Amazon ends use of arbitration for customer disputes

Amazon told customers this week that it would no longer require them to resolve their legal complaints involving the technology giant through arbitration, a significant retreat from a strategy that often helps companies avoid liability.

In a brief email to customers, Amazon said anyone using its products would now have to pursue disputes with the company in federal court, rather than go through the private and secretive arbitration process, which critics say puts consumers at a huge disadvantage.

The five-sentence note informing Amazon’s customers about its updated “conditions of use” did not explain the reasons for dropping arbitration.

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The move comes after the tech giant was hit with roughly 75,000 arbitration claims alleging that devices, such as the Echo, which feature Amazon’s voice-operated assistant Alexa, were recording customers without their consent.

Amazon faces potentially tens of millions of dollars in fees that it will have to pay the private arbitrators to have those cases heard.

For many disputes involving relatively small amounts of money, it would not make financial sense for most consumers to go through the trouble of hiring a lawyer and pursuing an arbitration claim as an individual. For decades, multiple consumers involved in similar disputes were able to pool their resources to hire a lawyer to represent them as a group in class-action lawsuits.

To prevent class actions, many companies began inserting language in their contracts that required customers purchasing services to agree to arbitration in the event of a dispute. That meant signing away their opportunity to be part of a class-action lawsuit.

The Supreme Court has upheld this legal tactic, in large part because companies have successfully argued that they would make sure arbitration was fair for the consumers, including agreeing to pay many of the fees associated with the process. But the upshot was that very few people ever used the arbitration system.

In the Amazon Alexa cases, lawyers representing the customers turned this consumer-friendly feature of the arbitration system to their advantage. By filing claims en masse, the strategy left Amazon with a large legal bill even before any cases had been resolved.

Many of the Alexa arbitration claims are still proceeding, and according to Amazon, many of the cases have been ruled in the company’s favor.