Amazon has a considerable portfolio that includes footwear and apparel retailer Zappos.com and Whole Foods. But e-commerce companies extend their reach in the market not just by acquiring other companies, but by forging tactical alliances and vendor relationships, and antitrust enforcers are paying attention.
This week, Assistant Attorney General Makan Delrahim, who oversees the Justice Department’s antitrust division, said the agency would target exclusivity agreements, for instance, to make sure they are not being used to undermine smaller competitors. Such agreements aren’t inherently taboo or anticompetitive, but they may allow a company to impose troubling restrictions on who their customers or vendors can deal with, he said.
“In digital markets, [exclusivity agreements] can be beneficial to new entrants, particularly in markets characterized by network effects and a dominant incumbent,” Delrahim said at the Antitrust New Frontiers Conference in Tel Aviv, Israel on Tuesday.
“They also can be anticompetitive, where a dominant firm uses exclusive dealing to prevent entry or diminish the ability of rivals to achieve necessary scale, thereby substantially foreclosing competition,” he said.
For decades, U.S. enforcers tended to view antitrust issues through the lens of consumer prices. If prices remained low, agencies were not as inclined to scrutinize competitive conduct. But Delrahim’s remarks may signal a shift in how enforcers examine large players wielding their presence, said antitrust attorneys.
“The focus now is not just on price, but the potential to stifle innovation,” said Susan Adams, a partner at Locke Lord LLP. “Whether it is your licensing agreements, or distributor agreements, or any kind of exclusive relationships — what way you went about forming those relationships, that would be something that regulators will look at.”
In April, Kohl’s strengthened its partnership with Amazon and announced that all its stores would start accepting free returns from Amazon customers. ModiFace, the augmented reality company acquired last year by L’Oréal, said this month that many Amazon users would be able to use their cell phone cameras to visualize how they would look in different lipsticks. Such relationships highlight some of the newer ways in which e-commerce retailers have extended their reach in the market.
The DOJ and the Federal Trade Commission both oversee antitrust enforcement, and have over time built their respective enforcement expertise in different industries. The FTC, which has historically enforced privacy and retail issues, has agreed to focus on potential antitrust issues involving Facebook and Amazon, the New York Times reported this month. A representative for the FTC declined to comment, and a representative for Amazon declined to comment on news reports about the FTC.
The DOJ’s enforcement stance doesn’t necessarily have a direct bearing on the FTC’s own posture, but Delrahim’s remarks that existing antitrust laws are pliable enough to pursue digital companies with may nonetheless be a signal of a broader enforcement trend to come. The Justice Department prosecutes violations of antitrust laws including the Sherman Act, which targets monopolistic practices and may carry criminal penalties. The FTC enforces antitrust rules including section five of the FTC Act, a broadly defined statutory provision that prohibits unfair business practices.
“The FTC is an independent agency and doesn’t take its cues from the DOJ,” said Jeffrey Jacobovitz, chair of Arnall Golden Gregory LLP’s antitrust and competition practice, and a former attorney at the Federal Trade Commission.
“But section five of the FTC Act is even broader than the Sherman Act, so the FTC would feel that they also have the capability to take on these tech and digital companies.”
In February, the FTC’s bureau of competition also announced it was creating a new task force to oversee technology companies, including various online platforms. For online companies, that may mean having to do more to show their acquisitions and contracts aren’t designed to undercut competition, said attorneys.
“The light being shone on all the digital platforms will mean that they’re going to have to be very cognizant of the fact that their activities will need to be explained, maybe more so than they had in the past,” said Mark Ostrau, who leads Fenwick & West LLP’s antitrust and trade regulation group.