March 12, 2014 -- Amazon claims that a $79 annual membership for Amazon Prime provides free two-day shipping on "millions" of items, but for some products, the company is accused of encouraging sellers to inflate shipping prices, according to two recent lawsuits.
“The bottom line is the free shipping that Amazon offered to its Prime members wasn’t free,” said Kim Stephens, attorney for one of the plaintiffs, adding that he was “shocked” by Amazon’s alleged pricing practices.
Marcia Burke of Alabama says she became an Amazon Prime member and used its "free shipping" service at least 18 times in 2010, according to her lawsuit filed Friday in federal court in Seattle. Prime-eligible products are designated on Amazon's website.
In what she hopes will be certified as a class-action lawsuit, Burke accuses Amazon of encouraging third-party vendors to increase their prices to Prime members by the amount they charged others for shipping, without revealing that a portion of those alleged "inflated" prices was for shipping fees, the lawsuit claims.
"For example, if the price of an item is advertised for $10 with $3.99 shipping and the [vendor] wishes to match or top their price, the [vendor] would charge $13.99 or higher," Burke alleges in the suit.
These sellers raise their prices to match or top their competitor’s total price, as items are sorted by price on Amazon's site, Burke alleges in the lawsuit.
A spokesman for Amazon, Erik Fairleigh, declined to comment due to the firm's policy related to active litigation.
In the time period that the lawsuit covers, Oct. 24, 2007 to Feb. 22, 2011, the main benefit for Prime members was the free two-day shipping. Starting Feb. 22, 2011, Amazon increased Prime’s appeal by including extras, such as movie and television streaming and Kindle e-book borrowing, the lawsuit states.
“An item included in its stated price the cost of shipping, but you thought you were getting it free,” Stephens said.
Stephens explained that a customer who was not a Prime member often paid less for a product and its shipping.
“But together they would roughly equal the cost Amazon is charging Prime members for so-called free shipping,” he said.
Burke is suing for breach of contract, and she is seeking a refund of all annual Prime membership fees for customers in the 2007-2011 period and treble damages under the Washington Consumer Protection Act, which prohibits "unfair or deceptive" acts in trade and commerce.
Amazon's annual membership program has tens of millions of members worldwide, according to the company's quarterly earnings announcement in January. During that announcement, the company said it is "working hard to increase capacity for the Prime program," after it was "so popular that Amazon limited new Prime membership signups during peak periods" in December.
Without paying for the annual subscription, non-Prime customers typically are charged by vendors for shipping that can be five to eight days, with higher costs for two-day shipping.
Amazon charges these vendors a referral fee that's a percentage of the price of Prime-eligible products, the lawsuit states, and Amazon deducts as a referral fee a percentage of the item price, excluding any taxes collected through Amazon tax collection services.
Burke claims Amazon recommends to its prime vendors that they raise the price of each item by an amount equal to normal shipping charges, which results in higher referral fees per item paid to Amazon by vendors.
Another Amazon Prime customer, A. Cemal Ekin of Rhode Island, filed a similar lawsuit, alleging breach of contract and violation of the Washington Consumer Protection Act.
"The routine inclusion and encouragement of inclusion of shipping charges in the prices of [certain vendor] Prime-Eligible items constitutes a breach of Amazon’s promise to Prime Program Members that shipping charges would not be included in the prices of items offered for sale as [vendor] Prime-Eligible, and violates Amazon’s agreement that shipping would be 'free,'" according to Ekin's lawsuit filed in February in the same Seattle court in which Burke filed her suit.
Amazon has yet to file a legal response to Ekin's lawsuit.