The Federal Trade Commission (FTC), joined by 22 states, has filed a lawsuit against Amazon alleging the company engaged in a secret scheme that surcharged businesses for advertising on its platform over more than seven years. The complaint asserts Amazon quietly increased the costs for advertisers using its Sponsored Products, Sponsored Brands, and Display ads through online auction processes. The states involved include major markets such as California, New York, Florida, and Washington, collectively highlighting the widespread impact of the alleged practice, which affected over one million brands and could have generated tens of billions in extra revenue for Amazon.

At the core of the lawsuit is Amazon’s purported manipulation of its advertising auctions, specifically the claimed shift from a “second-price” auction model to effectively a first-price auction without disclosure. Under the previously promoted system, advertisers believed they would pay just slightly more than the next-highest bid, encouraging them to bid competitively. The FTC alleges that starting in 2019, Amazon introduced a hidden surcharge known internally as a “soft reserve price,” using a fictitious bidder to push prices higher, thus charging advertisers their full bid almost 80% of the time instead of the intended second-price amount.

Amazon generated over $68 billion in advertising revenue last year, underscoring the significance of ad sales to its overall business. In response to the lawsuit, the company called the FTC’s claims “misguided,” arguing that advertisers are accurately informed about how auctions operate and that pricing naturally fluctuates due to billions of bids across various placements and formats. Amazon emphasized that the auction system is complex and maintained that it does not mislead advertisers about their costs or the bidding process.

The legal challenge from the FTC and the coalition of states threatens to intensify scrutiny on Amazon’s dominant position in digital advertising and the transparency of its bidding practices. With such a large swath of states involved, the case may have wide-reaching implications for how e-commerce platforms price ads and inform their business customers. Amazon’s defense suggests a continued battle ahead, centered on whether its auction adjustments were deceptive or standard commercial practice.