The Federal Trade Commission and 22 states sued Amazon on Monday, accusing the company of secretly manipulating its advertising auctions to impose undisclosed surcharges that made businesses pay more than competing bids would otherwise have required.

The lawsuit alleges the practices cost Amazon’s roughly 1.2 million U.S. advertising customers more than $20 billion, according to an FTC release. Those customers include more than 500,000 small and midsize businesses. Amazon uses automated auctions to decide which advertisements appear within search results and how much advertisers pay for those placements. Businesses submit bids indicating how much they are willing to pay, with competing bids helping determine the price ultimately charged to the winner.

The FTC alleges Amazon began interfering with that process in 2019 by inserting its own “soft reserve” prices into some auctions, pushing advertisers’ costs above what other bidders would have set. The agency said advertisers continued submitting relatively high bids because they believed competition would determine what they actually paid, while Amazon’s undisclosed pricing mechanism was increasingly raising the effective price. By 2024, the complaint says, the surcharges caused Sponsored Products advertisers to pay their full winning bid about 80% of the time.

Amazon introduced the changes because it was dissatisfied with the amount of revenue its advertising auctions were generating, the FTC claims. The complaint says Amazon imposed larger price increases during high-volume shopping periods such as Prime Day and Black Friday. It also cites a 2024 discussion among senior executives describing the approach as an “incredibly effective way to drive revenue.”

The FTC also claims the higher advertising costs eventually reached consumers, arguing that sellers pass a significant portion of their Amazon fees and advertising expenses on through higher product prices.

Amazon denied the allegations in a blog post and called the lawsuit “misguided.” The company said its campaign management tool has told advertisers since 2018 that their bids represent the maximum amount they could be charged, and argued the FTC is placing too much weight on a small number of older or simplified materials that did not fully describe how its auctions worked. Amazon said it has since updated its help materials to clearly explain its use of reserve prices.

Amazon also rejected the FTC’s claims of consumer and advertiser harm, saying the complaint provides no evidence that its advertising practices raised consumer prices. The company also pointed to data showing that the average cost-per-click for Sponsored Products search ads remained flat after adjusting for inflation from 2019 through 2024, while conversion rates increased more than 24% from 2021 through 2025. It also said its auction system has increasingly given more weight to an ad’s relevance than its bid amount, which Amazon argues has improved results for advertisers.

The FTC filed the lawsuit alongside the attorneys general of 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 case is now pending in federal court in Washington, where the FTC and states are seeking an injunction, monetary relief and other remedies, while Amazon says it looks forward to defending its practices in court.