The FTC’s Misguided Approach to Amazon’s Prime Subscription Services
The trial phase of the Federal Trade Commission’s (FTC) case against Amazon’s Prime Subscription Services began this week. Last week, in an order deciding on the parties’ cross motions for summary judgment, the Court found that (1) the Restore Online Shoppers’ Confidence Act (ROSCA) applies to Amazon Prime because of its auto-renewal features; (2) Amazon is liable under ROSCA because it collects billing information before providing terms and conditions of the subscriptions; and, (3) the Court found that two of Amazon’s executives can be tried for personal liability under ROSCA. Critically, however, the FTC’s case fails to establish a legal theory by which the Court could determine that Amazon violated the law.
When Congress enacted ROSCA in 2010, it aimed to prohibit “data pass” schemes, where consumers’ billing information would be secretly shared with unrelated third parties. Through their inaction, consumers could be signed up for products and services they neither wanted nor were aware of. As such, ROSCA makes it unlawful “for any person to charge or attempt to charge any consumer for any goods or services sold in a transaction effected on the Internet through a negative option feature.” A negative option feature is defined as “an offer or agreement to sell or provide any goods or services, a provision under which the customer’s silence or failure to take an affirmative action to reject goods or services or to cancel the agreement, is interpreted by the seller as acceptance of the offer.”
The FTC argues that Amazon’s subscriptions qualify as a negative option feature due to the auto-renewal features of Prime subscriptions. However, while subscriptions may renew automatically until a consumer chooses to cancel them (with consumers receiving email updates before the renewal date), the subscription only begins with the consumer’s voluntary and manifest acceptance of the offer to start the subscription.
Subscription services have become a rapidly expanding business model, growing by 435 percent from 2012 to 2022. Over the last two years, companies offering subscription services have seen a 25 percent increase in new, unique subscribers, demonstrating their ability to consistently provide consumers with value. Research has even shown that 54 percent of consumers (and 84 percent of Prime subscribers) have multiple paid memberships to big-box superstores. Subscription services help provide consumers and businesses with tailored, convenient solutions, ultimately creating a win-win scenario for both parties.
Here, the Court sided with the FTC and considered that the language in the Prime subscription agreement regarding cancellation (“Your Amazon Prime membership continues until cancelled[…]”) makes this a negative-option feature. Importantly, while this is how most subscription services operate, the FTC appears to take issue only with Amazon’s conduct. Moreover, the Court erroneously considered that each time the subscription renews, it is as if Amazon and the customer have made a separate contract regarding that payment and the term of the Prime membership, which is how it alleges that the subscription is covered under ROSCA as a negative-option feature. The Court failed to recognize that the initial Prime offer informs customers that they will be charged periodically unless they cancel their membership. The consumer accepts the periodic charges when subscribing to Prime, which prevents this from being a negative-option feature. When a customer pays the recurring Prime membership fee, they do not accept any offer by their silence; instead, the customer is simply abiding by the terms of the offer.
The Court’s interpretation, along with a successful FTC case, would mean that instead of consumers conveniently paying automatically for a service they wanted and voluntarily signed up for, e-commerce companies would require them to re-enter their billing information. This would increase the burden on consumers and create unnecessary processes, requiring them to constantly resubscribe to the services they want to continue enjoying.
Another troubling conclusion of the Court’s order concerns the individual liability of Amazon’s executives under ROSCA and the FTC Act. Not only is it unusual for the FTC to name individual executives in a case of this nature, but the Court’s analysis and decision to pierce the corporate veil is extremely troubling. As Amazon argued, the company’s named executives lacked actual, subjective awareness of the alleged violation of ROSCA and did not have the ability to control the alleged violation regarding Prime subscription services anyway. Despite this, the Court considered that the executives did have such authority, and allegedly acted with actual knowledge of, or were recklessly indifferent to, the alleged issues with Amazon’s practices. As such, the Court found that the executives could potentially be found liable for Amazon’s practices.
This aspect of the court’s decision is particularly troubling, as it appears that there is no connection between the Court’s decision and the goal of deterring corporate misbehavior. Moreover, this can potentially set a negative precedent, as it holds executives accountable for alleged corporate behavior over which they have no control. This could hinder innovation in the long run, as companies and their executives would be wary of taking bigger risks when there is no certainty of what decisions they might be responsible for, even if those are outside their control.
In fact, much of Amazon’s conduct under scrutiny by the FTC are common design elements employed by businesses to enhance the overall consumer experience. While subscription cancellation often requires a few steps, these safeguards are in place to prevent customers from accidentally losing access to benefits they have already paid for. In reality, and as the Court acknowledged, Prime customers can easily cancel their subscriptions with just a few clicks. These and other common design elements (such as making the sign-up button larger and colorful to attract attention) are key ways in which businesses attract and maintain customers. By targeting common website design practices, the FTC’s allegations reveal a critical misunderstanding of how businesses operate online.
One hopes that the court will begin by considering whether regulators should be empowered to redefine standard business practices in the absence of both clear rules and meaningful evidence of harm. As it stands, the FTC’s case looks less like consumer protection and more like regulatory overreach.
