FTC Privacy & Data Security Brief

Headline

FTC and 22 state attorneys general sue Amazon over alleged seven-year secret ad auction surcharge scheme

Executive Summary

The FTC and attorneys general from 22 states filed suit against Amazon, alleging the company covertly imposed undisclosed surcharges on search advertising auctions for over seven years. The complaint names more than one million affected advertisers, including over 500,000 small- and medium-sized businesses, and estimates the scheme extracted tens of billions of dollars. The scale of the alleged conduct is significant.

Bottom Line

The complaint alleges Amazon misrepresented its auction structure as a second-price format while internally operating what it described as a 'clever non-transparent way to charge first price.' The suit is at the complaint stage; no findings have been made. Cresthaven reading: digital advertising platforms that operate auction-based pricing and represent those auctions to buyers under a specific pricing model now sit within the enforcement theory this complaint advances, regardless of their size or market position.

Key Regulatory Signals

• Alleged Conversion of Auction Type: The complaint alleges Amazon represented to advertisers that it ran generalized second-price auctions, where winners pay one cent more than the next highest bid, but in practice charged Sponsored Products advertisers their own winning bid close to 80% of the time. Cresthaven reading: advertisers who structured bids and budgets on second-price assumptions face potential exposure to historical cost overruns the complaint characterizes as undisclosed surcharges.
• Scope of Affected Advertisers: The complaint names more than one million brands and sellers as affected, with over 500,000 identified as small- and medium-sized businesses that participated in auctions for Sponsored Product ads, Sponsored Brands ads, and Display Ads on Amazon.com and its mobile app.
• Alleged Mechanism: Soft Reserve Price and Shill Bids: According to the complaint, Amazon introduced an undisclosed surcharge it internally called a 'soft reserve price' beginning in 2019, using what internal documents describe as an 'invented auction participant' to increase prices beyond what advertiser competition alone would produce. The complaint characterizes these as shill bids.
• Elevated Surcharges on High-Volume Days: The complaint alleges Amazon applied greater surcharge increases on high-volume shopping days such as Prime Day and Black Friday, and that Amazon deliberately ramped up surcharges gradually in advance of those days to obscure the inflation from advertisers.
• 22-State Coalition and Deceptive-Practice Theory: The suit is brought jointly by the FTC and the attorneys general of 22 states under unfair and deceptive practices theories. Cresthaven reading: the breadth of the state coalition suggests a coordinated enforcement posture among the participating states.

Regulatory Delta

No direct federal precedent exists for an FTC-led multistate suit targeting undisclosed auction-pricing mechanisms in digital advertising at this scale. The complaint advances a shill-bid theory and alleges that Amazon converted a second-price auction into a first-price auction without disclosure, a novel enforcement framing for digital ad markets.

This action follows the FTC's separate 2023 antitrust suit against Amazon over its online marketplace. Taken together, the two proceedings reflect sustained multi-theory federal enforcement pressure on Amazon's core commercial platforms.

Materiality Classification

HIGH — The complaint introduces a novel enforcement theory, characterizing undisclosed auction-pricing surcharges as shill bids and deceptive auction-type misrepresentation, applicable beyond the named respondent to any digital advertising platform operating auction-based pricing with public-facing representations about auction structure.

Intelligence Outlook

Monitor the FTC and participating state attorneys general for litigation developments, preliminary injunction filings, or consent order negotiations in this proceeding.