Vermont AG Sues Amazon: Alleges Deceptive Ad Surcharge Scheme

• Vermont AG Charity Clark, along with 21 other state attorneys general and the FTC, has filed a lawsuit against Amazon.
• The complaint alleges Amazon engaged in deceptive practices and undisclosed surcharges, inflating online advertising prices for over seven years.
• Amazon purportedly converted "second price" auctions to "first price" for Sponsored Products and introduced a hidden "soft reserve price" in 2019.
• These alleged schemes are claimed to have illegally extracted tens of billions of dollars from over one million brands and sellers.
• Internal Amazon executive notes reportedly acknowledged a "clever non-transparent way to charge first price" as highly effective for revenue generation.

This alleged scheme, which Amazon executives reportedly acknowledged internally as a 'clever non-transparent way to charge first price,' has generated tens of billions of dollars for the company.

Vermont Attorney General Charity Clark, alongside a coalition of 21 other state attorneys general and the Federal Trade Commission, has initiated legal action against Amazon. The comprehensive lawsuit, filed on August 31, 2026, asserts that the e-commerce giant engaged in a prolonged pattern of deceptive and unfair practices, specifically targeting its online search advertising auctions. These alleged actions are said to have artificially inflated the costs for businesses seeking to promote their products on Amazon's vast platform.

For over seven years, the complaint details, Amazon purportedly implemented covert and substantial price increases for advertising on its platform. This alleged scheme impacted more than one million brands and sellers, including a significant number of over 500,000 small and medium-sized businesses, all of whom were compelled to pay these elevated rates. The legal challenge contends that Amazon has likely unlawfully extracted tens of billions of dollars from its advertising clientele through these methods. Attorney General Clark emphasized the importance of accountability, stating that manipulating businesses into overspending on advertising is both deceitful and illegal, and her office would hold companies responsible for prioritizing profits over the interests of Vermont enterprises. This action marks a significant development in the ongoing scrutiny of online advertising practices, with the Vermont AG suing Amazon over its alleged ad surcharge.

Central to the allegations is Amazon's purported manipulation of its advertising auction mechanics. For years, Amazon represented to prospective advertisers that it operated "second price" auctions for placements like Sponsored Product ads, Sponsored Brands ads, and Display Ads. Under this model, the winning bidder was promised to pay only "one cent more than the next highest bidder." However, the lawsuit claims that in practice, Amazon frequently charged its Sponsored Products advertisers their full winning bid, effectively transforming the nominally "second price" system into a "first price" auction nearly 80% of the time. This constitutes a core element of the Amazon deceptive ad practices lawsuit.

Further exacerbating the alleged deception, the complaint details that Amazon unilaterally altered its auction rules in 2019 without any public notification. This change involved the introduction of an undisclosed surcharge, which Amazon internally referred to as a "soft reserve price." The lawsuit asserts that Amazon and its senior executives actively worked to conceal this new pricing system from advertisers. When advertisers directly inquired about potential changes to the auction format, they were allegedly met with false and misleading responses, ensuring they remained unaware of how their advertising costs were truly determined. These Amazon 'soft reserve price' allegations highlight a deliberate strategy to maintain advertiser ignorance regarding the true cost structure.

The multi-state Amazon advertising scheme is alleged to have generated substantial illicit revenue for the company. The complaint asserts that Amazon's unlawful practices have resulted in tens of billions of dollars in earnings, achieved by significantly increasing the prices charged to advertisers. These price hikes were reportedly substantial on ordinary shopping days and became even more pronounced, with far greater increases, during high-volume sales events such as Prime Day and Black Friday. This financial impact underscores the gravity of the FTC Amazon ad auction complaint.

Compelling evidence cited in the lawsuit includes notes from a 2024 discussion among senior Amazon executives. During this internal conversation, company leaders reportedly acknowledged that Amazon's method, described as a "clever non-transparent way to charge first price," had proven to be an "incredibly effective way to drive revenue." This alleged scheme, which Amazon executives reportedly acknowledged internally as a 'clever non-transparent way to charge first price,' has generated tens of billions of dollars for the company. This internal admission provides a critical insight into the company's awareness and intent regarding its auction practices, further strengthening the claims brought by Attorney General Clark and the coalition of states, which includes Alaska, Arizona, California, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, and Washington.

This significant legal challenge against Amazon carries broad implications for the landscape of online advertising regulation. The allegations of undisclosed surcharges, manipulated auction mechanics, and active concealment highlight the critical need for transparency and fair dealing within digital marketplaces. For businesses that rely heavily on platforms like Amazon to reach consumers, the integrity of advertising costs directly impacts their profitability and competitive standing.

Lawyers advising companies that advertise on Amazon should meticulously review their clients' ad spending records and contractual agreements. This scrutiny could uncover potential claims related to the alleged undisclosed surcharges or deceptive auction practices outlined in the lawsuit. Furthermore, compliance officers at any company operating online advertising platforms should proactively assess their own pricing transparency and the mechanics of their auctions. Ensuring clear communication and fair practices is paramount to mitigating similar regulatory and legal risks in an increasingly scrutinized digital advertising environment. The Attorney General Clark Amazon lawsuit serves as a stark reminder of the legal and reputational consequences of prioritizing profit over ethical business conduct.

Lawyers advising businesses that advertise on Amazon should review their clients' ad spend and contracts for potential claims related to undisclosed surcharges or deceptive auction practices. Compliance officers at companies operating online advertising platforms should assess their own pricing transparency and auction mechanics to mitigate similar regulatory and legal risks.

Source: Reporting based on official legal filings and statements.