The Federal Trade Commission, along with 22 state attorneys general, is accusing Amazon of secretly overcharging advertisers, potentially pulling in billions of dollars, according to a lawsuit filed Monday.
The FTC said in its lawsuit, filed in the U.S. District Court for the Western District of Washington, that Amazon used an auction system for its advertising customers to manipulate and inflate the price for the highest bidders.
Amazon's opaque" auction system allegedly hid surcharges that have "likely illegally extracted over 20 billion dollars from its unwitting advertising customers," according to the lawsuit.
Washington is among the states that joined in the lawsuit.
"Many small business owners in Washington rely on Amazon for their livelihoods, and our office is committed to making sure Amazon treats them fairly, transparently, and in accordance with the law," Washington state Attorney General Nick Brown said in a statement Monday.
FTC Chairman Andrew Ferguson said in a news release that by misleading advertisers and setting higher prices, those "were largely passed on to American consumers."
Amazon denied the allegations in a blog post on Monday and said its advertising pricing systems do not harm its advertising customers nor the consumers who shop on the company's e-commerce platform. The company added the FTC's lawsuit provides no evidence of higher costs for consumers.
The company also said that from 2019 to 2024, the average cost-to-click for sponsored search ads was flat when adjusted for inflation.
Amazon said that the FTC's lawsuit "fundamentally misunderstands how advertisers operate" and called the lawsuit misguided.
"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," Amazon said. "We look forward to making our case in court."
Amazon sells ad space on its site based on a "second-price" auction system, which means that companies vying for the space set maximum prices. The inevitable winner then pays a cent above the second-highest maximum price or the least amount needed to win the bid.
The lawsuit claims that Amazon quietly changed its auction rules in 2018 to add an undisclosed surcharge to the winning auction price. Since Amazon limits the amount of auction data available to advertisers, the FTC said they have no way of knowing whether they purchased advertising space at the true auction price or an inflated one.
Citing internal communication between Amazon executives, the FTC said in a news release Monday that Amazon made the change to its auction system because it was unsatisfied by the amount of revenue its advertising business was bringing in.
The lawsuit said the company faced backlash internally. Amazon employees in 2023 wrote in an internal memo that undisclosed ad prices were not "doing the right thing for the advertisers," according to the lawsuit.
Amazon denied making advertisers pay more than they bid and said it introduced reserve prices, a common practice in the industry, to set a minimum price in an auction and prioritize product relevancy.
The company said its auction systems have saved advertisers $8 billion between 2021 and 2025.
Amazon's advertising organization has become a growing revenue driver for the company. During the company's second fiscal quarter this year, which ran from April through June, Amazon reported $19.8 billion in advertising services revenue, a 26% increase from the year before.
Plaintiffs are seeking civil penalties, restitution and other unspecified damages.
The lawsuit is the latest clash between Amazon and the FTC. The two are embroiled in an antitrust case that's scheduled to go to trial next year. First filed in 2023, the FTC's antitrust case against Amazon accuses the the e-commerce giant of anticompetitive tactics, including manipulating prices, to illegally create a monopoly.
The FTC alleged that Amazon, in an effort to squash competing e-commerce sites, punished third-party sellers that offered lower prices on other platforms. The lawsuit also claims Amazon coerced sellers into using the company's fulfillment services, which come riddled with extra costs.
While Amazon boasts lower prices than other e-commerce sites, the FTC alleged that customers ultimately faced higher prices than if there was more competition.
The FTC is also flanked by a coalition of 17 state attorneys general in that case.
Amazon received a partial dismissal of the case in October 2024, after the company motioned to have the entire case dropped.
Amazon settled with the FTC last year in another case over how it handled Prime memberships. The motion was under seal, so it's unclear which claims were dismissed.
Three days into a trial that was expected to last over a month, the FTC announced in late September 2025 that it had agreed with Amazon on a $2.5 billion settlement over claims that the tech giant tricked customers into signing up for $139 Prime memberships.
The settlement included $1.5 billion in refunds, which were disbursed to roughly 35 million qualifying customers. Amazon was also on the hook for a $1 billion civil penalty and was required to make changes to its Prime membership sign-up and cancellation policies.
At the heart of that case were accusations that Amazon made it deceptively easy to sign up for Prime memberships, with the FTC claiming that many customers didn't know they had enrolled. To get out of those memberships, the FTC's lawsuit said Amazon's cancellation flow was a "labyrinthian mechanism designed to mislead customers.
After the settlement was announced, Amazon said it had already satisfied the issues the FTC had with its cancellation flow years ago and denied any wrongdoing.
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