FTC accuses Amazon of ‘secret ad surcharge scheme’ in lawsuit joined by 22 states

Amazon is facing a lawsuit from the Federal Trade Commission and 22 states accusing the company of secretly charging businesses more for advertising on its platform. The complaint says Amazon spent more than seven years quietly increasing prices advertisers paid through online ad auctions. According to the lawsuit, the alleged practice affected more than 1 million brands and sellers and may have generated tens of billions of dollars in additional revenue for Amazon.

The lawsuit focuses on Amazon’s Sponsored Products ads, Sponsored Brands ads, and Display ads that appear alongside search results. The FTC alleges Amazon told more than 500,000 small and medium-sized businesses it used a “second-price” auction, where the winner pays one cent more than the next-highest bid rather than the full bid. The complaint says Amazon later added a hidden “soft reserve price” and used what one internal document called an “invented auction participant” to push prices higher. The FTC claims this meant Sponsored Products advertisers were charged their full winning bid close to 80% of the time.

The states joining the FTC are Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont, and Washington. Their involvement broadens the case beyond a federal enforcement action and signals wider scrutiny of Amazon’s advertising practices. For advertisers, the key issue is whether auction rules were communicated clearly and whether bidding systems operated as represented.

Amazon described the FTC’s lawsuit as “misguided” and argued that the complaint “fundamentally misunderstands how advertisers operate.” The company said its auctions evaluate billions of bids across placements and formats, so prices naturally vary, and said advertisers are “properly” informed about the pricing system. The case lands as Amazon’s advertising business has become a major revenue source, with the company generating more than $68 billion in advertising revenue last year.