Feds and 22 states sue Amazon, alleging deceptive advertising scheme

The Federal Trade Commission and attorneys general from 22 states sued Amazon Monday, claiming the online retail company used artificial bids to inflate costs for advertisers, bringing in tens of billions of dollars.

The complaint alleges that Amazon used an “invented auction participant” to drive up prices for advertising placements and sponsored product spots on its online store. The lawsuit quotes a former company employee who said the system allowed the company to charge prices “beyond what [can] be achieved through advertiser competition.”

“Amazon has millions of advertising customers who were misled into paying significantly higher prices,” FTC Chairman Andrew Ferguson said in a statement. “These higher costs were largely passed on to American consumers.”

The complaint says that Amazon has carried out the scheme for more than seven years, increasing prices for more than a million brands and sellers.

The FTC’s lawsuit was filed along with the attorneys general of 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.

“As alleged, this is a textbook example of illegal behavior by a corporation which places profits above all else,” Rhode Island Attorney General Peter Neronha, a Democrat, said in a statement. “The ubiquity of Amazon in American society pushes small- and medium-sized businesses to engage with the Company in order to stay afloat.”

Per Neronha’s statement, the coalition is pursuing “civil penalties, restitution, costs and fees, and injunctive relief.”

In a blog post responding to the lawsuit, Amazon said that “the FTC’s claim fundamentally misunderstands how advertisers operate.” The company asserted that the average cost-per-click for sponsored product search ads remained flat adjusted for inflation from 2019 to 2024.

“After reviewing approximately 1.5 million pages spanning six years, the FTC leans on a handful of simplified communications to allege a companywide effort to deceive,” Amazon wrote in its blog. “That is patently false.”

The company claims its “soft reserve prices” allowed it to award advertisements to the most relevant bids, rather than the highest bid amount, while still charging the true market value of an ad placement.

The complaint was filed in U.S. District Court for the Western District of Washington. Amazon is headquartered in Seattle.

Amazon is the third-largest digital advertising business worldwide, according to CNBC, behind only Google and Meta, with more than $68 billion in ad revenue last year.

Last year, Amazon and the FTC agreed to a $2.5 billion settlement over separate allegations that the company deceptively enrolled customers in Prime subscriptions and made it difficult for them to cancel.

Stateline reporter Alex Brown can be reached at [email protected]