The Federal Trade Commission and attorneys general from 22 states are suing Amazon, alleging that the tech giant secretly inflated the prices businesses paid to advertise products on its platforms.
The lawsuit, filed on Monday, Aug. 31, alleges that Amazon used hidden surcharges in its online advertising auctions for more than seven years, potentially extracting tens of billions of dollars from more than 1 million advertisers. More than 500,000 of those advertisers were small and midsize businesses, according to the FTC.
The case centers on ads that appear alongside Amazon search results, including sponsored products, sponsored brands and display ads. The FTC alleges Amazon told advertisers they were participating in "second-price" auctions, but
secretly changed its pricing system in 2019 in a way that allowed the company to charge more.
In a statement on its website, Amazon disputes the allegations and says its current advertising system has saved advertisers billions of dollars. The company also called the lawsuit "misguided" and said it plans to defend its practices in court.
What does the FTC allege?
According to the FTC's complaint, Amazon told advertisers that the winner of an ad auction would generally pay just enough to beat the next-highest bidder. For example, if one company bid $5 and the next-highest bidder bid $3, the winning company would generally pay about $3 rather than the full $5.
The FTC alleges Amazon changed that system in 2019 by adding an undisclosed "soft reserve price," which could cause advertisers to pay more than they otherwise would have under the auction system Amazon had described.
The difference became significant over time, according to the complaint. For sponsored products ads, the FTC alleges advertisers paid their full winning bid about 80% of the time in 2024. That figure was about 30% to 40% in 2021.
The FTC alleges Amazon kept the change hidden from advertisers because the company knew they might lower their bids if they understood they could end up paying their full bid more often. The agency says the practice ultimately generated tens of billions of dollars in additional revenue for Amazon.
What does Amazon say?
Amazon says the FTC's case misunderstands how its advertising auctions work.
The company's statement says it has used a form of second-price auction since launching advertising in 2006; however, its system has evolved to place greater emphasis on how relevant an ad is to a shopper.
Amazon acknowledged using "soft reserve prices," describing them as real-time minimum values intended to reflect the market value of an advertising placement. The company said advertisers never pay more than their bids.
Amazon estimates advertisers saved more than $8 billion from 2021 through 2025 because its auction system considers ad relevance instead of simply selecting the highest bidder.
The company also said the average winning bid for sponsored products search ads fell 50% from 2019 to 2024, while the average cost per click remained flat after adjusting for inflation.
Can advertisers file a claim for money?
Not at this time.
The lawsuit does not currently establish a claims process for advertisers, and no form allowing businesses to seek payment from Amazon has been announced.
The FTC and the participating states are asking the court for monetary relief. But the case is still pending, so it is too early to say whether advertisers will receive money, how much they could receive or who would qualify.
If the case eventually results in a settlement or court-ordered payments to affected advertisers, a claims process could be created with instructions about eligibility and how to submit a claim.
What happens next?
This case, filed in U.S. District Court for the Western District of Washington, is the latest legal fight between Amazon and the FTC. The agency previously reached a $2.5 billion settlement with Amazon over allegations involving the company's Prime enrollment and cancellation practices.
Amazon has denied wrongdoing in the current advertising case and said it looks forward to making its case in court. As of Sept. 1, no scheduled court date is listed in federal court records.
Reporter Anthony Thompson can be reached at ajthompson@usatodayco.com or on X @athompsonUSAT.
This article originally appeared on USA TODAY: FTC alleges Amazon overcharged advertisers for years
