SEATTLE — The Federal Trade Commission and 22 state attorneys general sued Amazon.com Inc. in federal court in Washington on Monday, alleging the company rigged the auctions it uses to sell advertising on its site and app and extracted more than $20 billion in overcharges from more than 1 million advertisers since 2019.
The complaint puts a specific dollar figure on a hidden mechanic in Amazon's sponsored-search business, one of its fastest-growing profit engines, and sets up a second major federal case against the company a year after Amazon paid $2.5 billion to settle FTC claims it tricked consumers into Prime memberships. Amazon shares closed 2.5 percent lower Monday.
The mechanic
Amazon runs so-called second-price auctions for the Sponsored Products and Sponsored Brands slots that appear when shoppers search on the site. The winning bidder is supposed to pay only "one cent more" than the next-highest bid. The FTC and states allege that Amazon has instead charged winners their own bid roughly 80 percent of the time since 2019, using an internal formula the complaint calls a "proxy 2nd price that we calculate," quoting Amazon's senior vice president in charge of the ads unit.
"Amazon overrides and replaces the actual auction results with higher prices set by Amazon to increase its profits," the complaint, filed in Amazon's home state of Washington, says. The FTC estimates the practice "has likely illegally extracted over 20 billion dollars" from advertising customers.
Who joined
Attorneys general from Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington signed the suit, a bipartisan roster that stretches the case well beyond the FTC's own authority.
FTC Chairman Andrew N. Ferguson said Amazon "has millions of advertising customers who were misled into paying significantly higher prices." "These higher costs were largely passed on to American consumers," he said. North Carolina Attorney General Jeff Jackson said Amazon internally tested how much it could inflate charges before advertisers noticed. New York Attorney General Letitia James said the states are seeking a court order barring the "illegal scheme" and forcing Amazon to pay penalties and restitution.
CBS News reported that internal documents cited in the complaint quote an Amazon executive discussing raising prices while "hoping that advertisers don't notice and decrease bids or ad spend."
Amazon's response
Amazon called the case "misguided" and said it "strongly disagrees." "The FTC's claim fundamentally misunderstands how advertisers operate," the company said. "Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics." It said average winning bids for Sponsored Products search ads fell 50 percent from 2019 to 2025 and that roughly 92 percent of placed ads do not go to the highest bidder.
The company disputed the pass-through claim as well. "The FTC wants the public to believe this case is about higher prices for consumers. It is not," Amazon said. It added: "Even accepting the FTC's flawed premise that advertisers do not adjust bids, we estimate they saved over $8 billion from 2021 to 2025."
The government's damages figure is contested on its face. If Amazon's $8 billion savings estimate is credited, it would offset a substantial share of the $20 billion overcharge the FTC alleges, and the case will turn in part on which model of advertiser behavior a court accepts. No named legal defense of Amazon from outside the company appeared in Monday's reporting.
The complaint, filed in the U.S. District Court for the Western District of Washington, seeks civil penalties, restitution and an injunction against further use of the surcharge. Amazon's initial response in the case will set the pace for litigation that, if the Prime settlement is a guide, could take a year or more to resolve.