Amazon is encountering a fresh lawsuit from the Federal Trade Commission (FTC) alongside 22 states, alleging that the company has been covertly charging businesses higher fees for advertising on its platform.

Filed on Monday, the lawsuit asserts that Amazon has been quietly raising the costs for advertisers participating in its online ad auctions for over seven years. The complaint indicates that this purported practice impacted more than 1 million brands and sellers, potentially generating tens of billions in extra revenue for Amazon.

The 22 states cooperating with the FTC include 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, Vermont, and Washington.

The lawsuit focuses on Amazon’s Sponsored Products ads, Sponsored Brands ads, and Display ads that appear alongside its search results. According to the FTC, Amazon informed over 500,000 small and medium-sized enterprises that it operated a “second-price” auction in which the winning advertiser would only pay one cent more than the next highest bid, instead of the entirety of their own bid. Businesses operated under the assumption that they would pay just slightly above the runner-up, leading them to bid high, trusting that the system would manage their true costs.

However, the FTC claims that beginning in 2019, Amazon executed a “secretive” change without notifying advertisers. It incorporated a concealed surcharge that Amazon referred to internally as a “soft reserve price,” and employed what one internal document described as an “invented auction participant” — essentially a fictitious bidder — to inflate prices beyond what genuine competition would have yielded.

The complaint contends this constituted a shill bid: rather than the price arising from a legitimate competing advertiser, Amazon was artificially generating a higher figure for advertisers to surpass. Consequently, the FTC states that Amazon charged Sponsored Products advertisers their full winning bid nearly 80% of the time — effectively converting what was promoted as a second-price auction into a first-price auction.

The FTC argues that Amazon initiated this change to boost its advertising revenue and concealed it to prevent advertisers from lowering their bids, which would negatively impact that revenue.

Last year, the company achieved over $68 billion in advertising revenue. 

In a blog entry, Amazon portrayed the FTC’s lawsuit as “misguided,” maintaining that the complaint “fundamentally misinterprets how advertisers function.”

The company further stated that its auctions assess billions of bids across various placements and formats, resulting in price fluctuations, and affirmed that advertisers are “correctly” informed regarding the pricing system.