Amazon Faces Probe in Europe Over Third-Party Selling


Amazon Faces Probe in Europe Over Third-Party Selling

EU to investigate use of merchants’ data as scrutiny of tech firms mounts on both sides of the Atlantic

By Sam Schechner Updated July 17, 2019 9:58 am ET

Amazon.com Inc. will face a formal European Union antitrust investigation into its dealings with third-party merchants, expanding a multipronged regulatory push that has ensnared other Silicon Valley giants like Facebook Inc. and Google.

The European Commission, the EU’s top antitrust enforcer, said Wednesday that its investigation will look into whether Amazon is abusing its dual role as both the provider of a marketplace where independent sellers can offer products and a retailer of products in its own right.

In particular, the probe will investigate whether Amazon is using nonpublic data from independent merchants to compete against them. Investigators will also examine what data Amazon uses to pick a seller as the default option for a given product when a user clicks the “buy” button—and whether Amazon gets an unfair leg up to be that default.

The probe could eventually lead to formal charges, fines and orders to change business practices, but it could also be dropped.

“We will cooperate fully with the European Commission and continue working hard to support businesses of all sizes and help them grow,” an Amazon spokesman said.

The case opens a new—and potentially more complex—chapter for competition enforcers on both sides of the Atlantic. The EU has led the antitrust charge against Alphabet Inc.’s Google for more than a decade, issuing €8.25 billion ($9.25 billion) in fines. Now antitrust scrutiny of technology titans is rising in the U.S., as well, with the U.S. Federal Trade Commission and U.S. Justice Department dividing up oversight of four of the largest U.S. tech firms, including Amazon, Google, Facebook and Apple Inc.

Politicians also have gotten more vocal. Sen. Elizabeth Warren (D., Mass.), a presidential candidate, has proposed breaking the company up and unwinding its Whole Foods acquisition. President Trump has said Amazon should pay more in taxes and has criticized the company’s effects on competitors.

Margrethe Vestager, the EU’s antitrust chief, has emerged as one of the world’s major technology regulators. In addition to the Google cases, she also has issued a fine to Facebook for misleading regulators during a review of its acquisition of the WhatsApp chat service and ordered tech giants including Amazon and Apple to pay back taxes under what she alleged to be sweetheart deals with tax authorities. The companies are appealing the tax cases.

Meanwhile, Ms. Vestager was this month nominated to a senior position in the Commission for the next five years, meaning she may keep some sway over competition policy.

More broadly, the EU has also taken a lead in reining in the alleged excesses of technology giants in other domains, with a sweeping privacy law that went into effect last year, and new copyright legislation aimed at making tech giants pay more to news media and music companies.

The EU’s Amazon case could now help lay groundwork for growing interest among other competition regulators in investigating parts of a company that has a presence in many sectors, from logistics and e-commerce to cloud computing and now advertising.

In addition to the U.S., authorities in Italy and other countries are investigating Amazon on various topics including the treatment of third-party sellers. Germany’s antitrust regulator, earlier Wednesday, said Amazon has agreed to change its terms of service on its marketplace platform for third-party sellers, following its own investigation into the e-commerce giant’s sales practices. The changes mark the conclusion of a separate eight-month probe by the German Federal Cartel Office.

As part of the settlement, Amazon will amend certain terms for its marketplace platform around the world. The changes involve some technical issues like requiring Amazon to offer third-party sellers a 30-days notice before suspending accounts and reducing Amazon’s requirements about the confidentiality terms with sellers, the German authority said.

A European Commission spokeswoman described the German case, and the others in Europe, as not conflicting with the EU’s case, which focuses on data. “These investigations are complementary but not overlapping,” she said.

The EU investigation, first opened informally last September, will focus in large part on certain terms in Amazon’s contracts with independent merchants. In particular, investigators will look at whether Amazon’s contracts allow it to aggregate merchants’ proprietary data, given its role as the platform for processing transactions and shipping goods on behalf of third party-sellers—and whether using that data to inform its own retail business violates EU competition laws.

In addition, investigators will look at whether Amazon has a dominant position in any EU markets, which could set a higher bar for its conduct with smaller companies that use its services.

On Tuesday, at a hearing before the U.S. House of Representatives about digital platforms’ market power, an Amazon representative said the company doesn’t use individual sellers’ data to compete with them. An Amazon spokesman declined to comment Wednesday when asked whether the company uses data aggregated from multiple sellers to compete with them.

The EU’s case against Amazon could prove to be complicated, some antitrust experts say, because its focus on the contractual use of a business customer’s data appears novel.

“It’s an innovative case because it’s trying to use data collected by Amazon,” said Nicholas Economides, an economics professor who looks at competition issues at New York University Stern School of Business. He said the EU will have its work cut out for it, however, to show that its use of the data is anticompetitive: “Information alone is not going to make the case.”

Given recent court decisions in the EU, the Commission may also face pressure to show robust data demonstrating that Amazon’s use of the data has had anticompetitive effects on merchants, said Nicolas Petit, a competition-law professor at the University of Liege.

Amazon’s marketplace business, in which it offers services to retailers to sell goods on Amazon’s platform, is an increasingly important part of its business. The marketplace accounts for more than half of the retailer’s global sales, according to chief executive Jeff Bezos’s letter to shareholders in April. According to Mr. Bezos, the traditional retail business reached $117 billion in sales last year, dwarfed by $160 billion for sales on its marketplace.

“Third-party sellers are kicking our first party butt,” he wrote.

—Sara Germano, Laurence Norman and Dana Mattioli contributed to this article.

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