FTC and 22 States Sue Amazon Over Secret Ad Surcharge Scheme (2026)

What Is the FTC Amazon Ad Surcharge Lawsuit?

The Federal Trade Commission (FTC) and 22 states have filed a lawsuit against Amazon, alleging that the company engaged in a deceptive practice of secretly inflating prices in its online search advertising auctions for over seven years, extracting tens of billions of dollars from advertisers. The complaint, announced on August 31, 2026, claims that Amazon misrepresented its auction system—advertised as a "second price" auction—by often charging advertisers their full bid instead of just one cent more than the next highest bidder. The lawsuit targets Amazon's Sponsored Products, Sponsored Brands, and Sponsored Display ads and involves 1.2 million advertising customers, nearly half of which are small- and medium-sized businesses. Read the full FTC press release.

How Did the Alleged Surcharge Work?

The Soft Reserve Price Scheme

According to the lawsuit, Amazon internally used a mechanism it called a "soft reserve price"—a secret minimum price that advertisers had to meet or exceed for their ads to be placed. The company allegedly failed to disclose this surcharge to advertisers, who believed they were participating in a straightforward second-price auction. In a second-price auction, the winner pays only one increment above the second-highest bid. But Amazon systematically charged the winning advertiser its full bid price, even when that bid was far above the second-place bid. The scheme was in place since at least 2019, and the FTC and state attorneys general allege that it inflated the cost of ads for all participants, generating significant additional revenue for Amazon. Details from law.com.

Impact on Advertisers

Amazon's advertising business has grown into a major profit center, and the alleged surcharges added billions to its bottom line at the expense of sellers. The complaint states that advertisers collectively overpaid by upwards of $20 billion. Nearly half of the affected advertisers are small- and medium-sized businesses, many of which rely on Amazon Sponsored Products to compete against larger brands. The higher ad costs also likely trickled down to consumers, as sellers raised product prices to cover the inflated ad spend. CNN reports that the complaint also suggests these increased advertising costs were ultimately passed on to Amazon shoppers.

Comparison of Allegations vs. Amazon's Defense

Aspect	FTC / State Allegations	Amazon's Response
Auction transparency	Amazon misrepresented its second-price auction, often charging full bid.	Amazon states advertisers adjust bids based on performance.
Hidden fees	Soft reserve price secretly raised minimum ad cost.	Amazon says its ad relevancy focus has saved advertisers billions.
Financial impact	Advertisers overpaid by tens of billions of dollars (up to $20B).	Amazon counters that the complaint mischaracterizes the system.
Duration	Alleged scheme ran for at least seven years (since 2019).	Company disputes the timeline and nature of practices.
Affected businesses	1.2 million customers; nearly half are SMBs.	Amazon argues that its platform provides immense value.

Sources: Reuters, FTC press release.

Amazon's Response and Defense

Amazon has pushed back against the allegations. In statements following the lawsuit filing, the company argued that advertisers continuously adjust their bids based on performance data and that the focus on ad relevancy has actually saved advertisers billions of dollars. Amazon contends that the FTC's characterization of its auction mechanics is inaccurate and that the company has always been transparent about how its advertising system works. The lawsuit is now in its early stages, and both sides are preparing for what could be a years-long legal battle. Reuters covered Amazon's rebuttal.

Broader Regulatory Context

This lawsuit is not an isolated action. The FTC has been probing both Amazon and Google over search advertising practices for some time. In September 2025, Bloomberg reported that the FTC was investigating Amazon and Google over search advertising practices, indicating a broader crackdown on digital ad market transparency. Additionally, European regulators and consumer watchdogs are also taking aim at Amazon's ad practices. A German consumer watchdog recently sued Amazon for 1.8 billion euros over advertising on Prime Video, and an EU ruling declared that tracking-based advertising by Amazon, Google, Microsoft, and X across Europe has no legal basis. The U.S. lawsuit adds significant weight to these global actions. See Bloomberg's earlier report and the EU ruling on tracking-based ads.

What This Means for Amazon Sellers

For the 1.2 million advertisers on Amazon—especially small- and medium-sized businesses—the lawsuit exposes a system that may have been rigged against them. Many sellers have long complained that Amazon's advertising costs are opaque and rising. If the FTC prevails, Amazon may be forced to overhaul its ad auction system, implement greater transparency, and potentially refund overcharged fees. On the other hand, if Amazon successfully defends its practices, the ad platform could continue to operate as before. The case also underscores the importance for sellers to regularly audit their own ad spend and cost-per-click data, and to consider diversifying traffic sources beyond Amazon. The outcome of this lawsuit will likely reshape the landscape of marketplace advertising for years to come.

What Happens Next?

The lawsuit is in its initial phase. The FTC and 22 states—led by a coalition of attorneys general—are seeking injunctive relief, civil penalties, and disgorgement of ill-gotten gains. Amazon is expected to file a motion to dismiss and will likely argue that its practices were disclosed in its terms of service and that advertisers consented. The case will proceed in federal court, likely before a judge in Washington state or the District of Columbia. Legal experts estimate that the litigation could take two to four years to resolve, with potential appeals extending further. In the meantime, advertisers should watch for any court orders that could require Amazon to adjust its ad auction mechanics immediately.