FTC, 22 States: Amazon Ad Surcharge Lawsuit Alleges Deceptive Pricing

• The FTC and 22 states have sued Amazon, alleging it deceptively inflated online advertising prices for seven years.
• Amazon is accused of adding a surcharge to its "second price auctions," causing over a million businesses to pay more.
• Plaintiffs claim Amazon likely profited $20 billion from these alleged practices and concealed the scheme.
• The lawsuit seeks a permanent injunction, civil penalties, restitution, and disgorgement for various federal and state law violations.
• Amazon, the world's largest digital advertising company, has disputed the allegations, calling the lawsuit 'misguided' and 'patently false,' and has published a blog post in response to the legal action.

The core of the accusation centers on Amazon's alleged exploitation of its dominant position to unfairly increase costs for businesses seeking visibility on its vast e-commerce platform.

The Federal Trade Commission (FTC) and a coalition of 22 states have initiated a significant legal challenge against Amazon, filing a lawsuit that accuses the e-commerce giant of systematically inflating online advertising prices. The complaint, lodged in a federal court in Washington state, alleges that Amazon knowingly engaged in deceptive advertising practices, specifically by manipulating its ad auction system to charge businesses more than they should have paid. This extensive FTC 22 states Amazon ad surcharge lawsuit claims that for a period of seven years, Amazon's actions impacted over a million brands and sellers utilizing its platform for advertising.

According to the plaintiffs, these alleged practices have been highly lucrative for Amazon, with the company likely profiting an estimated $20 billion from unsuspecting advertisers. The lawsuit highlights Amazon's substantial presence in the digital advertising landscape, noting its status as the world's largest digital advertising company, generating over $68 billion annually. The core of the accusation centers on Amazon's alleged exploitation of its dominant position to unfairly increase costs for businesses seeking visibility on its vast e-commerce platform.

At the heart of the online ad price inflation lawsuit is Amazon's use of “second price auctions” for selling ad space on its website and app. In a lawfully conducted second-price auction, businesses compete based on their bids and relevance to shopper searches, with the winning bidder typically paying just one cent more than the second-highest bid. However, the plaintiffs contend that Amazon deviated from this standard practice by adding an undisclosed surcharge on top of the second-place bid, thereby artificially driving up the final price paid by the winning business.

California Attorney General Rob Bonta, speaking at a press conference, asserted that Amazon undertook “great lengths to conceal the unlawful scheme” and manipulated what was already an “opaque process.” He further claimed that Amazon “blatantly lied to businesses” when confronted about surprisingly high advertising costs. For instance, during the 2021 holiday season, when numerous businesses complained about elevated ad prices, Amazon reportedly attributed these increases to high shopper demand. Subsequently, the company allegedly “wised up” and proactively raised prices ahead of peak shopping periods, further indicating a pattern of deliberate price manipulation in its e-commerce ad auction regulation.

The comprehensive 181-page complaint outlines a range of legal violations, including federal concealment, deceptive, and unfair practice violations, alongside numerous state-specific breaches of consumer protection laws, fraud statutes, and false advertising regulations. The coalition of plaintiffs, which includes Alaska, Arizona, 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, is seeking significant remedies.

These include a permanent injunction to prevent future Federal Trade Commission Act violations, as well as monetary relief for the plaintiff states through civil penalties, restitution, and disgorgement of illicit gains. This state AGs Amazon advertising suit underscores a growing regulatory focus on transparency and fairness in digital advertising markets, particularly concerning large platforms. The allegations of FTC unfair trade practices Amazon highlight the scrutiny faced by dominant online platforms regarding their business practices and their impact on smaller businesses. Amazon has disputed the allegations, calling the lawsuit 'misguided' and 'patently false,' and has published a blog post in response to the legal action.

Compliance officers at online advertising platforms should review their ad auction mechanisms and pricing disclosures for potential deceptive practices, as this lawsuit signals heightened regulatory scrutiny by the FTC and state attorneys general on transparency and fairness in digital advertising. Lawyers advising businesses that advertise on such platforms should be aware of potential claims related to inflated ad costs.

Source: Original reporting via Associated Press