FTC Sue Amazon Over Alleged $20 Billion Ad-Rigging Scheme

The US Federal Trade Commission (FTC) alongside a bipartisan coalition of 22 state attorneys general filed a lawsuit on Monday in the US District Court for the Western District of Washington, accusing Amazon of secretly and systematically overcharging its advertising clients.

The complaint alleges that since 2019, the tech giant altered its ad auction rules to collect hidden surcharges, netting an estimated $20 billion from over 1.2 million advertisers including more than 500,000 small- and medium-sized businesses. Regulators argue that these artificially inflated marketing expenses trickled down to shoppers, driving up costs on everyday items like groceries.

Announcing the lawsuit, FTC Chairman Andrew Ferguson stated:

"Amazon has millions of advertising customers who were misled into paying significantly higher prices. These higher costs were largely passed on to American consumers."

Following the announcement, Amazon's stock closed down 2.5% on Monday.

Amazon operates the third-largest digital ad platform globally behind Google and Meta, generating over $68 billion in ad revenue last year, primarily through sponsored product listings.

Traditionally, the company used a "second-price" auction model, where winning advertisers pay just one cent more than the second-highest bid. However, the lawsuit alleges that Amazon modified these rules without informing buyers after becoming dissatisfied with its ad revenues. According to regulators, the company introduced undisclosed floor limits, which are referred to internally as "soft reserve prices", and effectively created an "invented auction participant" to artificially inflate second-place bids.

The complaint claims Amazon ended up charging Sponsored Products advertisers their full winning bid nearly 80% of the time. The suit quotes the original Washington filing, alleging that "Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits" and that "it was unhappy about how much revenue its advertising auctions were generating".

Internal communications cited in the filing show one company manager describing the pricing strategy as "hoping that advertisers don’t notice and decrease bids or ad spend".

Bipartisan support for the suit was highlighted by state leaders. North Carolina Attorney General Jeff Jackson said:

"We believe Amazon manipulated its ad auctions to inflate what sellers had to pay, adding billions of dollars in costs that ultimately get passed on to customers with higher prices".

California Attorney General Rob Bonta added:

"Amazon’s price inflation is illegal, plain and simple. This is a massive corporation. They can be wildly successful and also follow the law."

Amazon strongly rejected the lawsuit's premises in a public statement and blog post, labeling the enforcement action "misguided" and maintaining that regulators fundamentally misinterpret how campaign pricing functions.

In a statement to the BBC, Amazon stated that it "strongly disagrees" with the accusation that it deceived clients, pushing back on claims that the practices harmed everyday buyers:

"The FTC wants the public to believe this case is about higher prices for consumers. It is not."

The company argued that sellers adjust their bids based on campaign performance rather than auction mechanics. According to Amazon, average winning bids for Sponsored Products actually decreased by 50% between 2019 and 2025, and its auction systems saved advertisers $8 billion during that window. 

Dismissing the internal messages cited by the government, Amazon wrote:

"Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics. Average winning bids fell 50% from 2019 to 2025 on Sponsored Products search ads, and roughly 92% of placed ads are not given to the highest bid."

"We’ve provided advertisers with guidance about our auctions and pricing in the main tools they use to manage their campaigns, and we continue to update that guidance. We look forward to making our case in court."

"After reviewing approximately 1.5 million pages spanning six years, the FTC leans on a handful of simplified communications to allege a companywide effort to deceive. That is patently false."

The company added that it gives "customers the lowest prices every day across the widest selection of products".

The lawsuit seeks civil penalties, restitution for overcharged advertisers, and a permanent court order stopping the practice.

This lawsuit represents the latest legal clash between the consumer watchdog and the Seattle-based company. Last year, Amazon agreed to a $2.5 billion settlement with the agency regarding allegations it enrolled shoppers in Prime memberships without consent and made cancellations intentionally difficult. Amazon also faces a separate ongoing antitrust trial brought by the FTC and 17 states alleging that it is abusing its monopoly in its retail marketplace.