FTC and 22 States sue Amazon over alleged 'Secret Ad Surcharge' scheme

The Federal Trade Commission, alongside attorneys general from 22 states, has launched a major antitrust and consumer protection lawsuit against Amazon, accusing the e-commerce giant of covertly manipulating its digital advertising auctions.

The legal challenge centers on allegations that Amazon extracted billions in improper charges from roughly 1.2 million merchants over a seven-year period.

The agency, joined by a bipartisan group of 22 U.S. states, said Amazon systematically inflated auction prices for advertisers without their knowledge, costing them $20 billion or more. 

"Amazon has been able to generate billions of dollars in profits at the ​expense of its auction advertising customers," the FTC stated in its suit, filed in federal court in the Western District of ​Washington state

According to the federal complaint, Amazon represented its Sponsored Products, Sponsored Brands, and Sponsored Display platforms as standard "second-price" auctions, where winning bidders traditionally pay just one cent more than the runner-up's bid.

However, regulators claim that beginning in 2019, the company quietly embedded an undisclosed "soft reserve price" and an "invented auction participant" into its system.

This mechanism systematically overridden baseline competitive dynamics, causing advertisers to pay their own maximum bid amounts roughly 80% of the time without their knowledge or consent.

On the contrary, Amazon has fiercely contested the allegations, labeling the lawsuit "misguided" and "flawed".

The company argued that regulatory bodies relied on cherry-picked and outdated internal documents, maintaining that its systems prioritize ad relevance over raw bid prices to protect overall user experience.

Furthermore, Amazon claims its pricing structure actually saved advertisers billions over the years.

As the case heads to federal court, it stands to establish a critical legal precedent regarding transparency, algorithmic fairness, and accountability across major digital advertising ecosystems.

The regulatory pressure mounts on multiple fronts, this coordinated bipartisan action targets the core mechanics of Amazon's lucrative digital marketplace.

If regulators prevail, the fallout could fundamentally reshape how tech giants run auction algorithms and report transparency to millions of merchants.