Is Amazon Prime too hard to cancel? A jury will decide.
The Federal Trade Commission is set to scrutinize Amazon’s cash cow, the Prime subscription service, in a civil trial in Seattle, including tactics the FTC says get consumers to sign up and keep them from canceling.
Subscribing to an online service is often as easy as a click of a button. Is it illegal if it takes a maze of clicks to cancel?
That issue is at the heart of a civil trial beginning this week that will scrutinize the tactics Amazon uses to entice consumers to sign up for its signature Prime service—and to steer them away from leaving.
The Federal Trade Commission alleges the online giant has duped nearly 40 million customers, in violation of consumer-protection laws. It is seeking civil penalties, refunds to consumers and a court order prohibiting Amazon from using subscription practices that could confuse or deceive customers. The case, which will unfold in a Seattle courtroom, is a top test of the agency’s enforcement campaign against allegedly deceptive digital subscription practices.
Amazon’s Prime membership, the largest paid subscription program in the world with at least 200 million users, has helped the company become an integral part of consumers’ shopping habits. Launched in 2005, it offers free and fast shipping, access to Amazon’s streaming service and other perks. It currently costs $139 annually, or $14.99 monthly.
The FTC, which sued Amazon in 2023, alleges the company tricked people into signing up for the service without their knowledge or consent, including by obscuring details about billing and the terms of free trials. It says Amazon created a labyrinth to make it hard to cancel, which the company dubbed “Iliad," a reference to Homer’s epic about the long, arduous Trojan War. Several individual Amazon executives are also named as defendants.
Amazon denies the allegations, saying it has always been transparent about Prime’s terms and offers straightforward ways for customers to back out of their memberships.
“The bottom line is that neither Amazon nor the individual defendants did anything wrong—we remain confident that the facts will show these executives acted properly and we always put customers first," an Amazon spokesperson said.
The FTC won an initial pretrial victory last week when a federal judge ruled that Amazon did violate consumer-protection laws by taking Prime members’ billing information before disclosing the terms of the membership. But he said jurors still would have to consider whether the customers gave their consent to enroll and whether Amazon provided a simple cancellation mechanism.
Judge John Chun also said two Amazon executives, Neil Lindsay and Jamil Ghani, would be individually liable if the FTC proves misconduct at trial because of their high degree of involvement in Prime’s enrollment and cancellation practices. The jury will decide whether that is the case for a third executive, Russell Grandinetti.
The FTC’s lawsuit is part of the agency’s push in recent years to tackle so-called dark patterns, or digital traps intended to manipulate consumer behavior that benefit the company at the buyer’s expense. The tactics alleged in the case are endemic to online shopping, said Prentiss Cox, law professor at the University of Minnesota.
Amazon is one of the largest retailers in the U.S. “If their practices are held to violate the law, everyone will pay attention," Cox said. “This is an area in which consumers are outraged across the spectrum and that’s why there’s been so much legislative and regulatory activity."
In recent years the FTC has investigated the subscription practices of cosmetics companies, newspapers, and phone and internet service providers. This year, FTC has brought similar cases against LA Fitness and Uber. Both companies have denied the allegations. The agency has also announced settlements this year with education technology company Chegg for $7.5 million and Match Group for $14 million.
The FTC, along with several state attorneys general, is separately pursuing an antitrust lawsuit against Amazon that accuses the company of engaging in illegal monopolization to maintain position in the online marketplace. Amazon denies the allegations, and a trial is set for 2027.
Under the Biden administration, the commission adopted a federal rule that was intended to make it as easy for consumers to cancel a subscription as it is to sign up. It would have required companies to create a simple mechanism to cancel, prevented them from setting traps to keep consumers paying and added more disclosure requirements. The rule was vacated by a federal appeals court earlier this year, after industry groups sued.
Prime is a huge moneymaker for Amazon. Roughly three-quarters of all purchases on Amazon’s website are done by Prime members, according to survey research from Consumer Intelligence Research Partners. Prime members also spend double the amount of other Amazon shoppers, the research data show.
“It’s a complete cash cow for them, getting money even though they aren’t sending anyone merchandise," said David Vladeck, professor at Georgetown law school.
Nonetheless, analysts say a win for the FTC in this case may have limited impact on Amazon’s business. Around 95% of current Prime members don’t plan to cancel their subscription, said Josh Lowitz, a partner at Consumer Intelligence Research Partners. “Their continued renewal indicates that they want to be members."
Write to Erin Mulvaney at erin.mulvaney@wsj.com and Sean McLain at sean.mclain@wsj.com
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