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Amazon is being accused of encouraging third-party sellers to inflate prices to help cover the cost of shipping, even though customers who pay for Amazon Prime, are supposed to get that benefit for free.

amazonprimeThe lawsuit comes at a time when Amazon is already considering raising the cost of the $79 program by $20-to-$40 a year to cover increased shipping expenses.

The complaint, which is seeking class action on behalf of Prime members between 2007 and 2011, was filed last week in U.S. District Court in Seattle on behalf of an individual Amazon Prime member.

Amazon did not immediately provide a comment on the suit in response to a GeekWire inquiry.

The argument is pretty straight forward. Amazon customers pay $79 a year for Amazon Prime, which gives members free two-day shipping on Prime-Eligible products. Amazon is being accused of encouraging vendors, who use Amazon to ship its items (referred to as Fulfillment by Amazon or FBA), of marking up the prices of these items to ultimately include shipping charges. Further, Amazon allegedly then gives these vendors priority by showing their items first in the Prime Member’s product search results.

By raising the price of the product, the lawsuit contends that Amazon is able to recoup the cost of shipping because it receives a percentage of the product’s price.

“The routine inclusion and encouragement of inclusion of shipping charges in the prices of FBA 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 FBA Prime-Eligible, and violates Amazon’s agreement that shipping would be ‘free’.”

The lawsuit is seeking a refund of all annual Prime Program membership fees; damages as provided under the Washington Consumer Protection Act; and attorney’s fees.

Free two-day shipping is the core offering of Amazon Prime, however, in recent years it has expanded much further to include a Netflix-like streaming video service and free book downloads on the Kindle. Any deception regarding the Prime program could potentially hurt Amazon’s reputation for offering low prices and free shipping.

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