FTC and 22 States Sue Amazon Over Secret Ad Surcharge Scheme

The Federal Trade Commission and 22 state attorneys general filed a lawsuit against Amazon on August 31, 2026, in the U.S. District Court for the Western District of Washington. The complaint alleges Amazon ran a secret advertising surcharge scheme that inflated costs for more than one million brands and sellers over more than seven years.

The FTC claims Amazon told advertisers its search advertising auctions operated on a second-price model, where the winner pays one cent more than the next-highest bidder. In reality, the agency says, Amazon covertly shifted toward a first-price model beginning in 2019 by introducing a hidden surcharge it called a soft reserve price.

The complaint also alleges Amazon used invented auction participants, functioning like shill bids, to artificially inflate prices. By 2024, the FTC says, advertisers were paying their own full winning bid amount about 80 percent of the time, up from 30 to 40 percent in 2021.

The agency claims the scheme allowed Amazon to extract tens of billions of dollars in extra revenue from advertisers, costs that were largely passed on to consumers. Internal Amazon communications cited in the complaint show executives acknowledged that transparency about the changes would cause irrevocable damage to advertiser trust.

Amazon called the lawsuit misguided and said the FTC misunderstands how digital advertising auctions work. The company said its systems saved advertisers more than 8 billion dollars between 2021 and 2025 by prioritizing ad relevancy alongside bid prices.

The FTC and states are seeking a court order to halt the practices, along with civil penalties and restitution for affected advertisers. The 22 states joining the lawsuit include California, Florida, New York, Texas, and Pennsylvania.