Amazon Faces Billions in Penalties From Potential FTC Ad Suit

Amazon.com Inc. is facing a possible lawsuit from the U.S. Federal Trade Commission that may lead to billions of dollars in civil penalties, over claims the e-commerce giant misled advertisers, according to people familiar with the matter.

The FTC, which enforces antitrust and consumer laws, has drafted a potential complaint against Amazon as part of an ongoing investigation by the regulator, said some of the people, who asked not to be named discussing a confidential matter. Multiple state attorneys general are also involved, the people said.

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The federal agency may wrap up its investigation either through a lawsuit or settlement as soon as this summer, according to the people. The FTC’s two Republican commissioners—Chairman Andrew Ferguson and Commissioner Mark Meador—would need to vote before any resolution or lawsuit is final.

While there are limits on the FTC’s ability to obtain monetary penalties, the involvement of the states could circumvent those restrictions. State consumer protection and unfair competition laws allow for tens of thousands of dollars in daily fines. With the number of advertisements shown on Amazon’s website, those numbers add up fast.

Spokespeople for the FTC and Amazon declined to comment.

The probe, which ramped up last year and is run by the agency’s consumer protection unit, focuses in part on whether Amazon properly disclosed the terms and pricing related to its ads, sometimes known as “sponsored listings” or “sponsored ads” that users see as the top products when they search Amazon’s marketplace, Bloomberg previously reported.

The investigation targets a key area of growth for the Seattle-based tech giant. Advertising has become a lucrative and fast-growing line of business, bringing in $68.6 billion in revenue last year, according to a company filing. That number includes search advertising — the sponsored listings that appear within Amazon’s marketplace — as well as video ads and online display advertising shown around the web.

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Digital advertising has gradually overtaken other forms as companies with vast troves of consumer data say they can better target people online who are interested in making purchases. Alphabet Inc.’s Google remains the market leader, while Amazon is the third-largest online advertising company.

As part of its investigation last year, the FTC sought details about Amazon’s auctions and whether it disclosed “reserve pricing” for some search ads — price floors that advertisers must meet before they can buy an ad, Bloomberg previously reported. The FTC is also investigating Google over similar concerns.

The FTC has been looking into many aspects of Amazon’s business since at least 2019. Last fall, the company agreed to pay $2.5 billion to resolve a different consumer protection probe over its Prime subscription practices. A trial is slated for early next year over over the FTC antitrust claims that Amazon has forced brands to raise prices at competing retailers or suffer limited or no visibility on its marketplace.

Top photo: The Amazon.com logo on a smartphone arranged in New York, on Tuesday, Sept. 26, 2023. Bloomberg.