California Joins FTC Lawsuit Alleging Amazon Used Undisclosed Practices in Advertising Auctions

California has joined the Federal Trade Commission and attorneys general from 21 other states in a lawsuit filed against Amazon, alleging that the company used undisclosed practices in its advertising auctions that affected advertisers on its platform. California Attorney General Rob Bonta announced the state’s participation, stating that Amazon had misrepresented how it calculated advertising costs for more than seven years.

The complaint, filed in U.S. District Court for the Western District of Washington, claims that Amazon represented its Sponsored Products auctions as second-price auctions, in which the winning advertiser would pay only slightly more than the next-highest bidder. According to the lawsuit, advertisers were charged their full winning bid nearly 80 percent of the time, resulting in costs consistent with a first-price auction. The FTC and the states allege this practice generated additional revenue for Amazon, with some costs passed on to consumers through higher product prices.

Bonta said in a statement that Amazon had “rigged billions of ad auctions,” affecting more than 500,000 small and medium-sized businesses and more than one million brands and sellers. The complaint cites internal notes from a 2024 meeting of senior Amazon executives that described a “clever non-transparent way to charge first price” as an effective method to increase revenue. The lawsuit also alleges that advertising costs increased further during events such as Prime Day and Black Friday.

FTC Chairman Andrew N. Ferguson stated that Amazon has millions of advertising customers who were misled into paying higher prices, and that those costs were largely passed on to consumers. The complaint estimates that the practices may have extracted tens of billions of dollars from advertisers.

Amazon has denied the allegations. The company described the lawsuit as misguided and stated that it strongly disagrees with claims that advertisers were misled about Sponsored Ads pricing and auction mechanics. Amazon also rejected assertions that the practices harmed shoppers, citing its pricing policies that aim to meet or beat competitors’ prices in retail and grocery categories.

The states participating alongside California are 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. The case remains in early stages, with Amazon expected to respond formally to the complaint in the coming months.