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

Federal and state allegations

The Federal Trade Commission and a bipartisan coalition of 22 states filed a lawsuit against Amazon on Monday, 31 August 2026. Filed in the U.S. District Court for the Western District of Washington in Seattle, the complaint alleges violations of the FTC Act and over a dozen state laws. Regulators claim that the retailer systematically overcharged more than 1.2 million advertising customers since 2019. The lawsuit asserts that the company secretly manipulated online search advertising auctions to extract over $20 billion in inflated fees from brands and sellers. Regulators maintain that Amazon imposed hidden surcharges almost every time shoppers clicked on advertisements, increasing costs for merchants who subsequently passed those expenses on to consumers.

FTC Chairman Andrew Ferguson condemned the retailer's auction management in an official agency statement.

When one of the world's largest online retailers engages in unfair and deceptive conduct, the impact can be staggering.

Auction mechanics and internal communications

The lawsuit focuses on Amazon's auction pricing across three primary formats: Sponsored Products, Sponsored Brands, and Sponsored Display. Under standard second-price auction rules advertised to buyers, the winning bidder expects to pay only one cent more than the second-highest bid. Regulators allege that Amazon secretly replaced runner-up prices with higher figures, known as soft reserves, because the company was unhappy with its auction revenues. The complaint claims Amazon charged advertisers their full winning bid price close to 80% of the time, designed to maximize retail profits at the expense of campaign cost efficiency. Legal filings quote internal communications from a review of 1.5 million pages, including a memo in which an employee noted that undisclosed reserve prices raised short-term revenue but predicted the tactic would cause long-term harm.

Amazon's defense and counterclaims

Amazon disputed the allegations in a published blog post, calling the FTC lawsuit misguided and asserting that regulators fundamentally misunderstand how advertisers operate. The company argued that ad buyers calibrate bids based on real-world sales performance rather than descriptions of auction mechanics. According to Amazon, average winning bids for Sponsored Products search ads fell 50% between 2019 and 2025. Amazon also stated that roughly 92% of placed advertisements are not awarded based on the highest bid alone. The company calculated that incorporating relevance criteria rather than selecting ads purely by bid price saved advertisers over $8 billion between 2021 and 2025, adding that the FTC presented no evidence of consumer price increases.

Amazon rejected the government's characterization of its auction communications in its response.

Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics.

Financial impact and regulatory history

Following the filing of the lawsuit, Amazon shares closed 2.5% lower on Monday. Digital advertising represents a significant commercial segment for the company, which operates the third-largest digital advertising business globally. Monday's case represents the third legal action brought by the FTC against the e-commerce company in recent years. In 2023, the agency sued Amazon for maintaining an illegal retail monopoly. Amazon also agreed to pay $2.5 billion last year to settle an FTC lawsuit that accused the company of enrolling customers into Prime without consent and complicating cancellation procedures.