” traditionally required of telecommunications, transport and pipeline companies.
Amazon has taken issue with Khan in the past. In 2021, the company filed a petition with the FTC arguing that Khan should be recused from investigations involving Amazon, due to her past criticisms of the company.
According to The Wall Street Journal (WSJ) reports, the FTC has not publicly responded to the petition, and similar, previous attempts by Facebook also failed.
Other FTC actions involving children’s privacy and COPPA violations have included cases against YouTube and Alphabet Inc., Google’s parent company, in 2019, and also in 2019, against Musical.ly, the precursor to TikTok, owned by ByteDance Ltd.
And in December 2022, $520 million in fines were levied against Epic Games, creator of Fortnite, under COPPA.
Amazon possibly facing multiple federal antitrust lawsuits
According to a Feb. 3 WSJ report, the FTC was preparing a potential antitrust lawsuit against Amazon that would be filed in the coming months.
The same report stated:
“The commission in recent years has been examining Amazon practices including whether it favors its own products over competitors’ on its platforms and how it treats outside sellers on Amazon.com, according to some of the people familiar with the matter.
“The FTC also has been scrutinizing the company’s Amazon Prime subscription service’s bundling practices.”
A March 20 Politico report stated that one of the issues on the FTC’s radar is Amazon’s $1.7 billion acquisition of iRobot — maker of Roomba robotic vacuum cleaners — in August 2022.
According to Politico, the FTC is still investigating the deal, and there is a sentiment within the agency that Amazon — the leading online retailer in the U.S. market — should not be allowed to purchase the largest manufacturer of a popular product sold via its platform.
This sentiment is based on concerns Amazon will favor Roomba over competing brands, withhold Roomba from competing retailers, and that acquiring iRobot will add to Amazon’s control in the connected home devices market, raise privacy risks and increase the company’s control over consumer data.
According to Politico, “Amazon has been largely unresponsive to the FTC’s investigation so far, refusing to turn over information” requested by the agency.
Amazon’s iRobot acquisition isn’t the only line of inquiry the FTC is pursuing against the company, Politico reported. Other potential legal actions may include:
- A “wide-ranging antitrust case” against Amazon’s retail operations, including the company’s practice of bundling services through its Prime subscription platform and its use of competitor data to “out-muscle rival retailers.”
- A case against an alleged “dark pattern” — referring to the difficulty consumers report in unsubscribing from Amazon services such as Prime, as well as claims that consumers have been tricked into subscribing to more expensive subscription services than they intended.
- A deceptive advertising investigation into the company’s “Amazon Choice” label, which it applies to some products in its online marketplace, based on allegations that Amazon may apply this label on a “pay-to-play” basis and use that to promote the placement of products in search results.
- Privacy investigations into Amazon’s Ring camera and security system business, for which FTC staff have previously recommended the agency file a lawsuit.
Fox News reported Wednesday that the FTC also is looking into becoming a regulator and overseer of artificial intelligence (AI) systems.
Amazon has become a key player in the AI field, with a March 27 story in the WSJ reporting that it and other Big Tech companies are increasingly promoting AI as a central component of their cloud computing businesses.
Cloud computing businesses, namely those of Amazon and Microsoft, are under scrutiny by U.K. telecommunications regulator Ofcom for possible antitrust violations, CNN reported Wednesday.
TechCrunch reported Tuesday that Amazon is investing in an incubator for generative AI startups around the world, while CNBC reported on March 28 that Amazon sellers are increasingly turning to the popular AI tool ChatGPT to write product listings.
In reference to potential FTC actions against Amazon, the WSJ’s Feb. 3 report stated, “The timing of any case remains in flux” and the agency may opt not to proceed.
However, Politico reported that the FTC “is under immense pressure to bring a successful antitrust case against Amazon” after allowing two large-scale acquisitions by the company to proceed.
This includes Amazon’s $8.5 billion purchase of MGM Studios in March 2022, and its $3.9 billion acquisition of primary care provider One Medical in July 2022. The latter deal closed on Feb. 22.
According to Politico, the FTC investigated Amazon’s One Medical purchase and “found evidence of anticompetitive behavior,” including ending its Amazon Care medical service and purchasing One Medical instead.
However, the FTC allowed the deal to proceed because it was seen as “too hard of a case to win,” in part because “it would be too challenging to define exactly what market Amazon was monopolizing.”
The FTC faces difficulties with cases against Big Tech companies “in part because they control all the data that enforcers need to build a case,” Politico reported.
This issue was the topic of testimony before the Senate Judiciary Committee in March by Amanda Lewis, an attorney and partner with Cuneo, Gilbert and Laduca, who previously worked with the FTC.
In a June 2020 research paper published in the First Monday journal, a team of technology and communication researchers found, “Big global tech firms often have treasure troves of data, perhaps greater than most of the nation state governments.”
“Such data are hidden from public view,” the researchers said, characterizing this as “troubling,” on the basis that “algorithms are increasingly used to make consequential decisions with high stakes implications” on people’s lives.
Amazon has claimed the FTC, in investigating issues such as allegations of anticompetitive behavior involving Amazon Prime, is making “excessive and unreasonable demands” on founder Jeff Bezos and the company’s executives, who were subpoenaed. The FTC has mostly rejected these claims.
Amazon has previously reached a $60 million settlement in an FTC lawsuit that claimed the company illegally withheld tips from some delivery drivers.
The company has also faced scrutiny from overseas regulators. In December 2022, the EU and Amazon settled two antitrust cases related to allegations regarding the company’s treatment of third-party sellers using its platform.
As part of the settlement, Amazon agreed to give third-party sellers “an equal shot” at being selected as the default option in Amazon’s Buy Box service and to qualify for its Prime shipping program. The company also agreed to “abstain” from using nonpublic data about sellers on its marketplace to compete against them in the EU.
However, Amazon was not fined as part of this settlement.
In January, Amazon was fined $60,269 by the U.S. Department of Labor’s Occupational Safety and Health Administration (OSHA) for workplace safety violations “that compromised worker health,” including placing them at higher risk of musculoskeletal disorders.
Amazon also faces state-level antitrust suits.
In December 2022, the District of Columbia filed an antitrust suit regarding Amazon Flex, a delivery service offered by the company. According to the lawsuit, the company encouraged consumers to tip its delivery drivers, claiming the entire amount would go to those drivers. However, it is alleged that the tips were used to subsidize wages.
Previously, in September 2022, California filed an antitrust lawsuit against Amazon, alleging that Amazon penalizes sellers for listing products at lower prices on competing websites. Upon discovering this, the lawsuit claims, Amazon would often remove the “Buy Now” and “Add to Cart” buttons from that product’s listing on its platform.
A bid by Amazon to dismiss the California lawsuit was rejected by a court on Friday.
Other Big Tech companies under FTC scrutiny
The FTC and other arms of the federal government have, in recent years, increased their pursuit of Big Tech companies on the basis of both antitrust and consumer protection laws, Bloomberg reported.
In 2020, a 449-page report by the House Antitrust Subcommittee, to which Khan was a contributor, focused on Amazon, Apple, Google and Meta, finding that Amazon had “monopoly power” over sellers on its site, bullied its retail partners and improperly used seller data in order to compete with its rivals.
The FTC sued Facebook in 2020, accusing the company of purchasing and then freezing out small startups. According to the WSJ, the case is still pending.
More broadly, the FTC has placed corporate data collection practices under scrutiny in recent years. This included a still-pending 2022 settlement against WW International, Inc., formerly known as Weight Watchers, for improperly collecting and storing children’s data.
CNET reported that these settlements have helped raise awareness of the amount of data collected and stored by household devices and apps, including the options available to adjust settings to increase user privacy.
The DOJ has also filed two antitrust lawsuits against Alphabet Inc. — one in January based on allegations the company is monopolizing digital advertising, and a 2020 lawsuit alleging the company engaged in “unlawful exclusionary practices to maintain its search business dominance.”
Alphabet, Inc. has reportedly “stacked” its legal team with former DOJ employees as it prepares to fight those cases.
In turn, the FTC is preparing an antitrust lawsuit against Apple, based on a long-running investigation over allegations the company abused its market power to stifle competitors and smaller tech firms.
Politico reported these actions — including the pursuit of lawsuits against Amazon — began in 2019 under the tenure of former FTC Chair Joseph Simons, a Republican. Such actions have since continued under Khan.
And in December 2022, the FTC filed a lawsuit to block Microsoft’s $69 billion purchase of video game developer Activision Blizzard, alleging that the deal would place the company in a position to suppress competitors to its Xbox gaming platform.
Not all such efforts have been successful, however.
In February 2022, for instance, the FTC withdrew its pursuit of an action against Facebook regarding the company’s acquisition of virtual reality content producer Within.
Eleanor Fox, LL.B., a law professor emeritus at New York University and antitrust expert, told The Defender that this recent defeat isn’t likely to deter the FTC from pursuing similar actions, including against Amazon. She said:
“The FTC’s loss regarding Meta Within is not likely to deter them. They have a vision, they want to carry it forward, they want to incorporate it in their litigation efforts, and they will pursue it.”