Amazon’s Ad Overcharging Lawsuit: What Advertisers Were Charged, What the Evidence Shows, and What to Do Before It Settles

On August 31, 2026, the Federal Trade Commission and 22 state attorneys general filed suit against Amazon in U.S. District Court for the Western District of Washington, alleging the company secretly overcharged approximately 1.2 million advertisers more than $20 billion over seven years by rigging its ad auction system with hidden surcharges. The scheme allegedly began in 2019 and was deliberately concealed from advertisers. Amazon has denied the allegations and called the lawsuit "misguided."

How the Auction Was Supposed to Work

Amazon sold Sponsored Products and other search ad placements through a Generalized Second-Price (GSP) auction. In a legitimate GSP auction, the winner pays just one cent more than the next-highest bid — a design that encourages honest bidding. Amazon’s own marketing materials told advertisers they "only pay the least bid amount needed in order to win." That promise is the core of what the FTC says was broken.

What Amazon Actually Did, Per the Complaint

Beginning in 2019, the complaint alleges, Amazon silently inserted an undisclosed surcharge it called a soft reserve price into the auction engine. This functionally converted the auction from second-price to first-price — meaning winners increasingly paid their full bid, not the competitive clearing price. The FTC’s numbers tell the trajectory clearly:

• 2021: Advertisers paid their full bid amount 30–40% of auctions.
• 2022: That share climbed to 70%.
• 2024: Approximately 80% of Sponsored Products auctions ended with the advertiser paying their own full bid.

The overcharges were largest on high-traffic days. Texas Attorney General Ken Paxton, who filed a parallel state suit the same day, estimated the hidden markups raised costs by roughly 17% on an average day and more than 25% on Prime Day and Black Friday. Texas investigators pegged the nationwide overcharge from the practice at approximately $4.5 billion in 2024 alone.

The Internal Evidence

The complaint quotes a 2024 exchange between Amazon’s head of Amazon Ads and its Chief Digital Economist, who described the approach as an "incredibly effective way to drive revenue." Internal documents further warned that disclosing the surcharges would cause "irrevocable damage to advertiser trust." The FTC alleges Amazon executives not only concealed the change but actively lied to advertisers who asked directly whether auction rules had been altered. As one internal document described it, the system had "a surcharge hidden in it."

Amazon’s Defense

Amazon called the lawsuit "misguided" in a 3,000-word public statement and said the complaint "fundamentally misunderstands how advertisers operate." The company argues that the average inflation-adjusted cost-per-click for Sponsored Products remained flat from 2019 through 2024, and that average winning bids actually fell by half between 2019 and 2025. Amazon also contends that its relevance-weighting changes saved advertisers more than $8 billion between 2021 and 2025 versus a pure highest-bid system. Amazon adds that the FTC’s complaint includes no evidence of resulting harm to end shoppers — a point the company says undermines the FTC’s consumer protection framing.

Scale of the Case and What Comes Next

This is the FTC’s third major lawsuit against Amazon. The first — a 2023 antitrust case joined by 17 states alleging Amazon maintains a monopoly in online retail — is set for trial in early 2027. The second produced a $2.5 billion settlement in September 2025, resolving claims that Amazon used deceptive design to trap consumers in Prime subscriptions. In that case Amazon paid a $1 billion civil penalty and $1.5 billion in consumer refunds, denying wrongdoing. That precedent matters: state-level penalties in the current advertising case could theoretically far exceed the $20 billion federal figure if assessed per violation across 1.2 million advertisers over multiple years. Amazon has not indicated whether it intends to settle or go to trial.

What Advertisers Should Do Right Now

As the case progresses — and as the business that ranks highest is no longer guaranteed the customer — advertisers who have spent on Amazon Sponsored Products since 2019 should document their bid history and cost-per-click data going back to at least 2019. Preserving this data now is essential if a class-action or settlement claim process opens. Additionally, if you were managing campaigns during Prime Day or Black Friday events between 2019 and 2024, those high-traffic periods represent the greatest alleged overcharge and may be the highest-value documentation. Until the case resolves, testing bid strategies that assume first-price dynamics — rather than trusting Amazon’s stated second-price framing — is a rational operational adjustment.

Sources: FTC official press release, ftc.gov (Aug. 31, 2026); CNBC, cnbc.com (Aug. 31, 2026); CNN Business, cnn.com (Aug. 31, 2026); NPR, npr.org (Aug. 31, 2026); Latin Times, latintimes.com (Sept. 2026); Regulatory Oversight, regulatoryoversight.com (Sept. 9, 2026); HNGN, hngn.com (Aug. 31, 2026); Law Commentary, lawcommentary.com (2026)