FTC and 22 states sue Amazon over alleged $20 billion ad auction scheme

Federal and state lawsuit

On 31 August 2026, the Federal Trade Commission and 22 states filed a lawsuit against Amazon in the US District Court for the Western District of Washington in Seattle. The complaint alleges that the company systematically manipulated online advertising auctions, overcharging approximately 1.2 million advertising customers by more than $20 billion over a seven-year period. Regulators assert that the scheme affected more than 500,000 small and medium-sized businesses that rely on the e-commerce platform to promote their goods.

FTC Chairman Andrew Ferguson addressed the scope of the alleged auction deception:

When one of the world's largest online retailers engages in unfair and deceptive conduct, the impact can be staggering. Amazon has millions of advertising customers who were misled into paying significantly higher prices.

California Attorney General Rob Bonta, whose state joined the federal filing, pointed to the cumulative effect on merchants:

For years, Amazon has misrepresented how it calculates the cost of advertising on its platform. 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.

Auction mechanics and undisclosed surcharges

The lawsuit focuses on three core ad products: Sponsored Products, Sponsored Brands, and Sponsored Display. According to the complaint, Amazon represented to advertisers that it operated a second-price auction system, where the winning bidder pays only one cent more than the runner-up offer. Instead, regulators allege that Amazon began secretly altering auction mechanisms in late 2018 and broadened the practice in July 2019. The company allegedly inserted artificial bid floors and fictitious competitors into auctions to drive final prices upward.

By 2024, Sponsored Products advertisers were charged their full maximum bid in nearly 80% of auctions, effectively operating under a first-price model while believing they were in a second-price auction. The complaint cites notes from a 2024 executive discussion describing an undisclosed method to charge first-price rates as an effective way to drive revenue. Internal records cited by regulators referenced hidden surcharges implemented after corporate leadership sought higher advertising income. Regulators also allege that ad prices were elevated further during shopping events like Prime Day and Black Friday, with added costs passed on to retail consumers.

Financial scale and ongoing legal battles

Amazon rejected the allegations in a blog post, describing the lawsuit as misguided and flawed. The company stated that regulators cherry-picked outdated internal documents to construct a false narrative of companywide deception. Amazon shares closed down 2.5% on 31 August 2026 following the filing. Advertising forms a large component of the Seattle-based company, generating $68.6 billion in revenue in 2025 out of nearly $717 billion in total company revenue. Amazon ranks as the third-largest digital advertising platform globally, behind Meta and Google, while its corporate market capitalization surpassed $3 trillion in early August 2026.

The case represents the third federal enforcement action brought by the FTC against Amazon. In September 2025, the retailer agreed to pay $2.5 billion to settle federal allegations involving deceptive Prime subscription enrollments and difficult cancellation procedures. Amazon also faces a separate federal lawsuit concerning an alleged illegal monopoly in online retail, with a trial scheduled to begin on 29 March 2027 before the same federal court in Washington state.