Amazon Sued by FTC, 22 States Over Alleged $20 Billion Ad Overcharges

Amazon was sued Monday by the Federal Trade Commission and 22 states over allegations that it secretly changed how its advertising auctions set prices and overcharged about 1.2 million U.S. advertisers by more than $20 billion.

Filed August 31 in federal court in Washington state, the lawsuit claims Amazon altered the pricing system used for Sponsored Products, Sponsored Brands and Sponsored Display ads without adequately telling businesses how the changes could affect what they paid. Regulators say more than 500,000 small and medium-sized businesses were among those affected.

At the center of the case is a pricing mechanism Amazon calls a "soft reserve." The FTC claims Amazon used the reserve to replace prices generated through its advertising auctions with higher amounts while limiting advertisers' ability to determine how their final charges were set.

Amazon has described its system as a form of generalized second-price auction. Advertisers submit the most they are willing to pay for an ad placement, but the winner generally pays only enough to beat the next ranked competitor. Regulators allege Amazon began changing those results in 2018 and expanded the practice in 2019.

Section 5 of the Federal Trade Commission Act prohibits unfair or deceptive acts or practices in commerce. A business may violate the law by giving customers misleading information, or leaving out important information, that is likely to affect a reasonable person's decision about a product, service or price. The FTC argues advertisers could have changed their bids or spending if they had known how Amazon's reserve prices could affect what they were charged.

Regulators also accuse Amazon of unfair business practices. Federal law can treat conduct as unfair when it causes substantial harm that customers cannot reasonably avoid and the harm is not outweighed by benefits to consumers or competition. The agency claims advertisers lacked the information needed to protect themselves because they could not determine how Amazon calculated the final price of an ad.

The 22 states are bringing related claims under their own consumer protection laws. The FTC and states are seeking an order barring the challenged conduct, along with restitution, civil penalties and other monetary relief available under federal and state law.

Amazon denies misleading or harming advertisers. The company argues that reserve prices are common in advertising auctions and says businesses know the maximum amount they may be charged because they set that amount when placing a bid. Amazon also says advertisers are never charged more than the maximum they submit.

In its response, the company said the average inflation-adjusted cost per click for Sponsored Products search ads remained flat from 2019 through 2024, while average winning bids fell by half between 2019 and 2025. Amazon also argues that considering an ad's relevance to shoppers benefits advertisers and estimates that changes to its system saved them more than $8 billion from 2021 through 2025.

Regulators claim the undisclosed pricing practices instead increased advertising costs and that some sellers ultimately passed those expenses on to shoppers through higher prices. Any monetary recovery would have to be determined through the litigation.

The case adds to an already contentious relationship between Amazon and the FTC. Amazon is separately defending an antitrust lawsuit brought by the agency over its online retail business and previously reached a $2.5 billion settlement resolving allegations involving Prime subscriptions while denying wrongdoing.

Amazon denies the allegations and says it will defend its advertising practices. The case remains pending.