Our Intellectual Property team considers the legal aspects surrounding a recent claim to the Competition Appeal Tribunal brought against Amazon concerning its use of an algorithm and whether it amounts to abuse of dominance.
Hausfeld & Co LLP, a UK firm that specialises in collective competition law actions, announced on 20 October 2022 that it was launching a competition law claim against Amazon because of its Buy Box. The claim reported by Hausfeld is based on an abuse of Amazon’s dominant position through its use of a self-favouring algorithm.
The claim, which has been brought to the Competition Appeal Tribunal in the UK, is grounded on Section 18 of the UK Competition Act 1998 and Article 102 of the Treaty on the Functioning of the European Union. Section 18 of the UK Act provides that conduct by an organisation which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom. Article 102 prohibits such abusive conduct in the EU.
What is the Buy Box?
The Amazon Buy Box, also known as the ‘Featured Offer’, is located to the right-hand side of an Amazon product detail. It allows the consumer to add the product in question to their cart or to buy the product immediately. There is an obvious benefit to the seller in that it prompts the consumer to purchase immediately. Figures show that consumers are more likely to purchase products that display the Buy Box option.
Indeed, according to the claimant’s website and various other websites, 80% of Amazon sales are made via the Buy Box.
The algorithm – How does it work?
An algorithm is an unambiguous set of mathematical rules to solve a class of problems, something which is key to enabling AI software to problem-solve. For example, if you need to get from A to B on Google Maps, an algorithm exists within that software that will help you work out the fastest route taking into account things like congestion, etc.
As Amazon have not provided criteria on how to qualify for the coveted Buy Box spot, there is much speculation on seller websites as to how to win the Buy Box spot.
Feedvisor note the following with respect to the algorithm:
The Amazon Buy Box algorithm takes into account many data points and layers of information gathered about the marketplace, current market conditions, and every seller with the purpose of giving the customer the best value for their money.
In its advice to sellers, Feedvisor note that using a fulfillment method by Amazon or Prime is likely to improve chances of winning the Buy Box.
Other investigations into Amazon’s algorithm
When this claim issued in November to the UK’s Competition Appeal Tribunal, Amazon was being investigated by the UK’s Competition and Markets Authority (CMA) relating to its business practices specifically “the way that non-public third-party seller data may be used within Amazon’s retail business, how Amazon sets criteria selecting which product offer is placed within the ‘Buy Box’ and which sellers can list products under Amazon’s ‘Prime label’ on its Marketplace in the UK.”
In addition, the European Commission have commenced a formal competition law investigation, its second, into the possible preferential treatment of Amazon’s own retail offers and those of marketplace sellers that use Amazon’s logistics and delivery services.
Executive Vice-President Margrethe Vestager, the Commissioner for Competition in charge of competition policy, said:
“…data on the activity of third party sellers should not be used to the benefit of Amazon when it acts as a competitor to these sellers. The conditions of competition on the Amazon platform must also be fair. Its rules should not artificially favour Amazon’s own retail offers or advantage the offers of retailers using Amazon’s logistics and delivery services. With e-commerce booming, and Amazon being the leading e-commerce platform, a fair and undistorted access to consumers online is important for all sellers.”
In the Commission’s press release it is noted that the Commission will investigate whether the criteria that Amazon sets to select the winner of the “Buy Box” and to enable sellers to offer products to Prime users, under Amazon’s Prime loyalty programme, lead to preferential treatment of Amazon’s retail business or of the sellers that use Amazon’s logistics and delivery services.
The online rumour mill suggests that Amazon will try to reach a compromise with the Commission by offering a second Buy Box. Whilst this outcome may please the CMA, the Competition Appeal Tribunal UK claimants, it is likely that the collective claimant action in the UK will proceed unless a satisfactory financial offer is made. However, it can only be presumed that Amazon will have learned something from the fate of the Wizard in the Wizard of Oz, and keep prying eyes from peeping behind the curtain and seeing their algorithm at work.
For more information and expert advice, contact a member of our Intellectual Property Team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.