On August 31, 2026, the Federal Trade Commission and 22 state attorneys general sued Amazon, alleging that for more than seven years the company secretly inflated the prices advertisers paid for Sponsored Products, Sponsored Brands and Display ads. The complaint estimates the scheme likely extracted over $20 billion from roughly 1.2 million U.S. advertisers, including more than 500,000 small and medium-sized businesses.
Many EIA members sell on Amazon. If the allegations are proven, the price of reaching customers on the largest U.S. marketplace was set not by fair competition, but rather were inflated by Amazon itself.
We break down what the complaint alleges, what the government is asking the court to do, how Amazon has responded, and what it could mean for ecommerce brands. Every allegation described here is just that: an allegation. No court has ruled on the merits.
The case at a glance
| Item | Detail |
|---|---|
| Case | FTC et al. v. Amazon.com, Inc., No. 2:26-cv-03097 |
| Court | U.S. District Court, Western District of Washington (Seattle) |
| Filed | August 31, 2026 |
| Plaintiffs | FTC plus Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington |
| Products at issue | Sponsored Products, Sponsored Brands, Sponsored Display |
| Alleged period | Late 2018 to present |
| Alleged harm | Over $20 billion overcharged to about 1.2 million U.S. advertisers |
What the complaint alleges
The core allegation is simple: Amazon told advertisers they were in a second-price auction, then quietly charged them something closer to their own maximum bid.
Since at least 2014, Amazon’s training videos, Seller University courses and sales pitches told advertisers the winner pays only “one penny more” than the next-highest ranked bid. This format, a generalized second-price (GSP) auction, is the industry standard for search ads. It matters because it tells advertisers they can safely bid their true maximum without fear that it will be used to increase the price, since they will only pay exactly what is needed to win the auction.
The complaint says hundreds of Amazon account executives were coached to explain this to clients. Amazon’s own head of advertising allegedly walked an advertiser through a textbook example: bid $2, runner-up bids $1, you pay $1.01.
The alleged reality: a hidden “soft reserve”
According to the complaint, starting with Sponsored Brands in late 2018 and Sponsored Products in mid-2019, Amazon added undisclosed “soft reserve prices” after each auction ran. Amazon’s system calculated its own price for the click and charged whichever was higher, up to the advertiser’s bid. Internally, employees called the difference a “surcharge” and described the price as having “a surcharge hidden in it.”
The head of Amazon Ads allegedly admitted internally that the second price “isn’t set by an actual bidder” but by a “proxy 2nd price that we calculate.” A senior scientist described it as “an invented auction participant.” The FTC compares this to shill bidding.
| Scenario (from the complaint’s example) | Winning bid | Runner-up bid | Price charged |
|---|---|---|---|
| Auction as Amazon described it | $2.00 | $1.00 | $1.01 |
| Auction with a $1.50 Amazon “reserve” | $2.00 | $1.00 | $1.50 |
How advertisers were impacted
The “first price rate” is how often a winner pays its full bid rather than the second price. The complaint says it climbed from about 4% in late 2020 to 30–40% in 2021, about 70% in 2022, and 79.1% in 2024. An internal 2024 plan allegedly noted Amazon was “close to charging the maximum amount the winning ads are currently bidding.”
Amazon’s internal data allegedly shows the highest surcharges landed on low-margin products and other necessities, where costs are most likely passed to shoppers (the specific categories are redacted in the public filing). The complaint also cites a 2022 Amazon study finding that many buyers of its most lucrative placements are new or small business owners.
The complaint also alleges Amazon routinely increased surcharges around Prime Day, Prime Big Deal Days, Black Friday and Cyber Monday. Internal memos allegedly reasoned that seasonal demand could “obfuscate” the increases. In 2021 and 2022, raised limits let Amazon more than double auction prices during these events.
Alleged steps to keep it hidden
The complaint describes a pattern of concealment, including:
- Launching reserves during the 2018 holidays so increases were “masked” by seasonal demand, then rolling them out slowly.
- Relying on keyword-level, aggregated reporting that Amazon itself called “opaque” and “highly obfuscated,” so advertisers could not see individual auction results.
- Capping surcharges with “guardrails” designed to avoid “discussions about us ‘not running an auction.'”
- Keeping account managers and sales staff unaware of the surcharges.
- Telling employees to avoid the word “surcharge”; one team considered “performance premium” instead.
- Ramping up surcharges gradually, sometimes starting at midnight when budgets refresh, to avoid a detectable spike.
The complaint also describes three episodes where advertisers noticed something was wrong and Amazon allegedly deflected in order to hide their conduct:
| When | What advertisers saw | Amazon’s alleged response |
|---|---|---|
| December 2021 | More than 20 agencies and advertisers flagged a sudden CPC spike on branded keywords with no bid changes | A “war room” dialed surcharges down quietly; account managers were given a script blaming holiday demand |
| Prime Day 2023 | At least seven escalations; one grocery client saw CPCs up 90%+ | Amazon raised surcharges for day two, then sent a PR- and legal-approved reply attributing the change to shopper engagement |
| October 2024 | A manufacturer asked for auction transparency, citing Amazon’s $0.01 promise | Evasive answers, even after Amazon learned of the FTC investigation |
The complaint also alleges that Amazon interviewed agencies and brands under the pretext of serving them better, using the answers to learn how far CPCs could rise during events before advertisers reacted.
The legal claims and what the government wants
This is a consumer protection case, not an antitrust case. The FTC brings five counts under Section 5 of the FTC Act, which bans unfair or deceptive practices. Each state then brings parallel claims under its own consumer protection law.
| Count | Claim | Theory in plain terms |
|---|---|---|
| I | Misrepresentations (deceptive) | Amazon said it ran GSP auctions but inflated prices above the GSP result |
| II | Deceptive auction manipulation | Amazon claimed competitive bidding set prices, then inserted a fake “bid” after the auction |
| III | Concealment (deceptive) | Amazon knew advertisers believed in GSP pricing and deliberately hid the surcharges |
| IV | Unfair omissions | Failing to disclose the surcharges caused substantial injury advertisers could not avoid |
| V | Unfair billing practices | Amazon charged amounts above the auction price without advertisers’ express, informed consent |
Relief requested
The FTC and states ask the court for:
- A permanent injunction to stop future violations.
- Monetary relief, including restitution and refunds of money paid, plus disgorgement of ill-gotten gains.
- Rescission or reformation of contracts.
- State civil penalties, attorneys’ fees and costs.
The complaint does not specify a dollar figure for relief. It also argues an injunction is needed because the conduct was willful, lasted over seven years, and Amazon still has “the means, ability, and incentive” to continue.
Amazon’s response
Amazon denies the allegations. In a detailed blog post, it called the suit “misguided” and argued that advertisers set bids based on real-world results, not descriptions of auction mechanics. According to Marketing Dive, Amazon says:
- Sponsored Products CPCs were flat, adjusted for inflation, from 2019 to 2024, while conversion rates rose 24%.
- Soft reserve prices are common across the ad industry.
- The FTC cherry-picked outdated or simplified documents; stray emails reflect brainstorming, not company intent.
Amazon also stresses that an advertiser never pays more than its own submitted bid, and it disputes that shoppers paid higher prices. Those arguments will be central as the case moves forward.
How this could impact EIA members
The short version: if you advertised on Amazon since 2019, you may have paid more than the auction justified, and the outcome of this case could change what you pay and what you can see going forward.
1. You may have been overcharged, and could be eligible for money back
If you ran Sponsored Products, Sponsored Brands or Display ads, you are in the group the complaint says was harmed. The complaint says Amazon tracked individual advertisers’ surcharge totals in weekly reports, so the data to calculate per-advertiser overcharges may exist. Any refund program would come only after a settlement or judgment, and that could take years. Private class actions by advertisers are also possible and are common after government suits like this one.
2. Your past ROAS and margin math may have been wrong
The complaint alleges Amazon tuned surcharges to capture advertisers’ return on ad spend, keeping ROAS just high enough that brands would not pull back. If that is true, many brands were making channel and budget decisions on inflated costs they could not see. For low-margin products, which reportedly took the highest surcharges, that could be the difference between a profitable SKU and a losing one.
3. Peak-season plans deserve a second look
Prime Day, Prime Big Deal Days and Black Friday through Cyber Monday are where the complaint says surcharges were highest. Brands that assumed event CPC spikes were pure competition may have been paying Amazon-set premiums. With Prime Big Deal Days and BFCM approaching, members should watch event CPCs closely and compare them to prior years.
4. Bidding strategy rests on auction rules you could not verify
In a true second-price auction, bidding your full value is safe. If Amazon was often charging your full bid, the smart move would have been to “shade” bids lower, which the complaint says Amazon worked to prevent. The case also notes that automated bidding tools made it even harder for advertisers to know what bid was actually entered. Until the rules are clear, treat any stated maximum bid as a price you may actually pay.
5. Your agency may have repeated Amazon’s claims
The complaint says Amazon Ads partner agencies widely understood and repeated the second-price explanation to clients. Agencies were not the target of the suit, but members who rely on agencies or tools should ask what they knew, what data they have, and how they are adjusting.
6. It strengthens the case for owned channels
Marketplace ad costs have been rising for years, and this case suggests part of that rise was not market-driven at all. Members who have invested in owned channels, such as their own storefront, email and SMS lists, and loyalty programs, have more control over customer acquisition costs. Reducing dependence on any single platform’s opaque pricing is sound strategy regardless of how this case ends.
7. Pricing pressure on your own site
The FTC alleges these costs were largely passed on to shoppers as higher prices. Brands that sell on both Amazon and their own sites often face price-parity pressure. If Amazon ad costs fall after this case, marketplace pricing could shift, affecting how members price direct-to-consumer.
8. A precedent for platform transparency
If the court agrees that a platform must honor the auction rules it advertises, that principle could extend beyond Amazon to other retail media networks and ad platforms. Our members would benefit from clearer disclosure standards, auction-level reporting, and remedies when platforms change pricing rules quietly.
What happens next
The case is at its earliest stage, and cases like this often take years. Here is the typical path and what we will be watching.
- Amazon’s first response. Amazon will likely file a motion to dismiss, arguing the complaint fails to state a claim. Expect it to press its points that reserves are standard, that bids are never exceeded, and that advertisers optimize on results, not auction labels.
- Discovery. If the case survives, both sides exchange documents and data. Much of the complaint is redacted today, including surcharge rates and category details. Some of that may become public over time.
- Settlement talks or trial. Many FTC cases settle, often with an injunction, refunds and disclosure commitments. A settlement could require Amazon to publish auction rules or provide auction-level reporting.
- Private suits. Advertisers and brands may bring their own class actions seeking damages, which would run on a separate track.
Practical steps members can take now
You do not need to wait for a ruling to protect your business. These steps cost little and could matter later.
- Preserve your records. Download and save Amazon Ads reports, invoices, and billing history back to 2019 if you can. Any future refund or claim will depend on this data.
- Save your communications. Keep emails and notes where Amazon or your agency described how CPCs are set, especially the “one cent more” explanation, and any replies to CPC-spike complaints.
- Benchmark event CPCs. Compare CPCs during Prime Day and BFCM against the two weeks before each event, year over year. Note sudden spikes with no bid changes.
- Ask your agency hard questions. What did they tell you about Amazon’s auction? What data do they hold? How will they adjust bidding?
- Revisit your bid logic. Assume your maximum bid may be the price you pay. Set bids and ROAS targets with that in mind.
- Re-check SKU profitability. Recalculate margins on ad-dependent, low-margin products using actual costs, not assumed auction discounts.
- Invest in owned channels. Grow your storefront traffic, email and SMS lists, and retention programs to reduce reliance on any one platform’s pricing.
- Talk to counsel. If your Amazon ad spend is significant, a lawyer can advise on class actions or other claims. The EIA’s network of vetted legal professionals is available to members at discounted rates.
The EIA’s perspective
Independent ecommerce brands depend on fair, transparent rules to compete. When a dominant platform sets the price of reaching customers, the rules of that pricing must be honest and verifiable. That is true whether the platform is a marketplace, a retail media network, or an ad exchange.
The EIA does not take a position on the merits of the allegations, which Amazon disputes and a court has yet to decide. But the questions the case raises are ones our members face every day: Can merchants verify what they are charged? What recourse do small businesses have when the rules change quietly?
This post is for general information and is not legal advice.
Sources
- FTC press release: FTC, States Sue Amazon Over Secret Ad Surcharge Scheme (August 31, 2026)
- Complaint, FTC et al. v. Amazon.com, Inc., No. 2:26-cv-03097 (W.D. Wash.)
- Amazon’s response blog post
- Marketing Dive: Amazon’s ad auction surcharges secretly bilked brands of billions, FTC alleges (September 1, 2026)
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This post is for general information and is not legal advice. Ecommerce Innovation Alliance provides members with analysis of litigation and regulatory developments affecting online commerce and digital marketing. This post does not constitute legal advice. Members with questions about their specific practices should consult counsel.
