FTC Sues Amazon Over Alleged Hidden Advertising Auction Charges

The US Federal Trade Commission (FTC), joined by 22 states, has sued Amazon over the way the company allegedly sets prices in its advertising auctions.

According to the FTC, Amazon added undisclosed charges to advertising auctions for more than six years, causing advertisers to pay more for sponsored product placements and other advertising on its platform. The regulator alleges the practice generated more than $20 billion in additional revenue from advertisers who did not know about the charges.

Amazon has rejected the allegations, describing the FTC's case as misguided and disputing the claim that its advertising practices resulted in higher consumer prices.

FTC Alleges Undisclosed Charges In Ad Auctions

The lawsuit alleges that Amazon used hidden surcharges in its advertising auctions, allowing the company to increase the amount advertisers paid when users clicked on advertisements.

The FTC claims the practice was known within Amazon and continued despite concerns raised by multiple employees. It alleges that the company could impose the surcharges on advertisers in most advertising transactions involving clicks on ads displayed on Amazon's website.

The regulator estimates that the alleged practice may have extracted more than $20 billion from advertising customers who were unaware of the additional charges.

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Some portions of the lawsuit have been redacted. However, the complaint cites internal Amazon communications that the FTC says demonstrate concerns about the company's approach to auction pricing.

One internal memo cited by the regulator acknowledged that using undisclosed reserve prices could increase Amazon's short-term revenue, while warning that the approach could harm the company over the longer term.

Amazon Rejects FTC's Interpretation

Amazon has disputed the regulator's characterisation of its advertising system and rejected the allegation that it deliberately deceived advertisers.

In a lengthy response, the company argued that the FTC had not established that its advertising practices caused consumers to pay higher prices.

Amazon said the lawsuit "cites no evidence of consumer price increases" and described the FTC's action as "misguided". The company also argued that the regulator "fundamentally misunderstands" how advertising auctions operate.

Amazon further said the FTC reviewed approximately 1.5 million pages covering six years before relying on what the company characterised as a small number of simplified internal communications.

"That is patently false," Amazon said in its response, rejecting the FTC's allegation of a companywide effort to deceive advertisers.

Dispute Centres On Advertising Pricing

The case centres on how Amazon's advertising auctions determine what advertisers ultimately pay for placements on the platform.

The FTC's position is that undisclosed pricing mechanisms allowed Amazon to collect additional revenue from advertisers while concealing the true cost of advertising transactions. The regulator also argues that those costs ultimately affected consumers through higher prices on Amazon.

Amazon disputes that connection and maintains that the FTC has misinterpreted both its auction mechanisms and internal communications.

The allegations remain contested, and the lawsuit will determine whether the practices described by the FTC violated federal law.