FTC and 22 States Sue Amazon Over $20 Billion Hidden Ad Surcharge Scheme

Quick Facts

The FTC and 22 state attorneys general filed suit against Amazon on August 31, alleging the company secretly manipulated its ad auction system to overcharge advertisers since 2019.
The complaint alleges the scheme extracted more than $20 billion from over one million brands and sellers, including 500,000 small and medium-sized businesses.
Amazon generated $68.64 billion in advertising revenue in 2025, making it the third-largest ad platform in the United States.

The Federal Trade Commission sued Amazon on August 31, alleging the company ran a hidden surcharge scheme that covertly inflated ad prices for more than one million advertisers over seven years. Twenty-two state attorneys general joined the suit, filed as FTC v. Amazon, case 26-cv-3097, in the U.S. District Court for the Western District of Washington in Seattle.

The agency reviewed more than one million internal Amazon documents obtained through investigatory subpoenas. It is the third major federal lawsuit filed against Amazon.

How the Scheme Worked

Amazon told advertisers it ran a generalized second-price auction, a standard model where the winning bidder pays a price determined largely by the next-highest bid, not their own full bid. The complaint alleges Amazon added an undisclosed surcharge in 2019 without notifying advertisers.

Internally, Amazon called the mechanism a “soft reserve price.” The complaint describes it as an “invented auction participant” — effectively a fake bidder that pushed clearing prices higher than real competition would have produced. Amazon executives acknowledged internally that the company’s “clever non-transparent way to charge first price” had been an “incredibly effective way to drive revenue.”

The practical effect was significant. For Sponsored Products ads, the percentage of auctions where advertisers paid their full bid rose from 30% to 40% in 2021, to 70% in 2022, and to approximately 80% in 2024. As much as 80% of all Sponsored Products auctions involved some form of Amazon intervention, according to the complaint.

Concealment Allegations

The complaint alleges that Amazon’s senior executives actively concealed the surcharge system. When advertisers asked directly whether Amazon had changed its auction format, the company gave false or misleading answers, according to the FTC.

Internal documents cited in the complaint show Amazon employees were aware of the risk. Correspondence between staff warned that disclosing the surcharges would cause “irrevocable damage to advertiser trust” and trigger a “downward spiral” of lowered bids that would hurt company revenue.

The executive in charge of Amazon Ads acknowledged internally that the price paid by advertisers “isn’t set by an actual bidder” but is instead a “proxy 2nd price that we calculate,” according to the complaint. Notes from a 2024 meeting between senior executives, including the head of Amazon Ads and Amazon’s Chief Digital Economist, were also cited.

Scale and Damages Sought

The FTC will seek tens of billions of dollars in damages, though officials have not set a final number. The complaint covers Sponsored Products, Sponsored Brands, and Display ads that run alongside Amazon search results.

FTC Chairman Andrew N. Ferguson said in a statement: “When one of the world’s largest online retailers engages in unfair and deceptive conduct, the impact can be staggering.” California Attorney General Rob Bonta, one of the 22 state officials who joined the suit, said Amazon “rigged billions of ad auctions, inflating Amazon’s profits at the expense of Americans who rely on Amazon’s advertising to generate business.”

Amazon’s Response

Amazon denied the allegations. “The FTC claims advertisers were harmed because they didn’t understand how our auction worked and therefore overpaid,” the company said. “Not only do we properly describe our pricing and auctions to advertisers, but this claim fundamentally misunderstands how advertisers behave.”

Amazon also stated that the FTC’s own complaint cites no evidence of consumer price increases and that consumers are mentioned only a handful of times across more than 150 pages.

What It Means for Brands and Sellers

For the more than 500,000 small and medium-sized businesses named in the complaint, the lawsuit raises direct questions about ad spend efficiency and return on investment over the past several years. Brands that ran Sponsored Products campaigns between 2019 and 2024 may have paid significantly more than a transparent auction would have produced.

Amazon’s advertising business continued to grow through the alleged scheme. The company reported $19.81 billion in ad revenue in the second quarter of 2026 alone, a 26% year-on-year increase. How the litigation affects advertiser behavior and Amazon’s auction disclosures going forward remains to be seen as the case proceeds in Seattle.