Last year, Amazon cut a deal with Apple to bring direct iPhone sales to its platform for the first time. Now, that deal is coming under scrutiny from the Federal Trade Commission, The Verge has learned.
The deal was first announced last fall, ostensibly as a way for Apple to sell on Amazon in an official capacity and cut down on counterfeit or misleadingly marketed products. However, it had the effect of kicking off hundreds of legitimate sellers that were offering low-cost and refurbished Apple products that were no longer for sale by the company itself.
One seller, a Minnesota man named John Bumstead who specializes in refurbished MacBooks, was contacted earlier this month by a group of FTC officials. Bumstead told The Verge that he was interviewed by FTC lawyers and an economist about the impact of the Amazon-Apple deal on his business. The group did not disclose the broader purpose of the interview, but at least one member of the group is listed as belonging to the FTC’s newly formed Tech Task Force, a division launched in February to police anti-competitive behavior on tech platforms.
“You’re not allowed to agree with another firm to set a floor on your pricing.”
The FTC officials were curious about the role Amazon’s Marketplace played in Bumstead’s business and how much his business suffered from being kicked off. When Apple secured the deal in November, Bumstead was given a couple months’ notice before he was forced off the Marketplace platform, which is the leading US e-commerce website for third-party sellers.
“They wanted to know how Amazon works, how eBay works. I went into describing how a listing works on Amazon. Amazon is interesting in that you don’t necessarily create a listing. You just sort of tag on to an existing listing,” Bumstead tells The Verge. “If that listing gets deleted, chances are you’re not allowed to sell that product. That’s how Amazon did this. They created a bunch of renewed listings from the people who were certified, and they let those people sell on those listings, and they abandoned everyone else.”
Earlier this week, regulatory news organization MLex reported that the FTC had subpoenaed Amazon Marketplace seller data on products not sold by the company itself, although it’s unclear whether the two efforts are related. The FTC did not respond to a request for comment.
Still, experts say the Apple-Amazon deal could easily be grounds for an antitrust complaint. According to Sally Hubbard, an antitrust expert and the director of enforcement strategy at the OpenMarkets Institute, the practice of cutting a deal with a brand to shut out third-party sellers who may be peddling counterfeit products or simply just lower-cost versions is called “brand gating.” It’s rampant on Amazon, and it may be illegal, she argues.
“You put a gate around the brand and say all the third-party sellers of whatever that brand is get a notice saying you can no longer sell this product on our platform unless you get authorization from the brand,” Hubbard tells The Verge. “But of course the brand is not going to let you sell if you’re under the [minimum advertised price]. Problem is that it’s illegal under antitrust law.”
Specifically, Hubbard believes the Amazon-Apple deal could be a violation of antitrust laws that deal with anti-competitive conduct like price-fixing and illegal market allocation. “You’re not allowed to agree with another firm to set a floor on your pricing,” she says. “When you have these brands and a dominant retailer like Amazon, and Amazon says, ‘We’re going to make sure anyone who sells below your prices can’t be authorized to sell on your platform anymore,’ it’s basically a price-fixing agreement between a dominant retailer and a brand. And that’s illegal under Section 1 of the Sherman Antitrust Act.”
Amazon’s deal didn’t push third-party sellers off of Marketplace entirely, but it set conditions that made it impossible for smaller refurbishers to remain on the platform. Amazon still offers refurbished Apple products sold through the company’s “Amazon Renewed” program, but according to Bumstead, the program is limited to purchasers of roughly $10 million in inventory a year. He was never able to qualify for the program, and like many other refurbishers, he has left Amazon Marketplace as a result.
Now, Bumstead says a significant amount of low-cost Apple products have disappeared from Amazon. “When they deleted those listings, they deleted consumer access to the majority of old MacBooks,” Bumstead says. “[Amazon] only created those renewed listings for newer machines.” In other words, the lowest price of a used or refurbished Apple computer on Amazon suddenly jumped by hundreds of dollars.
The investigation comes amid unprecedented antitrust scrutiny of Amazon for prioritizing its own products and by using proprietary sales data to target competitors. European regulators opened an investigation into those issues earlier this month. In Germany, the company has already changed its terms of service for sellers like Bumstead, possibly as a concession to local regulators.
The FTC is also stepping up its regulatory investigations of tech giants, as led by the Tech Task Force. Earlier this month, Facebook settled with the FTC over privacy violations for a $5 billion fine, and the commission is also officially investigating the social network for antitrust violations. According to The Washington Post, the FTC has been granted informal jurisdiction into any investigation into Amazon in addition to Facebook.
Amazon declined to comment. Apple did not respond to a request for comment.
Update 8/2, 12:28PM ET: Clarified that Amazon declined to comment.