The Federal Trade Commission and attorneys general from 20 states filed a civil lawsuit against Amazon.com, Inc. in federal court on August 31, 2026, accusing the retail and technology giant of secretly inflating digital advertising prices and overcharging roughly 1.2 million advertisers by an estimated $20 billion.
The 181-page complaint, filed in the U.S. District Court for the Western District of Washington, alleges that Amazon systematically manipulated the auctions used to sell its search-based “Sponsored Ads” placements, which include Sponsored Products, Sponsored Brands, and Display Ads.
According to the lawsuit, Amazon told businesses and ad agencies from 2012 through 2026 that it operated generalized second-price auctions. Under that standard industry model, an advertiser only pays the minimum amount needed to beat the runner-up bid—typically one cent more than the second-highest bid.
Regulators allege that starting around late 2018, Amazon began overriding actual auction results and charging higher, algorithmically generated rates known internally as “soft reserve” prices or “surcharges.” These mechanisms calculated a higher proxy price after the auction ended, frequently forcing advertisers to pay up to their maximum bids rather than a competitively set second price.
The complaint cites internal records detailing the practice. In one cited internal discussion, the Senior Vice President of Amazon Ads stated that “the second price isn’t set by an actual bidder, but rather by” Amazon through a “proxy 2nd price that we calculate.” Another internal memo from a Sponsored Products team member noted: “Reserve prices are good for Amazon because they don’t change the allocation and advertisers must pay more for the same advertising. Obviously, the benefit to Amazon comes at the cost of advertisers.”
Regulators allege the system drove the “first-price rate”—the share of clicks where advertisers paid their full maximum bid—from 4% in 2020 to near 80% for Sponsored Products by 2024. The lawsuit also claims Amazon intentionally relaxed surcharge limits during high-traffic shopping periods, including Prime Day and holiday sales, where price spikes were masked by broader market demand.
When advertisers and partner agencies noticed cost-per-click surges during December 2021 and Prime Day 2023, Amazon allegedly convened internal response teams to send prepared communications attributing the jumps to increased holiday shopper engagement rather than its internal pricing adjustments.
The lawsuit charges Amazon with violations of Section 5(a) of the FTC Act for deceptive and unfair trade practices, along with violations of individual consumer protection statutes in all 20 participating states. The plaintiffs are seeking permanent injunctive relief, civil penalties, and monetary remedies, including restitution and disgorgement of profits.
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