The Federal Trade Commission filed a lawsuit against Amazon.com Inc. on Monday, joined by 22 state attorneys general, alleging the e-commerce leader systematically overcharged advertisers through secret manipulation of its auction systems. The complaint, filed in U.S. District Court for the Western District of Washington, accuses the company of extracting more than $20 billion from advertisers since 2019 through hidden surcharges and misleading pricing practices.

FTC Chairman Andrew Ferguson declared that Amazon misled millions of advertising customers into paying significantly inflated prices. The regulator claims these higher advertising costs ultimately harmed American consumers, as advertisers passed on the increased expenses through higher product prices on the platform.

The lawsuit alleges that Amazon violated the FTC Act and over a dozen state consumer protection laws by secretly changing how its advertising auctions functioned. According to the complaint, the company has overcharged approximately 1.2 million advertising customers through these deceptive practices over a five-year period.

This legal action marks the latest clash between the FTC and Amazon, which agreed to pay $2.5 billion almost a year ago to settle an earlier FTC lawsuit concerning Prime subscription practices. The commission has been investigating various aspects of the company’s business operations since at least 2019.

How Amazon’s Ad Auction System Allegedly Changed

The FTC’s complaint centers on Amazon’s sponsored products ads, brands ads, and display ads that appear alongside search results on its marketplace platform. The company operates the third-largest digital advertising business globally, trailing only Google and Meta, and generated more than $68 billion in advertising revenue last year.

Traditionally, Amazon employed a “second-price” auction system for advertising placements. Under this model, the winning bidder pays only one cent more than the second-highest bid. The company’s own marketing materials told advertisers they would “only pay the least bid amount needed in order to win,” according to the complaint.

The FTC alleges that in 2019, Amazon secretly modified these auction rules without properly notifying customers. Instead of maintaining the transparent second-price model, the company began adding an undisclosed surcharge internally referred to as a “soft reserve price.” This change allowed Amazon to set auction prices itself rather than letting market competition determine final costs.

“After Amazon runs its ad auctions and determines the winning and second-place bidders, it then replaces the price determined by the auction with a higher price designed to maximize Amazon’s profits and decrease the cost efficiency of its advertisers’ campaigns,” the complaint states, citing an internal explanation from Amazon’s Senior Vice President in charge of Amazon Ads that “the second price isn’t set by an actual bidder, but rather by” Amazon in the form of a “proxy 2nd price that we calculate.”

Company Disputes Allegations and Defends Auction System

Amazon responded to the lawsuit by calling it “misguided” and asserting that the FTC fundamentally misunderstands how its advertising auctions operate. The company maintains its auction systems prioritize products relevant to shopper search terms before considering bid amounts, which helps consumers find desired products while keeping advertiser costs reasonable.

In a company blog post and emailed statement, Amazon disputed the regulator’s claims point by point. The e-commerce giant insisted it properly describes its pricing and auction mechanisms to advertising customers through the main campaign management tools. Furthermore, the company argued that the lawsuit presents no evidence of actual harm to shoppers through price increases.

Amazon provided contrasting data to counter the FTC’s allegations. The company asserted that from 2019 to 2024, the average winning bid for Sponsored Products search ads fell 50%, while the average cost-per-click for search ads remained flat when adjusted for inflation during the same period. The company claims its auction systems actually saved advertisers $8 billion between 2021 and 2025, contradicting the FTC’s overcharging allegations.

Broader Context and Industry Impact

The lawsuit arrives amid growing frustration from third-party sellers on Amazon’s marketplace regarding escalating advertising costs. Multiple merchants have criticized a series of recent policy changes, with some top sellers launching a boycott by withholding their advertising spending to protest what they view as unfair cost increases and inadequate transparency.

Bloomberg reported in June that the FTC and state attorneys general had been investigating claims that Amazon misled advertising clients. The probe, overseen by the agency’s consumer protection unit, intensified last year and focused partly on whether the company adequately disclosed terms and pricing related to its advertising products. At the time, reports suggested the investigation could result in billions of dollars in civil penalties.

The complaint alleges that Amazon gave advertisers inadequate disclosures around the pricing and terms of “sponsored” listings that appear as top products when users conduct searches on the marketplace. For years, the company allegedly inflated auction prices for its three main advertising products without proper notification to affected customers.

“Amazon has millions of advertising customers who were misled into paying significantly higher prices,” Chairman Ferguson said in a statement, adding that “these higher costs were largely passed on to American consumers.”

What Comes Next

The case will proceed through the U.S. District Court for the Western District of Washington, where Amazon has vowed to defend its auction practices. The company stated it looks forward to making its case in court and continues to update the guidance it provides to advertisers about auction mechanisms and pricing structures.

This lawsuit represents another significant chapter in the FTC’s ongoing scrutiny of Amazon’s business practices across multiple domains. The outcome could have far-reaching implications for how digital advertising platforms disclose their pricing mechanisms and operate auction systems, potentially affecting the entire $68 billion advertising industry that has developed around major e-commerce platforms.

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