On August 31, 2026, the Federal Trade Commission and a bipartisan coalition of 22 state attorneys general filed a 181-page lawsuit against Amazon in U.S. District Court in Seattle. The complaint alleges that Amazon secretly and systematically overcharged approximately 1.2 million advertisers by manipulating the auctions it uses to set the price of ads on its platform. The three ad products at the center of the case are Sponsored Products, Sponsored Brands, and Sponsored Display: the same products that most brand sellers rely on to drive visibility and sales on Amazon every day.
The FTC is asking for a permanent injunction to stop the alleged practices and is seeking what it described as "tens of billions of dollars" in damages. The states joining the suit can separately seek civil penalties and restitution under their own consumer protection laws. This is the third major federal lawsuit against Amazon in recent years, and it's the first one aimed squarely at how the company prices advertising for its sellers.
How Amazon's Ad Auctions Are Supposed to Work
To understand the complaint, you need to understand the auction model Amazon has used since 2012. When a seller wants to run a Sponsored Products ad, they enter a bid, the maximum they're willing to pay per click. Multiple sellers bid on the same keyword or placement.
The winner is the highest bidder, but in a second-price auction, the winner doesn't pay their own bid. They pay one cent more than the second-highest bid.
Second-price auctions are a standard mechanism in digital advertising. They're designed to encourage straightforward bidding, because there's no advantage to bidding more than you think a click is worth. The runner-up's bid acts as a natural ceiling on what the winner pays. Advertisers using a second-price system can model their costs with reasonable confidence: bid what you think it's worth, and you'll pay the market rate.
Amazon has represented this second-price model to its advertisers for years. The FTC's complaint argues that the representation is false, and has been false since 2018.
What the FTC Says Amazon Did Instead
The complaint centers on what the FTC calls a "soft reserve": a hidden floor price that Amazon allegedly inserted into auctions after bids were placed. Rather than paying the runner-up's bid plus one cent, winning advertisers were charged a higher price determined by Amazon's own internal target, one the FTC alleges was "designed to maximize Amazon's profits" rather than reflect competitive market dynamics.
The soft reserve wasn't disclosed to advertisers. It wasn't a publicly known reserve price that bidders could account for in their strategy. It was, according to the complaint, a concealed mechanism that overrode the auction result. Amazon allegedly also entered its own bids directly into auctions to prop up prices, bids that competing advertisers had no knowledge of and no ability to respond to.
The FTC says this effectively converted Amazon's nominally second-price auction into a first-price auction in practice. The complaint alleges that Amazon charged winning advertisers their own full bids, rather than the runner-up price, in close to 80% of Sponsored Products auctions. On high-traffic shopping days, the complaint claims the surcharge caused ad costs to spike as much as 50% above what the stated auction model would have produced.
The Scale of the Alleged Overcharge
The FTC's complaint puts the total excess charges at more than $20 billion since 2019. That figure comes from Amazon's own internal documents, which the complaint says explicitly described the mechanism as a "hidden" surcharge. More than 500,000 of the affected advertisers were small and medium-sized businesses. California Attorney General Rob Bonta, one of the 22 state AGs joining the suit, stated that "Amazon has rigged billions of ad auctions, inflating Amazon's profits at the expense of Americans who rely on Amazon's advertising to generate business."
Amazon's stock dropped more than 3% on the day the lawsuit was reported, before the market close on August 31. The FTC's lawsuit was filed the same day in the Western District of Washington, case number 26-cv-3097.
Amazon's Response
Amazon disputes the FTC's characterization of its auction mechanics. The company's official statement argues that its auction disclosures are accurate and that "in no scenario does an advertiser pay more than their bid." Amazon also contends that average cost-per-click on its platform remained flat when adjusted for inflation over the period in question, and that ad quality improved. The company says the FTC misrepresented how its auction operates and cherry-picked findings from internal documents.
That's the defense Amazon is leading with. The lawsuit is in its earliest stages, and no court has found Amazon liable for anything. Cases of this complexity typically take years to litigate, and the outcome will depend heavily on discovery, including whatever internal communications the FTC was able to obtain before filing.
Why Sellers Should Pay Attention to the Mechanics
The implications for how sellers have been managing their ad spend are significant, even before any resolution. If the FTC's allegations are accurate, sellers who have been bidding on Sponsored Products with the assumption that they were paying the runner-up rate have been operating with a fundamental misunderstanding of their cost structure. The bid optimization strategies, target return calculations, and budget decisions that seemed rational under a second-price model may have been systematically underperforming because the floor was higher than disclosed.
It also raises questions about historical performance data. Sellers who looked at their cost-per-click over time and saw gradual increases may have attributed those changes to increased competition, category seasonality, or their own bidding behavior. Some portion of those increases may have instead been attributable to the soft reserve mechanism the FTC describes. There's no way to retroactively separate the two without access to Amazon's internal auction records, which is exactly what the FTC's litigation process is designed to surface.
Our team works with brand sellers on Amazon advertising strategy and account management, and the practical takeaway in the near term is to think carefully about what your ad spend is buying. If a lawsuit of this magnitude eventually results in a cleaner auction model, the sellers who have built strong organic listing infrastructure will be in the best position to adapt. Paid placement is a multiplier on a good listing; it doesn't replace one.
What Could Come Next
The FTC is seeking a permanent injunction, which would require Amazon to change how it operates its ad auctions going forward. The states are separately seeking civil penalties and potential restitution for affected advertisers. Whether that restitution ever reaches individual sellers depends on how the case resolves and what distribution mechanism a court might impose. If the case settles, the settlement terms would govern who gets paid and how much.
Amazon has deep litigation resources and a strong incentive to contest this aggressively. The company has litigated the FTC's previous cases for years before settling. The Prime enrollment case, which resulted in a $2.5 billion settlement in 2025, took roughly two years from complaint to resolution. This case, which involves more complex auction mechanics and far larger alleged damages, is unlikely to move faster.
The unBoxed conference, Amazon's annual advertising event, is scheduled for September 28-30 in San Francisco. That's less than a month away. It will be worth watching what Amazon says about its auction mechanics and ad pricing transparency at that event, given the timing. If Amazon announces structural changes to how it discloses auction pricing, that would be a signal worth paying attention to.
If you want to talk through how this case might affect your advertising approach heading into Q4, or if you want a second set of eyes on your current ad strategy, schedule a call with our team and we can walk through it with you.