The Federal Trade Commission and 22 states filed a lawsuit against Amazon on Monday, accusing the retail giant of secretly and systematically overcharging advertising customers for years. The complaint, filed in federal court in Washington state, alleges that Amazon added hidden surcharges to its ad auctions, causing advertisers to unknowingly overpay for sponsored product placements and other ads on its platform.
According to the FTC, Amazon tells prospective customers that ad prices are set through competitive auctions, but the company covertly overrides and replaces auction results with higher prices. The complaint alleges that Amazon has been manipulating its ad auctions since 2019, using practices that include "invented auction participants" and a "proxy 2nd price" calculated by Amazon itself. In a "second price auction," the winning bidder is supposed to pay only one cent more than the next highest bidder, but the FTC alleges Amazon increased those prices and sought to conceal its actions.
"Amazon has been able to successfully impose hidden surcharges on advertisers almost every time a shopper clicks on an advertisement on the Amazon website," the lawsuit states, as reported by Engadget. The tactic, which "continues to this day," has been lucrative for the company, according to the FTC. The "scheme has likely illegally extracted over 20 billion dollars from its unwitting advertising customers," the lawsuit alleges.
The FTC said the deceptive behavior has affected roughly 1.2 million advertisers, including over 500,000 small- and medium-size businesses. FTC Chair Andrew Ferguson said in a statement: "Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers." Ferguson also stated that "The FTC under President Trump won't allow this deception to continue."
The lawsuit alleges that Amazon violated the FTC Act and over a dozen state laws, including claims under states' unfair trade practices and consumer protection laws. The jurisdictions joining the lawsuit include both red and blue states such as Washington, New York, California, Colorado, Florida, Indiana, Kentucky, Alaska, Arizona, Maryland, South Carolina and Vermont.
The complaint quotes from several internal Amazon documents in which employees question the company's auction pricing practices. One memo reportedly acknowledged that Amazon's use of undisclosed reserve prices "increases our short-term revenue," but predicted it would "hurt us in the long run." The lawsuit alleges that the practice was well-known within the company, even after multiple employees raised the issue.
Amazon responded to the lawsuit in a blog post, calling it "misguided" and claiming that "from 2019 to 2024, the average winning bid for Sponsored Products search ads fell 50%." The company said it "strongly disagrees" with the allegations, adding that "the FTC's claim fundamentally misunderstands how advertisers operate." Amazon also disputed the FTC's claim that higher advertising prices were passed on to consumers.
The lawsuit comes almost a year after Amazon agreed to pay $2.5 billion to settle an earlier FTC lawsuit over Prime subscription practices. The Biden-era FTC previously filed a sprawling antitrust suit against Amazon in September 2023, accusing the company of using various illegal and anti-competitive tactics that impaired third-party sellers, stifled competition and denied consumers a more vibrant market. That case remains pending, with a trial scheduled to take place in 2027.