Did Amazon Trick Customers & Kimmel Returns

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2:30Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. This is Bloomberg Law with June Grosso from Bloomberg Radio. A federal trial is beginning this week in Amazon's hometown to decide whether the world's largest online retailer tricked its customers into joining Prime and then made it difficult to cancel the membership. Prime provides subscribers with perks that include faster shipping, video streaming and discounts at Whole Foods for a fee of$139 annually. It's a key and growing part of Amazon's business with more than 200 million members, bringing in more than$12 billion in net revenue in the last quarter, a 12 percent increase from the same period last year.

3:25But the Federal Trade Commission says Amazon misled customers into signing up for Prime and then made it very difficult to cancel. Joining me is Matthew Schettenhelm, Bloomberg Intelligence litigation and government analyst. Matt, explain why the FTC is suing Amazon. Yeah, so this is a lawsuit that the FTC filed two years ago, alleging that Amazon's Prime cancellation and its subscription process doesn't comply with federal law. There's a 2010 federal law called the Restoring Online Shoppers' Confidence Act that addresses those membership programs that you can kind of sign up for and they can automatically renew.

4:13And there are some terms that the federal law requires that the company be very clear about what those terms are, that the customer make informed consent to those terms, and that any ability to cancel that sign-up is simple, uses simple mechanisms. And the FTC says that Amazon falls short on all three of those claims, and it's trying to obtain consumer redress and impose civil penalties on the company. Let's start with the FTC's contention that Amazon makes it difficult for consumers to purchase an item without also subscribing to Prime. So it sort of tricks them into subscribing for Prime. Yeah, that's right.

4:58This goes back to when Lena Kahn was chair of the FTC. And there's a big focus on sort of dark patterns and pushing and nudging consumers to do things that maybe are against their will. And that's the allegation here that as consumers went to maybe buy a product on Amazon, Amazon sort of forced them into this process of also signing up for Prime. Basically tricked them is the allegation. And so Amazon says, no, our process was very clear. They tried to move a motion to dismiss on this and tried to move for summary judgment, but the judge wouldn't allow it. He said, look, reasonable people could disagree about this.

5:37This needs to go to a jury. So on that issue and all the others, the jury is about to take that question up. The FTC also claims that getting out of a Prime subscription was too complicated. It required the customer to affirm their desire to cancel membership on three pages. And internally, Amazon employees call the process the Iliad. Yeah, so the law requires a simple mechanism to cancel these signups. And yes, I think it's going to be harmful evidence that the FTC will present to the jury that there were some comments made by Amazon employees that describe this process as very difficult. And as you said, even characterizing it as the Iliad, I think in a reference to the Odyssey and how difficult this can be to get through for consumers.

6:30Now, Amazon pushes back on that and says, no, actually, you know, we have data showing that people figure it out. There's always going to be a couple of exceptions. And these stray comments by employees don't really characterize how the process works. So again, here, the judge looked at both sides and said, you know what, I can't decide. This is a fair question to toss to a jury. And so that's going to be presented to jurors this week and next. I have to say that a lot of companies seem to make it difficult to get out of subscriptions. I mean, sometimes you sign up online, but you have to call in order to get out of the subscription.

7:09Does Amazon really stand out from these other companies that seem to do the same thing? Yeah, I mean, I think that's a point that Amazon's going to push. Look, there isn't a lot of clarity about what is a simple cancellation method. And the industry follows pretty similar practices on this sort of thing. This is pretty industry standard. And to me, like one point that Amazon is going to raise, the FTC tried to do a rulemaking on this statute to add more clarity to it. And that was over the past couple of years. And when they did that, when they first announced that rulemaking, they said this federal law that requires a simple cancellation process, it isn't very clear.

7:51So the industry, I think, is struggling with, OK, what exactly is too much? And Amazon had to make a calculation on that point. It had to look to other industry practices. And Amazon says, look, what we have in place, you know, maybe it's not the simplest that you could possibly imagine, but that's not what the law requires. It's pretty simple. You do have to click through a couple of things, but that's sufficient to qualify as simple when you consider the industry standard practice in Amazon's view. And did the FTC give Amazon a chance to correct this before they brought suit? My understanding is that Amazon's already changed its processes in material respects.

8:33And so I think at this point, the fight is mostly about going after the company for practices in the past that have changed already and potentially seeking what could be significant financial penalties against the company for its past practices. So I don't see it as much about injunctive relief or trying to change Amazon's practices going forward as much as it is trying to penalize Amazon allegedly for not following the law since around 2015 and going forward. I wondered because I thought, you know, the jurors will probably go online and try to cancel and see what happens. But you're saying that's not the cancellation process that's there now.

9:14My understanding is this is focused on a previous version of the cancellation process, and I suspect the judge will discourage the jurors from investigating on their own. I know the judge will, but, you know, jurors sometimes don't listen to those little things. And the judge has already ruled against Amazon on a few issues pre-trial, including limiting the legal defense that Amazon can raise at trial. Yeah, that's right. You know, Amazon has repeatedly had a difficult time with the judge. Judge John Chune, you know, he refused to dismiss the case in May of 2024 when Amazon asked for that. He refused to grant an early appeal of the case in July of this year.

9:59And then last week, he granted summary judgment in part to the Federal Trade Commission to sort of narrow a couple of the issues that would go to the jury. He refused to grant summary judgment for Amazon. But he sort of very narrowly said, you know, a couple of these issues, look, there's no way, Amazon, you're going to win on this point or that point. Still, I think the core of the question is going to these jurors, but he did narrow it a little bit. But he also said that a couple Amazon officers who worked on these processes could be held personally liable if the jury concludes that Amazon violated the law knowingly.

10:38Yeah, and he ruled that the FTC doesn't have to prove every single example of Amazon sign up and cancellation procedures are deceptive and can focus on a representative sample. Yeah, I think that's right. So it sort of narrowed the issues a little bit, narrowed the evidence that will go before the jury. As I said, Amazon's really had a tough time with Judge John June here. And I think that the question is, if Amazon lets the jury rule on liability, on whether Amazon violated the law or not, and whether it did it knowingly, it goes back to the judge then to set the financial penalties. And when Amazon's had such a difficult time with this judge, is that really something that it's going to want to do?

11:23That's going to be a real consideration for the company as it thinks about potentially settling this case. Yeah. So in July, the judge admonished Amazon for withholding 70 ,000 documents, saying the conduct was tantamount to bad faith. So it doesn't appear that Amazon has earned the judge's trust. Right. It's been a tough go throughout this case. And, you know, I thought Amazon might have a decent chance at getting some of this case narrowed on its motion to dismiss, that a request for early appeal on this stuff might have a small chance. But time after time, this judge has let this case advance, as you said, criticized the company for some of its practices as it's defended this.

12:07So I'm not sure that Amazon's going to feel very comfortable letting the judge decide how much it should pay to to resolve this. Let's talk about the exposure of the company, because each violation of that Restore Online Shoppers Confidence Act allows for penalties of more than$53 ,000 per violation. So how much money are we talking about? So you get to absurd math really quickly when you deal with numbers like that. If you're talking about tens of millions of Amazon Prime subscribers, and I think Amazon's expert was talking somewhere in the ballpark of 30 to 40 million Amazon users, and you multiply that times 50 ,000, it breaks my calculator.

12:50And so the judge ultimately using that number would have to settle on a civil penalty that is meaningful to the company, but not a violation of due process, not so unreasonable. There's also a push from the FTC for consumer redress, not just civil penalties, but the FTC's expert says that when you look at how much consumers paid that they shouldn't have here, he calculates the damages close to$1 billion just for that. So$1 billion for consumer redress or nearly that, and then civil penalties that, as we said, could easily reach absurd billions of dollars, but likely would get into the billion-dollar range as well.

13:29And so even with a company with the resources like Amazon, it's really hard for any judgment to be disruptive to a company like Amazon that has annual profits in the$60 -$70 billion range. It's hard to be material, but this might get their attention when numbers like that are in play. So I think when you add all of that up, there's going to be considerable pressure for the company to settle this before the judge gets to decide on what is the reasonable penalty. But that's a really difficult calculation for Amazon to make, isn't it? So what, they'll watch the jurors through the trial and see whether any of them are reacting favorably to their arguments?

14:11I mean, it's really hard to read a jury. It's very difficult to predict exactly when these companies will settle in trial. I've seen cases settle at the beginning of trial. I've seen cases settle at the very end, right before we're about to get a verdict. I think, you know, it's reasonable to see how it's going, you know, get a read on the jurors. It's possible they take their chances because one of the things that Amazon has going for it is that for the judge to impose civil penalties here, it's not enough that Amazon violated this federal law we've talked about, but also the FTC has to prove that Amazon did so knowingly.

14:51And so I think Amazon's going to have an argument that, okay, look, even if we did technically not give consumers a simple method to cancel, if this number of clicks is a couple too many, did we really know that knowingly, given the limited FTC guidance that's out there, given that the FTC itself has said that this isn't simple. So there's actually a chance for the company to be found liable in the sense that it violated the law, but not subject to these serious financial penalties. And so if I'm Amazon, that's the kind of thing I'd be watching out for. But I think, you know, you might want to think about settling.

15:33If I'm Amazon, you might want to think about settling, you know, before the jury returns its verdict, because you have the prospects to win with the jurors. And so that should help your negotiation posture with the FTC in reaching sort of a reasonable settlement. If you lose with the jurors, that argument falls away. You've already lost, and it's all a question of how bad it's going to be. Are there internal documents that talk about that Iliad-like process? I mean, I think there is some internal evidence that won't look great here. And you think about how is a reasonable juror going to think about, you know, Amazon employees talking about their process like, you know, some of these allegations claim, it might not be a great look to a juror and a juror looking at a company with significant resources like Amazon and thinking maybe about how much they've spent on their own Amazon account.

16:27And, you know, you can see why a company could be nervous. Anytime a case like this goes to a jury, it's going to be unpredictable. It's going to be risky for a company. So, you know, a lot of pressure to settle to just make the thing go away for a sum that won't be material for a company like Amazon. Like other companies, Amazon has been attempting to forge friendlier ties with President Trump. Can you tell us a little about that? Yeah, I mean, we're seeing that across a number of companies right now. There's often a question, you know, where companies can fight aggressively against this administration, or they can choose to not rock the boat.

17:10And I don't know how much this case will fit into that paradigm. It's a case that came during the Biden administration, and it was continued under the Trump administration. But, you know, I think that that probably does play into part of the calculation as well. Like how aggressive do we really want to be here in fighting? And a settlement that isn't material might be better to make the whole thing go away. The FTC has another antitrust case against Amazon that's going to trial in 2027? Yes, that's right. So my colleague Jen Rhee covers the antitrust side for us on that. And so, yeah, that's in many ways a much more significant threat for the company than this, which is really focused on, you know, sort of a discrete issue, as we said, a past practice.

17:58But Amazon faces, you know, much more significant threats on the antitrust front. And I think so that's a good point as well. You look at this stuff in the big picture and you want to really be resisting this administration. Maybe the antitrust case plays into that calculation. Coming up next on the Bloomberg Law Show, I'll continue this conversation with Matthew Shettenhelm of Bloomberg Intelligence. Jimmy Kimmel is returning to the air tonight, but not everywhere. I'm June Grosso, and you're listening to Bloomberg. Support for the show comes from public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions.

18:36Buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the Public API.

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20:40Go to MinkyCouture.com and get your Minky Couture blanket now before everyone in your house claims it is theirs. Jimmy Kimmel Live will return to the air tonight, ending a suspension Walt Disney imposed following controversial remarks the late night host made about the shooting death of conservative activist Charlie Kirk. Disney's decision to suspend the show followed pressure from both the federal government and independent operators of ABC stations. Brendan Carr, the Republican chairman of the Federal Communications Commission, criticized Kimmel's remarks on a podcast and suggested the company could lose its broadcast licenses.

21:23But frankly, when you see stuff like this, I mean, look, we can do this the easy way or the hard way. These companies can find ways to change conduct, to take action, frankly, on Kimmel, or there's going to be additional work for the FCC ahead. But two Republican senators, Ted Cruz of Texas and Rand Paul of Kentucky, attacked the FCC chairman's actions with Cruz accusing Carr of mafioso tactics. Look, look, I like Brendan Carr. He's a good guy. He's the chairman of the FCC. I work closely with him. But what he said there is dangerous as hell. He says, we can do this the easy way, or we can do this the hard way.

22:08Yeah. And I got to say, that's right out of Goodfellas. That's right out of a mafioso coming into a bar going, nice bar you have here. It'd be a shame if something happened to it. So Matt, Kimmel's coming back on the air tonight, but some stations are not carrying the show. Right. So the FCC rules say that local stations have the right to preempt national network content. And what we're seeing now is that two of those bigger local station owners, Nexstar and Sinclair, are exercising their right to preempt that network programming. And so I think this is, you know, directly tied to FCC chair Brendan Carr's push the other day on a podcast.

22:56He told those companies, look, you can do this if you don't like, you don't believe that Jimmy Kimmel's content is in the public interest. You, as a local station owner, have this right to preempt it. All these local stations negotiate contracts with the networks that protect this right. And so this is just an exercise under those FCC rules. But maybe because the FCC chairman told them to do this directly and they have an incentive to follow what the FCC chairman asked them to do. The stations that aren't taking the show tonight, are they ones that are looking to merge? Nextar, yes. Nextar has recently announced a$6 billion deal to acquire Tegna, another owner of TV stations.

23:49And it's really important that the FCC be supportive of that for two reasons. One, the FCC has to approve the transaction because it involves swapping licenses from Tegna to Nexstar. The FCC has to sign off on that. And even more importantly, there's an FCC rule right now that says no broadcast station can reach more than 39 % of U.S. households. This deal would let Nexstar reach something like 70, 80 % of U.S. households. So they need the FCC to scrap that rule first. And so there's a real incentive when the FCC chairman asks you to do something or at least strongly encourages you to do something.

24:34When you need all these steps for a major deal to happen, you have a strong incentive to go along with that. Sinclair doesn't have a pending deal in the same, at least not of the same scale right now. But it also is a big supporter of this deregulation that the FCC is working on, the 39 percent cap and a couple other rules that the FCC is looking at easing. Why do you think Disney brought Kimmel back? Well, there was, you know, significant pressure, I think, public pressure on the company, raising concerns about whether the company was folding to government pressure here. When it was initially announced, they were deliberately, I think, cautious about not saying how long the suspension of the programming would last.

25:22And so I think it's possible that this is a response to that public pressure to bring him back pretty quickly. There was a lot of negative reaction from conservatives about taking Kimmel off the air and the threat to free speech. But is Carr still standing by his words? Yeah, I think Brendan Carr is saying, look, I wasn't threatening the companies on this. I was pointing out how the law works. But yeah, it was sort of surprising to see Senator Ted Cruz in particular call out Brendan Carr for those comments. And that's when you saw Brendan Carr sort of pulling back a little bit and maybe not using quite the same tone, but still saying, look, here's how FCC processes work.

26:10I was just talking about that. It seems like a little bit of a softening in the tone, at least from Brendan Carr, after a pretty important senator, Ted Cruz, who runs the Commerce Committee, the Senate Commerce Committee that oversees the FCC, spoke out pretty strongly. And so I think it's possible that his sort of pullback, at least a softening on his comments, was in response to that. Always good to talk to you, Matt. Thanks so much. That's Matthew Shettenhelm, Bloomberg Intelligence Litigation and Government Analyst. Coming up next, Google is facing another breakup possibility in court. I'm June Grosso, and this is Bloomberg.

26:48Support for the show comes from Public.com. If you're actively involved in your portfolio, you probably catch yourself repeating the same actions. buying the dip, manually sweeping idle cash, putting on a hedge. On public, you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English. Like, if the VIX hits 25, buy a put option on the S &P 500. Or, if my cash balance goes above$20 ,000, move the excess into my direct index. You approve the workflow and your agent handles the rest. Monitoring the market, watching for your conditions, and executing your strategies exactly as defined.

27:27An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com slash market and fund your account in five minutes or less. That's public.com slash market. Paid for by Public Investing. Brokered services by Open to the Public Investing, Member FINRA and SIPC. Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. If your best finance people are doing expense reports, chasing receipts, or spending time on month-end close, it's time to get Brex AF, a gentic finance that eliminates that work before it starts.

28:10Learn more at brex.com slash AF. Get the news you need in just 15 minutes. Start your day with Bloomberg Daybreak, the podcast with a global view on the stories that matter. I'm Nathan Hager. And I'm Karen Moscow. Join us each morning for curated stories on current events, politics, business, and foreign relations. Plus one conversation on the day's biggest developments all in just 15 minutes. Subscribe to Bloomberg Daybreak for a precise, thoughtful take on the stories that matter. Listen to Bloomberg Daybreak each morning on Apple, Spotify, or anywhere you listen. The Justice Department has opened its offensive in court to force a breakup of Google before the Virginia federal judge who's already ruled the search giant illegally monopolized advertising technology markets.