The U.S. Federal Trade Commission (FTC), alongside attorneys general from 22 states, has initiated legal proceedings against Amazon.com (NASDAQ: AMZN). The lawsuit alleges that the e-commerce behemoth systematically overcharged advertisers more than $20 billion since 2019.
This action marks the latest in a series of legal confrontations between Amazon and the FTC, placing the company's advertising operations, a key growth driver, under intense regulatory scrutiny.
The complaint, filed in a Seattle federal court, accuses Amazon of manipulating its ad auction system to inflate pricing and terms, impacting approximately 1.2 million advertisers, including over 500,000 small and medium-sized businesses. Civil penalties could potentially reach billions of dollars.
California Attorney General Rob Bonta stated that Amazon has "manipulated billions of ad auctions to enrich itself at the expense of Americans who depend on its platform." Similarly, New York Attorney General Letitia James commented that the deceptive practices have led to higher consumer prices across a range of goods, pledging to "seek justice for the victims."
In response, Amazon has denied the allegations, arguing the lawsuit lacks evidence of consumer harm. The company stated its ad auctions saved advertisers $8 billion between 2019 and 2024, with average cost-per-click remaining static after adjusting for inflation. Following the news, Amazon shares fell 2.5% in trading, making it the worst performer among the "Magnificent 7" stocks.
Core Allegations: "Secret Manipulation" of Bidding Mechanisms
The FTC's central claim is that Amazon employed deceptive descriptions to conceal significant changes to its ad auction rules across its Sponsored Products, Sponsored Brands, and Sponsored Display offerings. The company is accused of creating a "fictional competitive scenario."
According to the lawsuit, Amazon used a "second-price auction" model since 2012, where the winning bidder pays just one cent more than the second-highest bid. However, the complaint alleges the company began covertly altering this mechanism in 2018.
Internal emails cited in the lawsuit reveal a senior Amazon scientist acknowledging the introduction of a "fictional bidder" to represent Amazon's internal valuation of ad space, effectively raising final prices beyond true auction outcomes.
FTC officials noted the investigation reviewed over one million internal documents, aided by what they described as Amazon's "meticulous and documented" workplace culture, which left a substantial paper trail of discussions about the alleged scheme in emails and chat logs.
Potential Penalties and Legal Context
Penalties could be substantial, with fines potentially accruing daily under various state consumer protection laws, reaching tens of thousands of dollars per day. Given the immense volume of ad impressions on Amazon's platform, total fines could quickly escalate to astronomical figures.
This isn't the sole legal challenge for Amazon. Last year, it reached a $2.5 billion settlement over a separate investigation into its Prime subscription practices. Additionally, a trial is set for early next year regarding allegations it illegally monopolized the online retail market, overcharged sellers, and harmed shoppers.
FTC officials reveal this advertising probe has been a priority, with investigations underway since at least 2019.
Ad Business Under Scrutiny Raises Transparency Questions
The lawsuit targets one of Amazon's most dynamic business segments. Company filings show its advertising unit generated $68.6 billion in revenue last year, including sponsored search ads, video ads, and display advertising on its marketplace.
EMarketer projects Amazon's ad revenue will grow by 21.4% this year to $83.3 billion, positioning it as the third-largest online advertiser globally. Analyst Zak Stambor suggests the FTC lawsuit is "unlikely to derail the business in the short term but could leave a mark," highlighting raised questions about transparency and the actual costs borne by advertisers.
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