Amazon Sued by FTC Over Claims It Ripped Off Advertisers
The U.S. Federal Trade Commission and a group of US states sued Amazon.com Inc. over claims the e-commerce giant systematically overcharged advertisers by more than $20 billion since 2019.
The complaint filed Monday in Seattle federal court alleges Amazon ultimately misled 1.2 million advertising customers — including more than 500,000 small and medium businesses — about the pricing and terms of the company’s so-called sponsored listings, which users see as the top products when they search its online marketplace.
The FTC, which enforces antitrust and consumer laws, and 22 state attorneys general claim Amazon carried out the alleged scheme by manipulating the auction process it uses to set the price of ads on the platform. The suit could lead to billions of dollars in civil penalties.
“Amazon has misrepresented how it calculates the cost of advertising on its platform,” California Attorney General Rob Bonta, who joined the suit, said in a statement. “Over the years, Amazon has rigged billions of ad auctions, inflating Amazon’s profits at the expense of Americans who rely on Amazon’s advertising to generate business.”
The FTC, which enforces antitrust and consumer laws, had been drafting the suit since at least June, when Bloomberg reported that an enforcement action was likely. The litigation marks the latest legal clash between Amazon and the FTC, which has been examining the company’s business since at least 2019. An FTC official said Monday the probe was a top priority.
The regulator filed the suit after reviewing more than a million internal Amazon documents it obtained through investigatory subpoenas, an FTC official said in a press briefing after the suit was filed. The investigation was aided by Amazon employees’ culture of writing everything down, with internal emails and chats showing widespread discussions about the impact of the alleged scheme, the official said.
Related: Amazon’s New User Agreement Seeks to Curb Class-Action Suits
In an emailed statement, Amazon said the lawsuit presented no evidence of harm to shoppers. Amazon advertising auctions prioritize products relevant to shopper search terms before considering bid amounts, which helps shoppers find what they want and keeps prices down for advertisers, the company said.
The average cost-per-click for Amazon search ads remained flat when adjusted for inflation from 2019 to 2024 while advertising performance increased, the company said. Amazon’s auctions have saved advertisers $8 billion during the five-year period ending in 2025, not cost them extra, according to the statement.
“The FTC claims advertisers were harmed because they didn’t understand how our auction worked and therefore overpaid,” Amazon said. “Not only do we properly describe our pricing and auctions to advertisers, but this claim fundamentally misunderstands how advertisers behave.”
At the heart of the lawsuit is the FTC’s claim that Amazon falsely claims that the auctions are competitive while inflating the prices for three of its advertising products: Sponsored Products, Sponsored Brands and Sponsored Display.
‘Secretly Manipulating’
Amazon since 2012 had used what’s known as a “second price” auction process, according to the suit. Under that process, auction participants are typically ranked “by a combination of their bid and relevance to shoppers’ searches,” and the winning bidder “only pays the minimum amount necessary to beat the second place bidder,” typically one cent, the FTC and states say.
Starting in 2018, according to the suit, Amazon allegedly began “secretly manipulating” the auction procedure to increase profits, replacing the price determined by the auction “with a higher price designed to maximize Amazon’s profits.”
In an internal email cited in the complaint, an unidentified Amazon senior scientist said the company accomplished the alleged manipulation by using “an invented auction participant representing how much Amazon thinks that particular ad slot is worth.”
New York Attorney General Letitia James, who also joined the suit, issued a statement blasting Amazon’s alleged conduct regarding ad auctions.
“Consumers across the country are likely paying more for everything from groceries to electronics because Amazon has wrongfully inflated its ad prices,” James said. “Deceptive practices like this hurt consumers and small businesses, and we are taking Amazon to court to get justice for those who were harmed.”
Last year, Amazon agreed to pay $2.5 billion to resolve a different probe over its Prime subscription practices. And a trial is slated for early next year over claims that Amazon is illegally monopolizing online retail markets and degrading quality for shoppers and overcharging sellers.
Possible Fines
While there are limits on the FTC’s ability to obtain monetary penalties, state consumer protection and unfair competition laws allow for tens of thousands of dollars in daily fines. With the vast number of ads shown on Amazon’s website, those numbers add up fast.
The suit targets a key area of growth for Amazon. Advertising has become a lucrative and fast-growing line of business, bringing in $68.6 billion in revenue last year, company filings show. That includes search ads — the sponsored listings that appear within Amazon’s marketplace — as well as video ads and online display advertising shown around the web.
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 ad company.
Advertisers have few alternatives to Amazon’s consumer reach, according to EMarketer Inc., which estimates Amazon’s advertising revenue will grow 21.4% this year to $83.3 billion.
“The FTC case is unlikely to knock that business off course anytime soon, but it could still leave a mark,” EMarketer analyst Zak Stambor said. “The allegations raise uncomfortable questions about how transparent Amazon is with advertisers, and whether they were paying more than they realized.”
The case is FTC v. Amazon, 26-cv-3097, U.S. District Court, Western District of Washington (Seattle).
Top photo: Amazon logo on a shop window. Bloomberg.