Amazon Merchant Kicked Off Website Spent $200,000 to Get Justice

(Bloomberg) -- An online merchant spent 18 months and $200,000 in legal fees fighting Amazon.com Inc. after it booted him off the shopping platform and seized his inventory. In the end, he received about half the $1.4 million in restitution requested. But he did get something few of his colleagues ever do: acknowledgment that the world's largest online retailer treated him unfairly. 

Amazon suspended the seller's account after suspecting him of hawking counterfeit electronics, according to arbitration documents reviewed by Bloomberg. Then the company seized $80,000 in his account and 50,000 products stored in its warehouses. 

The merchant, who provided the documents on condition his name be withheld, asked for his money and products back, but Amazon ignored him. He couldn't file a lawsuit because, like all other Amazon sellers, he agreed to arbitration as a condition of selling on the platform.

After reviewing contracts, interviewing witnesses and reading legal arguments, mediator Peter Brown awarded the merchant $775,000 in November. Brown ruled that Amazon had ample reason to suspect the merchant and was within its rights to suspend his account. But he said the company went too far by ghosting the seller and withholding his products, including many that weren't suspected of being counterfeit at all. 

“Given the vast resources of Amazon,” Brown wrote, “I would hope that in the future it will devote the resources necessary to treat all of its sellers with respect and some semblance of due process.”

The case provides a rare look inside an arbitration process that lawmakers and regulators say favors Amazon by discouraging sellers who lack the money, time and energy to take on the company. 

A report issued last year by the House Judiciary Committee investigating the power of big technology companies revealed that between 2014 and 2019 only 163 merchants—out of the millions who sell on Amazon—had initiated arbitration proceedings against the company. A bill that would end forced arbitration has been languishing in the Senate since 2019, and its advocates hope testimony from Amazon merchants will give it fresh momentum. 

Amazon declined to comment, referring instead to its 2019 response to questions from members of the House Judiciary Committee. In that testimony, the company said most seller complaints are resolved amicably and that if a merchant decides to initiate arbitration proceedings, “Amazon continues to engage with that seller to attempt to negotiate a mutually agreeable resolution.”

The original intent of the 1926 Federal Arbitration Act was to provide a cheaper, faster alternative to settling business disputes than clogging up public courts. In the decades since, U.S. Supreme Court rulings have allowed arbitration to spread further into day-to-day transactions.

Before consumers rent a car or get cellular service, they're often asked to sign contracts in which they surrender the right to sue and agree to resolve any dispute through arbitration. Some businesses require new workers to agree not to sue as a condition of employment, practices that can let serial sexual harassers remain on the payroll while their victims take confidential settlements and leave.

In a 2013 case involving American Express Co. and an Oakland restaurant, the Supreme Court ruled that bigger businesses can force smaller partners into expensive arbitration even if few of them can afford it. “It never ceases to amaze me how far the courts are willing to go in forcing people into arbitration, even when it comes to big bullying corporations against small businesses,” says Katherine Stone, a University of California, Los Angeles law professor who has studied arbitration for 30 years.

Stone says lawmakers are finally waking up to the antitrust implications of big companies using arbitration to gain an unfair advantage over smaller ones.  “Arbitration functions as a way for Amazon to keep disputes within its control, with the scales tipped heavily in its favor,” the House Judiciary Committee said in its report. “As such, Amazon can withhold payments from sellers, suspend their accounts without cause, and engage in other abusive behavior without facing any legal consequences.”

Amazon has no incentive to change its practices even though they often don't pass muster with lawyers and retired judges who sideline as arbiters mediating disputes. When merchants prevail, the arbiter's decision sets no legal precedent, so Amazon can do the same thing over and over, knowing most merchants won't bother mounting a challenge. 

“It's very expensive and time-consuming, and most small businesses don't have the money or the time," says Mario Simonyan, a Burbank, California, attorney. He says most clients decide against launching arbitration cases against Amazon because they typically cost $80,000 in legal fees.

One potential solution is to pass the stalled Forced Arbitration Injustice Repeal Act, which would create a path for Amazon sellers with common grievances to pursue class-action lawsuits against the company. Jacob Weiss, a home-goods merchant who supports the legislation, testified before the House committee in February. He told lawmakers that, despite spending $50,000 on an arbitration case against Amazon, he failed to recover his losses. Weiss said a second case has dragged on for nine months without resolution.

The anonymous merchant who won his case isn't waiting for a new law. He paid off debts with the arbitration award and hopes to start a new business “as far away from Amazon as I can get.” His suggestion: “Make the final rulings public so other arbiters can consider them and Amazon won't lose the argument today and make the same argument with a different arbiter tomorrow and win.”

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