The Federal Trade Commission and 22 states sued Amazon on Monday, claiming the e-commerce giant secretly made advertising more expensive on its website for more than a million companies.
In a lawsuit filed in a federal court in Seattle, Amazon’s hometown, the F.T.C. and the states said Amazon inflated the costs that brands and marketplace sellers had to pay to promote their products to consumers, including the prominent “Sponsored Product” ads that appear in search results on Amazon’s widely used website.
“Amazon has millions of advertising customers who were misled into paying significantly higher prices,” Andrew N. Ferguson, the chairman of the F.T.C., said in a statement. “These higher costs were largely passed on to American consumers.”
Amazon disputed the charges in a blog post. The company said the F.T.C.’s claim “fundamentally misunderstands how advertisers operate.” Amazon said its mechanisms led to more relevant ads, which created better value for brands and sellers, and that the lawsuit “complaint cites no evidence of consumer price increases.”
The case is one of several lawsuits the F.T.C. has filed against Amazon. In 2023, the agency and 17 states brought a wide-ranging antitrust case against the company, arguing it abused its monopoly in online shopping. That case, whose claims Amazon denies, is set for trial next year.
Last year, Amazon settled a narrower suit for $2.5 billion over claims it tricked customers into buying Prime memberships and making it hard to cancel when they wanted to leave the program. Amazon did not admit or deny wrongdoing in the settlement.
The 22 states involved in the suit are represented by both Republican and Democratic attorneys general, and include Washington, where Amazon has its headquarters. The suit was reported earlier by The Wall Street Journal.
Advertising has become a crucial source of profit for Amazon, as it has grown into one of the largest ad platforms in the world. Its advertising business produced almost $20 billion in sales in the most recent quarter, up 26 percent from a year earlier, and is widely regarded by investors as the most lucrative part of its consumer business.
The new lawsuit centers on the complex workings of digital advertising. The F.T.C. and attorneys general argue that Amazon told advertisers that it was using a common way to solicit and select bids through what is called a “second price” auction. To prevent overbidding, it told advertisers, it charged only 1 cent more than the second-highest bid, they said.
But in reality, the 181-page complaint claimed, Amazon had a hidden “soft reserve price,” meaning it created a higher minimum amount it would frequently charge for an ad. The complaint cites internal studies and tests where teams inside Amazon tested how far they could push the bidding system to produce additional ad sales.
Rob Bonta, California’s attorney general, said in a news conference that, by design, the advertisers had no way to know this was happening.
“Amazon has taken many steps to hide this scheme because, as employees have admitted internally, it knows it creates an ‘irrevocable damage to advertiser trust’ — words straight from an Amazon employee,” he said.
Amazon countered that the “soft reserve prices” change in real time to create a minimum that reflects the value of the real estate on its website, and that it never charged advertisers more than they had bid. It said any vague descriptions the F.T.C. may have cited were minor and fixed once they were flagged.
It also said its systems favored serving up ads that were relevant to customers rather than just the most expensive. That is better for both the customer and the advertiser, the company said.
Amazon argued that the results spoke for themselves: When adjusted for inflation, the costs of digital ads have been flat even as the ads deliver higher sales because they are more relevant. The company said the system didn’t cost advertisers more, but instead helped them save money.
The suit seeks a permanent injunction to stop the alleged violations as well as unspecified monetary penalties.
The post F.T.C. and 22 States Claim in Lawsuit That Amazon Secretly Inflated Ad Prices appeared first on New York Times.
