Australia's consumer watchdog revealed on Tuesday it had commenced Federal Court proceedings against Amazon AU, alleging it used unfair contract terms to make negative changes to Prime without offering customers a remedy.
The lawsuit alleges contracts with over one million Prime subscribers contained five unfair terms, one or more of which the company relied on to introduce ads in July 2024.
After July 2024, subscribers who wanted to stay ad-free had to pay an additional $2.99 per month, despite already having paid $79 upfront for the year.
"For consumers who wished to avoid ads, they had to pay more to continue to receive the service they had signed up for," Australian Competition and Consumer Commission chair Gina Cass-Gottlieb told reporters.
"For consumers who were not prepared to pay more but continued the service, they received the programming including ads and we allege that this was a lower quality service than they signed up for.
"That is why we have taken court proceedings against Amazon today."
Those customers who incurred loses as a result might be eligible for compensation, Ms Cass-Gottlieb said.
The introduction of ads impacted more than 850,000 annual Prime subscribers, who the ACCC says afterwards were deprived of the service they were initially offered and signed up for.
If the allegations are proven, Amazon might also be forced to pay "substantial and significant penalties" to help deter other companies from similar behaviour, Ms Cass-Gottlieb said.
It's alleged Amazon US was knowingly involved in Amazon AU's contravening conduct.
It is further alleged that Amazon US was involved in drafting the Australian contracts that contained the terms which the ACCC says were unfair and made the decision to introduce advertising to Prime globally.
Both companies are subsidiaries of the US parent Amazon.com, founded by billionaire Jeff Bezos
''We have increasingly streaming services and subscriptions in our Australian daily lives - the contracts for these services must be fair,' Ms Cass-Gottlieb said.
"Businesses that offer standard form contracts must ensure that the rights and the obligations in their contracts balance and are fair overall for the consumers."
The ACCC investigated Amazon AU's contracts after receiving consumer reports about the introduction of ads to Prime.
The alleged unfair terms relate to contracts with subscribers between November 2023 and August 2025.
A significant imbalance in the rights and obligations of parties involved in a contract could be one of the reasons it is considered unfair under the law.
The case is one of the first contested matters taken by the ACCC under a new penalty regime for unfair contract terms, applying to contracts made or renewed from November 9, 2023.
A spokesperson for Amazon AU said the company was reviewing the case filed by the ACCC in detail.
"We have co-operated with the ACCC throughout its investigation and remain focused on providing the best experience for our Australian customers," they said.
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