Amazon fined €4 million for breach of unfair contract terms rules

Who: Paris commercial court and Amazon Services Europe and Amazon France Services (together, “Amazon”)

Where: France

When: Decision dated 2 September 2019

Law stated as at: 14 October 2019

What happened:

Amazon has been fined €4 million and ordered to amend some of its standard contract terms within 180 days (with an additional €10,000 daily fine after that deadline if it fails to comply), on the grounds that some of its terms were “unfair” to suppliers.

Article L442-1 of the French commercial code (former article L442-6) provides that any person engaged in production, distribution or service provision is liable for submitting a contracting party to obligations creating a significant imbalance in the rights and obligations of both parties.

Following an investigation led by the DGCCRF (The French Competition and Consumer Regulatory Authority), the French Minister for Economic Affairs sued Amazon before French commercial courts on the grounds that some of its standard terms were breaching these rules. For its claim to succeed, the following conditions had to be met: (1) Amazon had to be deemed to be submitting or attempting to submit its vendors (i.e. the “submission criteria”) to the relevant terms; (2) some terms had to be found to be creating a significant unbalance between the rights and obligations of the parties; and (3) such imbalance had to be found not to be re-balanced by the contract as a whole.

  1. The court first deemed that Amazon Services Europe was “submitting” its marketplace vendors (i.e. the “submission criteria”) to the relevant terms, since: (i) the Amazon contracts, policies and terms were not negotiable; (ii) the disproportion of power between Amazon and the vendors and even between Amazon and other marketplaces was substantial, Amazon having a unique economic strength in France; and (iii) Amazon was a key player for online retail, which could not be avoided, especially for small vendors.
  2. The Court then found that seven clauses of the Amazon Services Europe contract were significantly unbalanced:
  • A clause under which Amazon reserved the right to amend the contract and policies at any time, at its entire discretion and without prior notice. The clause was found unfair since (i) no prior notice was granted to vendors, and (ii) vendors were not individually notified of the important term changes, based on which they may have not contracted, or which may result in a need to change their commercial and internal organisation. The court dismissed the argument that the lack of prior notice was due to the marketplace necessary automation, since such notification processes could have been implemented automatically.
  • Clauses under which Amazon was entitled to suspend or terminate a contract or stop providing a service at any time with notification, for any reason and with immediate effect, since (i) the clause was discretionary and was not precise enough regarding the termination grounds, and (ii) the clause did not provide for any prior notice enabling vendors to organize themselves and potentially face a substantial turnover loss.
  • A clause providing that use of the service was submitted to some account limits, based on performance factors, which were described as (i) a rate of defective orders, (ii) a rate of order cancellations and (iii) a rate of late deliveries. Not meeting these factors could have several consequences for the vendor, including the freezing of its Amazon payment account and the suspension of its ability to sell on the platform. The clause was found significantly unbalance since the factors were not precise enough (there was no defined threshold, no clear definition etc.), were not always linked to the vendor behaviour (e.g. the order cancellation rate would take into account consumers changing their mind without the vendor being liable or the product being defective) and were evolving at Amazon’s discretion, without prior notification. In addition, consequences were not precisely determined in the terms, including on the account suspension duration, were arbitrary, and were not proportionate with the vendor’s alleged breach.
  • A clause providing that Amazon was entitled to restrict or suspend the vendor access to any of the Amazon websites or delay or suspend its sales at is entire discretion, since the clause was found to be too imprecise.
  • A warranty clause, “warranty A to Z”, under which clients were able to return their products when defective, not conforming to the order or delivered with delay, and were to be paid back in such circumstances. Indeed, when the vendor did not reply to the client request within three days, or when such a reply was deemed unsuitable by Amazon, the vendor account was debited for the product price, even if the product had not been returned or if the client claim was unjustified. Unjustified claims were also kept on record in the seller account, amongst other claims. Based on these elements, the court found the clause unbalanced. It also took into account that for its own products, Amazon only pays back clients when the goods are returned.
  • A clause under which the vendor had to offer to Amazon the same conditions as the conditions it offered to its other sale channels (parity clause), since the clause was ambiguous as to its application to the products price.
  • A clause under which Amazon refused any liability in relation to its service “Sent by Amazon” / “Expédié par Amazon” (a payed-for option allowing the vendor to use Amazon services for products storage and delivery) for deliveries abroad and for damage to the products caused by Amazon storage or handling.
  1. These clauses were not deemed to be balanced out by the advantages offered to vendors by selling on the Amazon marketplace. Indeed, the Court found that if vendors do benefit from the Amazon positive image with consumers, from the marketplace attractiveness because of its large range of offers, and from its helping sale tools and its service “Sent by Amazon”, such elements first benefit Amazon itself, to attract consumers to its own products and to attract new vendors to its platform, and such advantages are the compensation for the commissions paid by vendors.

Why this matters:

The Paris commercial court, as well as imposing a financial sanction on the grounds of unfairness of its vendor terms, required Amazon to amend the clauses that were found unfair within 180 days, thus imposing a re-balance in the vendors and marketplace relations.

The court did not take into account in its decision Amazon argument that a new EU regulation on fairness and transparency for business users of online intermediation services (the Platform for Business Regulation) was to be adopted. In addition, the court noted that the draft regulation stated that the regulation was without prejudice to national rules which prohibit or sanction unilateral conduct or unfair commercial practices (the same provisions are in the final regulation), such as the French rules at issue in this case.

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