Prime time in the Federal Court.

The Australian Competition and Consumer Commission (ACCC) has commenced Federal Court proceedings against Amazon Commercial Services Pty Ltd (Amazon) and Amazon.com Services LLC over terms in Amazon Prime’s subscription contracts.

The ACCC alleges that:

• Amazon’s Prime subscription contracts contained terms which allowed Amazon to make materially adverse changes to Prime services and the contracts governing those services;
• Prime subscribers had no contractual right to a pro rata refund or other meaningful redress in response to an adverse change; and
• therefore, each of those terms was an ‘unfair contract term’ under section 24 of the Australian Consumer Law (ACL) and therefore void.

Unfair contract terms

The ACL prohibits ‘unfair contract terms’ in standard form contracts with small businesses and individual consumers. The rationale for this prohibition is that standard form contracts are primarily used by large entities in transactions where the other party has limited bargaining power or capacity to negotiate.

Unfair contract term protections safeguard consumers and small businesses – who often have limited bargaining power, expertise and ability to negotiate – from harmful standard form contract terms.

Section 24 of the ACL deems contract terms unfair if they:

• cause a significant imbalance in the rights and obligations of the parties under the contract;
• are not reasonably necessary to protect the legitimate interests of the party who gets an advantage from the term; and
• would cause detriment (financial or otherwise) to the other party if enforced.

In deciding whether a term is unfair, a court can consider any matter it thinks relevant, but it must consider the contract as a whole and whether the term is transparent.

Background facts and allegations

Almost all Prime Video content was provided without advertising until July 2024. Subscribers could pay for Amazon Prime per month or per year in advance.

Amazon then introduced advertisements to Prime Video. Subscribers who wanted to continue watching movies and television shows without ads had to pay an additional $2.99 per month. This included subscribers who had already paid for an annual term, which the ACCC claims was more than 850,000 subscribers at that time.

The ACCC alleges that these subscribers received an ad-supported service for the rest of their prepaid term unless they paid the additional fee. They had no contractual right to a pro rata refund or other meaningful redress if they cancelled.

The ACCC is seeking declarations, penalties, consumer redress, costs and other orders against Amazon if its Federal Court action succeeds.

Next steps and practical takeways

This case is still in its very early stages. If Amazon decides not to settle with the ACCC, a trial is unlikely before 2028.

In any event, this case shows that the ACCC is prioritising enforcement action against businesses who attempt to rely on unfair contract terms.

Businesses using standard-form consumer or small business contracts should review any unilateral variation clauses. Those clauses should clearly limit the circumstances and manner in which material changes may be made, require reasonable advance notice and provide meaningful remedies, such as a right to cancel and receive a pro rata refund, where a prepaid service is materially reduced.