The U.S. Federal Trade Commission (FTC) and 22 state attorneys general filed a lawsuit on Monday against Amazon, alleging the e-commerce giant secretly and systematically overcharged advertisers on its platform by manipulating its ad auction pricing system. The complaint, filed in the U.S. District Court for the Western District of Washington, claims Amazon’s actions may have cost advertisers $20 billion or more since 2019, when a change to its auction rules took effect. The lawsuit centers on sponsored product ads, brand ads, and display ads that appear alongside search results on Amazon’s platform.
Amazon denies the allegations, stating in a blog post that its advertising policies aim to show shoppers the most relevant ads while keeping costs stable for advertisers. The company noted that the average cost per click for advertisers remained flat from 2019 to 2024, and sales generated from those clicks rose during the same period.
Core Allegations and Legal Action
The FTC and 22 states allege that Amazon deceived advertisers by manipulating its second-price auction system, a standard industry practice where advertisers are told they would pay only one cent more than the second-highest bidder. However, the lawsuit claims Amazon charged the winning bidder their own price about 80% of the time, effectively inflating costs. The complaint argues this practice deprived advertisers of fair competition and passed higher costs to consumers.
Amazon disputes these claims, asserting that the FTC misrepresented the auction mechanics and that advertisers adjust bids based on real-world performance, not theoretical descriptions. The company also stated that winning bids for sponsored product ads dropped 50% from 2019 to 2025, and it estimated advertisers saved over $8 billion from 2021 to 2025 due to Amazon’s prioritization of ad relevance.
Broader Regulatory Context and Amazon’s History
This lawsuit marks the third major federal legal action against Amazon in the past year. In September 2024, Amazon agreed to pay a $2.5 billion settlement to resolve FTC allegations that it deceived customers into enrolling in Prime subscriptions by making cancellation intentionally difficult. Additionally, Amazon faces another sweeping antitrust lawsuit from the FTC and 17 states, which accuses the company of monopolistic practices that stifle competition and raise costs for both sellers and shoppers.
The FTC’s complaint in the current case argues that Amazon’s alleged ad pricing scheme violated the FTC Act by engaging in unfair and deceptive practices. The agency also claims the company’s actions harmed competition by preventing advertisers from making informed bidding decisions. The 22 states joining the lawsuit include major jurisdictions such as California, New York, Texas, and Washington, signaling broad bipartisan support for the legal action.
Amazon’s Defense and Industry Rebuttals
Amazon has vehemently rejected the allegations, arguing that the FTC’s case is based on a flawed understanding of how digital advertising auctions operate. In its response, the company stated:
"The FTC’s claim fundamentally misunderstands how advertisers operate. Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics."
The company also highlighted that advertising quality improved over time, while average cost-per-click remained flat when adjusted for inflation. Amazon further noted that the lawsuit provided no evidence of harm to shoppers, a point the FTC disputes by arguing that higher ad costs were passed on to consumers.
Industry analysts have noted that second-price auctions are common in digital advertising, but the FTC’s lawsuit suggests Amazon’s implementation deviated from standard practices by not disclosing the true pricing mechanism to advertisers. Some legal experts have suggested that if the allegations are proven, Amazon could face substantial fines and mandatory changes to its ad pricing policies.
Potential Outcomes and Next Steps
The lawsuit, if successful, could result in civil penalties, restitution for affected advertisers, and court-ordered changes to Amazon’s ad auction system. The case is expected to proceed through pre-trial motions and discovery, with a trial potentially years away. Amazon’s shares fell about 3% in afternoon trading following the announcement of the lawsuit.
The FTC’s case relies on internal Amazon documents, communications with advertisers, and data analysis to support its claims of systemic overcharging. The agency has not yet provided public access to the full complaint, but the 22 states joining the lawsuit have indicated they will seek additional civil penalties and recovery of damages on behalf of advertisers in their jurisdictions.
Legal observers note that this case could set a precedent for how digital advertising auctions are regulated, particularly for large platforms like Amazon that dominate multiple markets. The outcome may also influence future antitrust enforcement against tech giants, which have faced increasing scrutiny over their market practices.