Amazon Overcharged 500,000 Small Businesses on Ads for 7 Years — The FTC Just Sued

If you've ever run a Sponsored Products ad on Amazon and felt like your cost-per-click crept up faster than your sales, you may not have been imagining it. On August 31, 2026, the Federal Trade Commission and attorneys general from 22 states sued Amazon, accusing the company of secretly inflating ad auction prices for more than seven years — and pulling in tens of billions of dollars from advertisers who had no idea the game had changed.

More than 1 million brands and sellers were caught up in the alleged scheme, and over 500,000 of them are small and medium-sized businesses, according to the complaint filed in the U.S. District Court for the Western District of Washington. If your business advertises on Amazon.com or its mobile app, this lawsuit is worth understanding, because it may explain why your margins on Amazon sales have felt tighter than expected, and it could change how ad pricing works on the platform going forward.

What the FTC Says Amazon Actually Did

For years, Amazon told advertisers it ran a "second-price" auction, the accepted industry standard for placements like Sponsored Products, Sponsored Brands, and Display Ads. In a genuine second-price auction, the highest bidder wins a placement but pays only one cent more than the next-highest bid. That structure is designed to encourage advertisers to bid what a placement is actually worth to them, since they should never be forced to pay their own full bid amount.

The FTC's complaint alleges something different happened behind the scenes. Beginning in 2019, according to internal Amazon documents cited in the lawsuit, the company quietly added what one internal document called a "soft reserve price," an undisclosed markup layered on top of the auction results. The complaint alleges Amazon used what it referred to internally as an "invented auction participant," essentially a shill bid, to push prices higher without telling advertisers the rules had changed.

The result, the FTC alleges, was that Amazon's advertisers increasingly ended up paying the full amount of their own bid, something that should rarely happen in a genuine second-price auction. According to the complaint, that happened between 30% and 40% of the time in 2021, climbed to roughly 70% in 2022, and reached approximately 80% by 2024.

Why the Auction Type Matters

The distinction between a first-price and second-price auction isn't just technical. In a first-price auction, where the winner pays exactly what they bid, advertisers tend to lower their bids over time through a practice called bid shading, worried they'll overpay. In a second-price auction, advertisers bid closer to their true value because they know they'll only pay the minimum needed to win. The complaint alleges Amazon's advertisers kept bidding as if they were in a fair second-price auction, unaware they were effectively paying first-price rates, which let Amazon extract far more revenue than a transparent system would have allowed.

Amazon Allegedly Timed the Surcharges

The complaint also alleges Amazon increased the hidden surcharge most aggressively around high-traffic shopping events like Prime Day and Black Friday, the exact days when small businesses often spend the most to capture holiday and promotional traffic. FTC Chairman Andrew Ferguson said the impact "can be staggering" given how many advertisers were affected and how those costs were largely passed on to consumers. The states joining the case 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.

Amazon has pushed back, calling the lawsuit "misguided" and noting that average winning bids for Sponsored Products ads fell by roughly half between 2019 and 2025. The case is now in litigation, and no court has ruled on the underlying claims.

Why This Matters for Your Business, Not Just Amazon's

If a meaningful share of your customer acquisition happens through Amazon ads, this case is a reason to take a closer look at what you've actually paid versus what you thought you were bidding. Businesses that rely heavily on Sponsored Products placements, especially sellers in competitive categories where bidding is aggressive, may have been affected the most, since the complaint alleges the surcharge grew over time as Amazon leaned on it to hit internal revenue targets.

It's also a reminder of how easily advertising costs can quietly erode margins when a single platform controls both the auction and the reporting on how that auction works. Reviewing your profit and loss statement line by line, specifically what you're spending on Amazon ads relative to the revenue those ads generate, is worth doing regardless of how the lawsuit plays out.

Will Businesses Get Money Back?

It's too early to say. The FTC's complaint seeks to stop the alleged practice and could result in monetary relief for harmed advertisers, but that outcome depends on how the litigation unfolds, whether through settlement, trial, or dismissal. There is no claims process open yet, and no business should trust any email, call, or website claiming to offer an immediate "FTC Amazon ad refund." Scammers routinely try to capitalize on high-profile lawsuits like this one before any legitimate relief process exists.

What Small Business Owners Should Do Now

• Pull your Amazon Advertising reports and look at your historical cost-per-click, along with how often you paid your exact bid amount, a pattern the complaint says became increasingly common after 2019.
• Compare ad spend against sales trends around major shopping events specifically, since the complaint alleges surcharges were heaviest during high-volume periods like Prime Day and Black Friday.
• Track ad spend as its own line item on your books so you can spot changes in cost-per-click or cost-per-sale before they quietly eat into your margin.
• Diversify your customer acquisition channels where possible, so your business isn't fully dependent on one platform's auction system for visibility.
• Watch the case docket in the U.S. District Court for the Western District of Washington for updates rather than relying on secondhand claims about settlements or refunds.
• Be skeptical of unsolicited refund offers tied to this lawsuit, since no legitimate claims process has been established as of this writing.

The Bigger Picture for Amazon Sellers and Advertisers

This lawsuit lands at a moment when scrutiny of large technology platforms' advertising practices is intensifying, and it follows a pattern regulators have pursued with other major ad networks in recent years. For small business owners, the practical takeaway isn't the legal theory, it's visibility into where your marketing dollars actually go. Whether or not the FTC's allegations hold up in court, building a habit of auditing platform-reported ad costs against your own tracking, and keeping a clear profit and loss statement that separates ad spend by channel, puts you in a stronger position to notice if something changes, on Amazon or anywhere else you advertise.

For now, the case is in its earliest stages. Amazon is expected to file its response, and the litigation could take months or years to resolve. Small business owners who advertise on the platform should keep records, follow official court filings and FTC announcements, and treat any promise of a quick payout with real skepticism.

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