x

 

Stay up to date on the digital shelf.

x

THANK YOU!

We'll keep you up to date!

Roundtable

Roundtable: Amazon in Political and Legal Crosshairs

We had to talk politics this week, because politics, and the law, impacted commerce this week. Rob and Peter review a California Appeals court decision, FTC actions, and the tech hearings and talk through the likely path ahead. 

Links mentioned:

 https://www.yalelawjournal.org/note/amazons-antitrust-paradox

TRANSCRIPT

Peter:

Welcome to unpacking the digital shelf, where we explore brand manufacturing in the digital age,

Peter:

Hi everyone, Peter Crosby coming to you from the digital shelf institutes, Cape Cod office. And as always these days, Rob's in the Berkshires. Hey, Rob.

Rob:

Hey there.

Peter:

All right. So I'm warning our audience. We are venturing into politics today. We will try to be even-handed and calm, but we're doing this basically because politics is venturing into commerce. If you saw any of the antitrust hearings, of course, if you actually, if you just pay attention at all, it's just happening. But one of the things that really brought it to my attention this week was an appeals court ruling that in California, that there was a suit brought by a woman named Angela Bolger, that she, she bought a replacement laptop battery on Amazon from a company called E-life, which turned out to be a fictitious company named Lenoge Technology limited. That battery was shipped to her in Amazon-branded packaging. And several months later, she claimed the battery exploded. She says she was never notified of those safety concerns that led to E-life being banned from Amazon's platform. So E-life was banned. She was never notified and she wanted to hold Amazon responsible for that. The lower court ruled that Amazon was not covered under product liability laws. The trial court also ruled that the communications decency act would not have shielded the company from Bolger's claim. This is all from an article in The Verge by Kim Lyons. And, and so it goes on to say that show communications, decency act, product liability no-no. Bolger appealed and just this week, the appeals court said Amazon was central to the laptop battery sale in Bolger's case. This is a quote, "whatever term we use to describe Amazon's role, be it retailer, distributor, or merely facilitator, it was pivotal in bringing the product here to the customer" the court wrote. "Amazon should be liable. If a product on its website is defective" The court added. Whoa, Rob, if this holds it's, wow, it's a real change.

Rob:

It's not going to hold. I mean, this is let's just call it like is, this is a stupid ruling.

Peter:

Oh, California. You Minx.

Rob:

No, here. This is just a dumb ruling. I mean, let me, let me give you another example that's not Amazon, right? So, I've got two young daughters. My wife is a physician and for our first child, we use the rock and play for the kid to be in before they could walk and move around and stuff that when we were in the kitchen and everybody had a rock and play. The rock and play have a big sign on it that says, don't let your child nap in this thing. My wife's a doctor, every pediatrician that we know that has little kids lets their kids sleep in the rock and play. I mean, it's just, kids have been sleeping in rocket plays for decades, right. But you know, some, some children, unfortunately, I believe died in rock and plays relatively recently. And they were recalled from the market and they're no longer for sale. And the interesting thing about that is it's not that target who sold the rock and play or bye bye baby who sold the rock and play or Amazon who sold the rock and play, Walmart who sold the rock and play, rock and plays were sold everywhere. These individual retailers were not liable for land safety. And we're talking about babies here. We're not talking about a laptop fire, right? It's the manufacturer who's liable for it. And that's the way that it should work. If you think about a hypermarket like a Walmart or Target, they're selling so many products in so many categories from so many manufacturers there, it is completely impossible for them to be expert in all of those categories and for them to do their own independent testing of every single product and every single category. And it's just not a reasonable requirement, just, just there. Right. Now the issue with Amazon and the third-party sellers is that most of these sellers by the numbers, are not in the United States, and in fact are in a country that doesn't really have rule of law. A lot of them are Chinese actors and they're not playing above board and there's no real way to go punish them. So I think there's a, there's a political pragmatism in this most recent appeal courts ruling where they're saying, I'd love to go after these Eli folks, but I kind of can't. I gotta go after somebody should pay for this, you know is sort of the idea. And so it should be Amazon. So, I mean, I look at this as just a bad ruling on principle, but I understand where they're coming from. And what I would like is I would like for Congress or somebody to legislate how we treat foreign actors on U.S. Marketplaces and this, with absent, that type of legislation, you're going to see, you're going to see rulings like this that are sort of tilting at windmills.

Peter:

And then a lot of it is also so the trade negotiations and diplomatic conversations with those countries where these manufacturers are to, and this is, this is a tough lift, but like when a company like that sends out defective batteries or America takes back our manufacturing base and actually starts making things and people are willing to pay a premium for trust, you know that, but who knows how that's going to go. But the one other thing I wanted to raise the the the the small point, which was doesn't seem to be without me reading the whole decision, doesn't seem to be the point on which the appeals court based it was Angela Bolger says she was never notified of safety concerns that led to Eli being banned from Amazon's platform. Now, I do feel like there's something there where if Amazon takes an action because a product has been found to be defective, do they then have some sort of obligation to communicate with the people that brought that product or buy from that company that, Hey, heads up, there's a danger here, and we took this action. You should be aware and take care. I.

Rob:

I mean, like in theory, you'd like for that to be true, but in practice, there's no law. So I, you know what I mean? Like, there's an, there's an element here of what's, what's reasonable versus what's required. And, you know, having a court post facto punish a company who's an in, in other ways, following the law just feels like you're, you know, using the courts to legislate in. And that there's, I mean, that there's, that's bad in, in all kinds of ways, but in this specific instance, the ruling is, is way overreaching. I mean, the implications of this, if a, if a retailer has got to be responsible for this, you know, the safety of everything sold on their website is just, it's just a little, little nuts. If the ruling were more specific to just the communication aspect of it, like, Hey, you, you know, you found out that these guys were bad actors and you didn't notify people that had transacted with them on your marketplace. If it were that specific and therefore you're liable, then you know, that's one thing, right? You could, it's still kind of uncomfortable. You'd still want somebody, you know, California, California state government, United States, Congress, somebody to say something about it. But you know, it's a little bit more of a reasonable,

Peter:

I think this is the sort of dangerous political area that maybe it's not dangerous. I would think everyone on both sides would agree that the ability of our country to legislate right now is basically at zero and has been for a long time. And, and therein, I think, lies the problem. When you, when you look at the recent tech hearings, you know, when the four CEOs were sort of marched into zoom to testify in front of Congress and, and all of them for different reasons, but with this sort of big tech stamp on them there's, there's no agreement between the parties in terms of what really is at issue here. One side talking about the sort of taking advantage of third-party sellers and using data and things like that. The other side, talking about free speech and censorship. But it doesn't seem like that's going anywhere towards any legislation anytime soon. So what, what was your, your sort of takeaways from that?

Rob:

Well, first of all, I mean, my high-level view as to why this is happening is it's just political theater. I mean, the big companies are in the news and, you know, it's a way for Congress to score points in some way. I don't know, it's it, it's very unclear how you would actually use any trust against almost any of them. So it just feels like they're grasping at straws a little bit here. I think, you know, Jason and Scott show recent episodes on the latest Amazon quarterly earnings, for example, that if you just look at that one issue of using third party data to compete with the third parties, the third-party marketplace sellers are doing better than Amazon as a one-piece seller on amazon.com. Like if Amazon is using third-party data to, you know, to have their first-party sales compete with third parties, they're doing a bad job of it. And in fact, their private label business is just a way worse, private label business than Costcos or Target or Kroger, I mean, they're bad at this, right? And so it's just, it's just really hard to say, like, is there a there, there, I mean, it feels like they're just trying to score cheap political points where they say, Oh, they're using data to compete every, like use this data to compete. Kroger's has an entire building of data scientists that you stated compete. I mean, this is, this is not new news. So it's just, it's hard to see what they're doing. And Jeff Bezos wrote a statement to the U.S house committee on the judiciary that was sent ahead of his appearance where he, there's a number of things in here that are, that are pretty interesting. I think the whole letter is worth reading, he does call out not so subtly that Amazon has the 80% approval rating, which is, which is so much higher than Congress's right now. But then by then, he also says things like the global retail market we compete in is striking the large and extraordinarily competitive Amazon accounts for less than 1% of the $25 trillion global retail market. And less than 4% of the retail in the U S he talks about Walmart. Online sales grew 74% in the first quarter. And earlier he says that customer trust is hard to win and easy to lose. I mean, the thing about all these statements is they are self-serving, right? They are saying, there's no monopoly here. They need to know any trust, but at the same time, they're true. They like, he's not, he's not gaming anything here. Even if you look at US online sales, Amazon's way under 50% of us online.

Peter:

Yeah, their shares have gone down in this period because others are coming up it's yeah.

Rob:

They're losing aggregate market share of online sales. And a lot of that's going to target as targets. E-commerce operations get more serious. eBay had a killer quarter almost 30% year over year growth,

Peter:

Yeah, they're bringing on Shopify and, and building up their marketplace. Yeah. There's.

Rob:

Yeah, he's right. This is, this is a competitive space. And I think anyone who's close to it, it's hard to see Amazon as a monopoly here. And so, I don't know, I mean, this, this isn't, this whole thing is just theater to me.

Peter:

Ben Thompson did a sort of a sum-up, of those hearings. And in regards to Amazon, he was saying the, you know, the hearing was not about whether or not Amazon was a monopoly. It was like everyone on the day had decided it already was. And then it was just a matter of, are they a monopoly when it comes to censorship? Are they monopolies when it comes to, you know, screwing small marketplaces by killing their businesses and, or small third-party sellers and stealing their data?

Rob:

Yeah. It just feels like, you know, the congressmen, unlike past tech hearings, like past tech hearings, the Congress was embarrassing past tech hearings. It's like they didn't even know how to use a phone. Right? Yeah. This one they'd done their homework and Sicily, the chair is actually pre pretty knowledgeable and really does know his stuff. Totally. Yeah. And so I thought this one was a substantially better hearing from a Congress, did their homework perspective than previous ones. And I think they did a really good job at the sound. So the statements from the questioning statements and the questioning framing, I mean, to your point, they were leading the witness, right? They were, they were like, had already assumed that the, that the accused was guilty and all the questions were in that framework, but they produced a lot of smart soundbites. And, you know, at the end of the day, that's what this whole thing was about. I think really smart soundbites for these, for these

Peter:

It does seem like until the election at, at best there's not going to be any movement here. And so all of the action is happening in the courts. And the latest thing was, again, Kim Lyons at The Verge, New York, and California are joining the FTC to look into the Amazon marketplace. So New York and California attorney General's along with the FTC or they're investing in the audit, investigating the online marketplace platform they're interviewing witnesses jointly. And what Bloomberg suggests maybe the beginnings of a formal antitrust enforcement action following the big antitrust hearing.

Rob:

It's just hard to see what they're going to do. I mean the issue, in general, is that in the United States, any trust laws based on consumer welfare and, and the price is a strong proxy for consumer welfare in the US. And that's been true for 50, 60 years and absent changes in how we, how we look at any trust. It's really hard to see where the consumer welfare harm here is. And Ben, Ben Thompson makes this, and also Benedict Evans makes this claim over and over again, where, you know, the, if you've got consumers that are making the choice to shop at Amazon, you know, when they've got them, they could shop at Walmart, if they want it to, it's just a click away, then it's really hard to say that Amazon is a monopoly where they're forcing prices saying enforced, you know, and all this sort of stuff. So it's unclear to me what the, where, you know, how the regulation would even work at changes to the law that Congress.

Peter:

Yeah, you're absolutely right.  Lina Khan at the Yale law journal I think in 2017 wrote a really amazing note. Yeah. Yeah. I mean, I, you know, I don't often read articles from the Yale law journal but it was so clearly written talking about the difference between antitrust law of before the seventies and eighties, and then the shift that happens. So this idea from where we were thinking about railroads as anti-competitive in their dominance versus consumer welfare, which really has now become the shift, was to define it as short term price effects. And it's no longer looking at the architecture of market power in the modern economy and things like big tech may need to be looked at through that older lens. If we really, if we all decide as a society, we want these things to be dealt with in a different way.

Rob:

Just totally. I just, I completely agree with that, that we'll link to that. The Yale law journal note, it's worth reading it's long, but it's, it's well worth reading to understand this in more detail. So yeah, I just, this just seems like all just a theater to me. It's hard to see where, where the regulations should come from, you know, the place that's most likely to regulate. Any of the big techs is Europe and Amazon wouldn't really be regulated over there because Amazon's presence in Europe is relatively light compared to the U S I mean, Europe says growth market for them. But you look at a Google or a Facebook, right? You can imagine the European regulatory bodies doing something with them because in Europe the regulation is based on more competition than consumer welfare as a basis. And so you could use competition as, as a, as a way to regulate these folks, but that's not how U.S law

Peter:

Out of the, of the US hearing said that of all the four, it seemed like Google was the most in trouble.

Rob:

Yeah, I think, I mean, using existing US law, there's stuff about Google. You could regulate. It's hard though. I mean, look at Microsoft, Microsoft utterly dominant. And after all the antitrust hearings that started in the late nineties, not much happened. Right. And the really, really kind of interesting thing post facto is back in the nineties, the initial case was based on Microsoft bundling Internet Explorer with windows as the default browser. And it was brought on Microsoft by Netscape. Right. And so the question was, you know, is it right or wrong to include the browser with the OS? Is the browser so core to the operation of the device that it needs to be included? Or do you want to allow consumers to then go find their own browser? What's funny in retrospect is, you know, most computers, these days are called smartphones, and smartphones all come with a browser by default. So like the whole Microsoft monopoly case was ignored on a go-forward basis by Google, with Android, and by Apple with the IOS. And, and so it, it, and like very little happened to Microsoft at the end of the day. Like actually the only thing that really happened to Microsoft is I believe the Europeans found them for the contractual structure that they had in place with OEMs, which was anti-competitive in nature. Yeah. And so they were fine for basically like deep in the bowels of the Microsoft distribution world. They were doing something anti-competitive and that's the only thing that they could find. And so if you're a platform like that, it's pretty hard to regulate from it from any competitive perspective. So I don't know the way out here should America, as a society decide that the big tech is too big and too powerful and too centralized. And we don't like the amount of power that they have or, or, or whatever. The way out here is we need new legislation, the existing legislation, the FTC can, you know, investigate Amazon marketplace is all they want, but I don't think anything's going to come out.

Peter:

Yeah, I agree. We sort of started the podcast now sort of, we started the podcast saying politics or getting into commerce. And, and it, it feels like coming out of this at least as to your point in, in the United States politics, won't be able to do much about this stuff. And, and there's so much, particularly at this moment, when you look at these tech companies, what they've created has enabled commerce in a dramatic way. And certainly what we're doing, the DTC strategy playbook series right now, those social networks are fundamental to, you know, originally the darling native DTC companies, but now also larger omnichannel brands getting into the business and they are building their consumer database through those channels. And, and that's powerful and necessary. So we'll see. But for now, it seems like commerce is safe to proceed, right? Yeah. Well, I'm glad we'd settled that. So that takes us to the end of our tiptoeing into politics, but we think for a good reason. So what I would like to recommend to you as we just launched our new digital home for the DSI digital shelf institute.org, all of our podcasts, our research, our virtual summit from last quarter, the digital strategy playbook, is there a brand new blog where Rob and I and others are writing, you know, sort of, we hope longer form thoughtful pieces that you'll be interested in. So, go over their digitalshelfinstitute.org. There's a member button at the top, just click it, sign up and we'll make sure you're kept abreast of all the stuff that's coming out of the Institute. In the meantime, thanks for joining us, and thanks as always for being part of our community.