Amazon is being sued by the FTC and 22 states for allegedly manipulating ad bidding and collecting over $20 billion from advertisers over five years.

Amazon is being sued by the FTC and 22 states for allegedly manipulating ad bidding and collecting over $20 billion from advertisers over five years.

The U.S. Federal Trade Commission (FTC), along with attorneys general from 22 states, filed a lawsuit against Amazon, accusing the e-commerce giant of systematically overcharging advertisers by more than $20 billion since 2019.

This is the latest in a series of legal battles between Amazon and the FTC, placing Amazon's advertising business, a core growth engine, under severe regulatory pressure.

A lawsuit filed Monday in Seattle federal court accuses Amazon of systematically misrepresenting ad prices and terms by manipulating its ad auction mechanism, affecting up to 1.2 million advertisers, including more than 500,000 small and medium-sized enterprises. The lawsuit seeks civil penalties that could amount to billions of dollars.

In a statement, California Attorney General Rob Bonta said that Amazon "manipulated billions of ad auctions to profit at the expense of Americans who rely on its platform to do business."

New York Attorney General Letitia James also stated that Amazon's deceptive practices caused consumers to pay higher prices for a wide range of goods, from groceries to electronics, and announced that she "will take legal action to seek justice for the victims."

In response, Amazon denied the allegations in a statement, saying that the lawsuit provided no evidence of consumer harm and that its ad auctions saved advertisers $8 billion between 2019 and 2024, while the average cost per click, adjusted for inflation, remained essentially flat during the same period.

Following this news, Amazon shares fell 2.5% on Monday, making it the worst performer among the Mag7 stocks.

The core of the lawsuit: Amazon is accused of "secretly manipulating" the bidding mechanism.

At the heart of the FTC’s allegations is that Amazon concealed substantial alterations to its advertising auction rules with false descriptions and fabricated competitive auctions for three advertising products—Sponsored Products, Sponsored Brands, and Sponsored Display.

According to the lawsuit, Amazon has used a "second-highest bid auction" mechanism since 2012, where the winning bidder only needs to pay slightly more than the second-highest bid, usually by one cent. However, the lawsuit alleges that Amazon began "secretly altering" this mechanism starting in 2018.

An internal email cited in the lawsuit shows that an unnamed senior Amazon scientist admitted that the company manipulated the process by introducing a "fictitious auction participant"—a participant representing Amazon's internal valuation of a particular ad space—to inflate the actual sale price to a level higher than the auction result.

FTC officials stated at a press conference that the investigation reviewed over a million internal Amazon documents obtained through subpoenas, and that the investigation benefited from Amazon employees' "meticulous, document-heavy" work culture—internal emails and chat logs contained numerous discussions about the alleged plan's impact.

In terms of potential penalties, fines can accumulate daily under various state consumer protection and unfair competition laws, potentially reaching tens of thousands of dollars per day. Given the sheer volume of ad impressions on the Amazon platform, the total amount of fines could quickly escalate to astronomical figures.

This is not an isolated legal case facing Amazon recently. Last year, Amazon reached a $2.5 billion settlement with another investigation into its Prime membership subscription practices; in addition, a trial is scheduled to begin early next year on allegations that it illegally monopolizes the online retail market, harms shoppers, and overcharges sellers.

FTC officials stated that this advertising investigation is one of the agency's priorities, and related investigations have been underway since at least 2019.

Advertising has become a key growth driver for Amazon, but the lawsuit has raised questions about its transparency.

This lawsuit targets one of Amazon's most dynamic business segments. According to company documents, Amazon's advertising business generated $68.6 billion in revenue last year, encompassing search promotion ads, video ads, and internet display ads on its marketplace platform.

Market research firm eMarketer predicts that Amazon's advertising revenue will grow by 21.4% this year to reach $83.3 billion, making it the world's third-largest online advertiser.

"The FTC lawsuit is unlikely to derail the business in the short term, but it could still leave a mark," said Zak Stambor, an analyst at eMarketer. He pointed out that the allegations have raised concerns about the transparency of Amazon advertising and the actual costs advertisers pay.

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