FTC and 22 States Sue Amazon Over Secret Ad Surcharges

The lawsuit and the alleged scheme

The Federal Trade Commission and the attorneys general of 22 states sued Amazon on August 31, in the US District Court for the Western District of Washington, on a 2-0 Commission vote [1]. The complaint's central claim reads like an auction-house scandal: Amazon publicly represented that its ad auctions were second-price auctions, where the winner pays only one cent more than the next highest bidder, but in practice charged Sponsored Products advertisers their own winning bid close to 80 percent of the time [1].

The complaint also alleges that beginning in 2019, Amazon added an undisclosed surcharge it internally called a "soft reserve price", used an "invented auction participant" to push prices up in the way shill bids would, and gave false and misleading answers when advertisers directly asked whether the auction format had changed [1]. Surcharges were even ramped up ahead of high-volume days like Prime Day and Black Friday, which regulators say helped disguise the inflation [1].

Seven years and tens of billions

The numbers in the complaint are large. Regulators allege sellers and brands were overcharged by tens of billions of dollars across more than one million advertisers, including over 500,000 small and medium-sized businesses [1]. The share of the time advertisers paid their own bid, rather than a lower second price, rose from 30 to 40 percent in 2021 to 70 percent in 2022 and roughly 80 percent in 2024, according to the filing [1].

FTC Chairman Andrew Ferguson framed the stakes: "When one of the world's largest online retailers engages in unfair and deceptive conduct, the impact can be staggering", adding that "Amazon has millions of advertising customers who were misled into paying significantly higher prices" [1]. Internal Amazon documents cited in the complaint reportedly include admissions that the price "isn't set by an actual bidder" and that exposure would cause "irrevocable damage to advertiser trust" [1].

Why an ads case lands on an AI blog

This suit is about Amazon's ad platform, not AI products, and Amazon disputes the characterization. It lands here because advertising is becoming the second business model of the AI industry: this week alone, OpenAI celebrated a billion-dollar ads run rate inside ChatGPT, and every assistant vendor watching that number is planning inventory of its own. A regulator willing to sue over auction opacity in retail ads is writing the playbook that will be applied to assistant ads, where the auction, the targeting data, and the user's own words sit even closer together.

What advertisers and sellers should watch

Amazon's detailed response was not part of the release, and the case is at its earliest stage, so nothing about outcomes is settled [1]. For the million-plus sellers involved, the practical moves are familiar from past platform cases: keep ad spend records intact, watch for claim windows or settlement funds, and note that recoveries in cases like this are usually years away. For advertisers on any platform, including AI assistants beginning to sell placement, the complaint is a reminder to demand pricing transparency in writing and to treat "competitive auction" as a claim to verify, not a promise to trust [1].