- New Lawsuit: FTC and 22 states allege Amazon imposed surcharges on about 1.2 million U.S. advertisers, including 500,000-plus small and midsize businesses.
- Auction Mechanism: The complaint says competing ads first set the winner’s price, then Amazon allegedly used the winner’s bid to help raise the final charge.
- Amazon Response: Amazon says advertisers never paid above their bids and argues campaign performance, not auction descriptions, drives bidding.
- Case Status: The lawsuit seeks injunctions and monetary relief, but no court has found Amazon liable or awarded damages.
The Federal Trade Commission and 22 states have sued Amazon, alleging it hid a surcharge inside auctions for Sponsored Products, the product ads shown in Amazon search results, raising what advertisers paid per click. Across Amazon’s U.S. advertising business, the complaint says about 1.2 million advertisers were affected, including more than 500,000 small and medium-sized businesses. Plaintiffs say competing ads set one price before Amazon used the winner’s own bid, which should have been only a cap, to help raise the final charge.
Filed on August 31, 2026 in the U.S. District Court for the Western District of Washington, the complaint says Amazon has overcharged advertisers since 2019. It asks the court for an injunction, monetary relief and remedies available under state law. The advertising-auction complaint is separate from Amazon’s 2025 Prime subscription settlement and the 2023 marketplace antitrust case, neither of which concerned these ad-auction charges.
How the Alleged Surcharge Worked
Sponsored Products are ads that place individual products in Amazon search results and product pages. An advertiser submits a bid, meaning the most it is willing to pay when a shopper clicks the ad. Amazon combines that bid with its estimate of the ad’s relevance to decide which ads appear. The advertiser is billed only after a click, so the resulting charge is called the cost per click, or CPC.
Amazon describes this system as a generalized second-price auction. Under that model, the winning advertiser does not simply pay its own bid. It pays the minimum needed to beat the next-ranked ad after bid and relevance are considered. That distinction lets an advertiser bid close to what a click is worth while expecting competition, rather than its own maximum, to determine the charge.
The government alleges Amazon inserts another calculation after choosing a winner and computing that competitive price. An ordinary reserve price is a floor set before an auction, below which an item will not sell. The complaint says Amazon instead calculates a “soft reserve” after the auction and used it when it was higher than the generalized second-price result, while keeping the final CPC at or below the advertiser’s bid.
In the complaint’s account, Amazon’s soft reserve acts like “an invented auction participant” that could push the charge above the price set by real competing ads. A campaign with a generalized second-price result below the soft reserve would therefore pay the reserve amount after a click, though never more than its submitted bid.
The difference matters because bidders change strategy when their own bids set the price. In a first-price auction, where the winner pays its bid, an advertiser may lower that bid to avoid paying its full estimate of a click’s value. The complaint alleges that describing Amazon’s auctions as second-price while concealing the soft reserve kept advertisers from making that adjustment, often called bid shading.
Broad, Long-Running Impact
Plaintiffs say Amazon introduced soft reserves for Sponsored Brands in late 2018, expanded them to Sponsored Products in 2019 and applied them to Display Ads by 2023. The complaint alleges the surcharges likely extracted more than $20 billion across Amazon’s advertising business. It also says the affected U.S. customers included more than 500,000 small and medium-sized businesses.
Important percentages and parts of the surcharge calculations are redacted in the public complaint, which does not define how it classified small and medium-sized businesses. Plaintiffs further allege that sellers passed some advertising expense into retail prices; Amazon says the complaint offers no evidence that shoppers paid more.
Amazon Says Performance, Not Auction Labels, Drives Bids
Amazon calls the lawsuit misguided and says an advertiser never pays more than its submitted bid. “Advertisers adjust bids based on real-world performance, not descriptions of auction mechanics,” the company said, arguing that conversion rates and returns guide campaign decisions.
The company says inflation-adjusted Sponsored Products CPC was flat from 2019 through 2024, conversion rates rose 24 percent from 2021 through 2025, and winning bids fell 50 percent. It also says about 92 percent of selected ads were not the highest bid and estimates that weighting relevance rather than bid alone saved advertisers more than $8 billion from 2021 through 2025. Amazon has not published the underlying data needed to independently reproduce those figures.
The two sides’ headline numbers answer different questions. As specialist analysis of the competing baselines explains, Amazon compares relevance-weighted selection with choosing ads by bid alone. The complaint compares the final CPC with the lower generalized second-price CPC that Amazon allegedly calculated before applying the soft reserve. Amazon’s claimed savings could therefore describe the value of relevance ranking without resolving whether the later price increase was disclosed or lawful.
The Court Has Not Decided the Claims
The FTC invokes five theories under Section 5 of the FTC Act, while the 22 states invoke their consumer-protection laws. Plaintiffs seek a permanent injunction and monetary remedies, including restitution and civil penalties available under state law.
No court has granted that relief, found Amazon liable or quantified advertiser damages so far. The district court has been asked to decide whether Amazon’s descriptions of its auctions were materially misleading, whether the alleged pricing intervention violated federal and state law, and what remedy would be available if plaintiffs prove their claims.
