FTC and 22 States Sue Amazon Over Alleged Secret Ad Auction Surcharges Totaling $20 Billion

The Federal Trade Commission, joined by attorneys general from 22 states, filed suit against Amazon on Monday, August 31, alleging the company secretly manipulated its online advertising auctions to overcharge advertisers by more than $20 billion over roughly seven years.

The complaint, filed in U.S. District Court for the Western District of Washington, targets Amazon's Sponsored Products, Sponsored Brands and Display ads that run alongside search results on Amazon.com and its mobile app. The FTC says more than one million brands and sellers, including over 500,000 small and medium-sized businesses, were affected.

What The Complaint Alleges

Amazon has told advertisers for years that its ad placements are sold through "second price" auctions: the winning bidder pays only the minimum needed to beat the second-highest bid, described in Amazon's own marketing materials as "one penny more than the next highest bid," according to New York Attorney General Letitia James.

James, whose office led part of the investigation, alleges that starting in 2018 Amazon began submitting fake, inflated second-place bids after auctions closed, then charged winning advertisers based on those fabricated numbers rather than the real runner-up bid. Advertisers had no way to see the actual auction data, according to James's office, so they had no way of knowing whether they were being charged fairly.

The FTC's own statement, along with filings from the Pennsylvania Attorney General's office, describes a scheme running "for over seven years," while CNBC reported the alleged conduct traces to a 2019 change in Amazon's auction rules. Regardless of the exact starting point, all the state and federal filings agree the surcharges went undisclosed to advertisers.

"When one of the world's largest online retailers engages in unfair and deceptive conduct, the impact can be staggering," FTC Chairman Andrew N. Ferguson said in the agency's 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."

Pennsylvania Attorney General Dave Sunday said the scheme meant Amazon was "preying on smaller businesses on tight budgets," noting more than 14,000 independent sellers in Pennsylvania alone rely on the platform to move over 100 million items a year.

Amazon's Defense

Amazon rejected the allegations in a company blog post, calling the FTC's case "misguided" and saying the complaint "fundamentally misunderstands how advertisers operate." The company said it has "provided advertisers with guidance about our auctions and pricing in the main tools they use to manage their campaigns," and pointed out that the FTC's complaint does not include evidence that consumers actually paid higher prices as a result.

Amazon also said its auction systems saved advertisers a combined $8 billion between 2021 and 2025, the opposite of what the FTC and states are alleging. The company said it "looks forward to making its case in court."

The FTC and state AGs allege the surcharges were "largely passed on to American consumers," but the complaint as described in these filings does not appear to include direct evidence, such as retail pricing data, tying the alleged ad surcharges to specific consumer price increases. Amazon's rebuttal on this point challenges the government's framing, and it will likely be a central fight in the litigation.

The Numbers And The Stakes

Amazon's advertising business generated more than $68 billion in revenue last year, making it the third-largest digital ad platform globally behind Google and Meta, according to CNBC. Sponsored product ads, the category at the center of this lawsuit, account for the bulk of that revenue.

Amazon shares fell nearly 3% Monday afternoon, trading around $258, following the Wall Street Journal's initial report on the pending suit, according to Forbes and Ground News.

The FTC settled a prior case against the company for $2.5 billion last year over deceptive Prime subscription enrollment and cancellation practices, according to Ground News, part of what several outlets describe as intensified regulatory scrutiny of Amazon's business practices.

The coalition of state attorneys general spans both parties, including Republican-led states such as Florida, Idaho, Oklahoma and South Carolina alongside Democratic-led states such as California, New York, New Jersey and Illinois, indicating the complaint's allegations found bipartisan backing at the state level even as the underlying legal claims remain contested.

The lawsuit seeks civil penalties, restitution for affected advertisers, and a court order stopping the alleged practices. No trial date has been set. Amazon has not yet filed a formal response in court. The case's outcome will hinge on whether the FTC and states can produce the internal auction data and bid records needed to prove Amazon manipulated the second-place bids as alleged, a claim Amazon disputes entirely.