FTC sues Amazon, accusing the e-commerce giant of misleading advertisers

The Federal Trade Commission on Monday sued Amazon, alleging the e-commerce giant "secretly and systematically overcharged" advertisers on its platform by manipulating its pricing and auction systems.

The lawsuit, which was joined by 22 state attorneys general, argues that Amazon may have reaped more than $20 billion from advertisers by using "hidden surcharges" dating back to a change to its auction rules that took effect in 2019.

"Amazon has millions of advertising customers who were misled into paying significantly higher prices," FTC Chairman Andrew Ferguson said in a statement. "These higher costs were largely passed on to American consumers."

In a blog post, Amazon called the FTC's lawsuit "misguided" and said the complaint "fundamentally misunderstands how advertisers operate." The company added that the agency's lawsuit doesn't include evidence of consumer price increases.

"We've provided advertisers with guidance about our auctions and pricing in the main tools they use to manage their campaigns, and we continue to update that guidance," the company said. "We look forward to making our case in court."

The company said its auction systems have saved advertisers $8 billion between 2021 and 2025, not cost them extra.

The complaint, which was filed in U.S. District Court for the Western District of Washington, centers on Amazon's sponsored products ads, brands ads and display ads that run alongside search results on its sprawling webstore.

Amazon has amassed the third-largest digital advertising business globally, trailing only Google and Meta. The company hauled in more than $68 billion in ads revenue last year, with the lion's share coming from sales of sponsored products ads.

Third-party sellers who hawk their wares on Amazon's marketplace have recently criticized surging advertising costs on the site, including a string of recent policy changes, which led to some top merchants withholding their ad spend in a boycott.

The company has traditionally used a "second-price" auction system, wherein it told advertisers they "only pay the least bid amount needed in order to win," the complaint states, citing Amazon's own marketing materials.

The FTC alleges in its complaint that Amazon in 2019 changed its auction rules without notice by adding an undisclosed surcharge it referred to as a "soft reserve price," which led to higher ad prices.

"Amazon made this surreptitious change to its auction because it was unhappy about how much revenue its advertising auctions were generating," the agency said in its complaint, which cites internal communications between Amazon ad executives.

In one exchange, a company executive allegedly acknowledged it uses an "invented auction participant" to increase prices, the FTC said.

The FTC and the states alleged Amazon's practices violate federal and state consumer protection laws, and they're seeking civil penalties, restitution and other unspecified damages.

It marks the latest example of Amazon being caught in the FTC's crosshairs. Last September, Amazon reached a $2.5 billion settlement with the agency to resolve a separate probe into its Prime membership program.

The company is also expected to head to trial next year in a case brought by the FTC and 17 states that accuses it of wielding its "monopoly power" to inflate prices, squash third-party sellers and degrade quality for shoppers. Amazon has denied any wrongdoing.