Federal regulators teamed up with a 22-state coalition this week to sue Amazon, accusing the retailer of quietly overcharging more than a million businesses that pay to appear in its search results. The Federal Trade Commission's case, lodged before a Seattle-based federal judge, puts the value of the alleged scheme at more than $20 billion pulled from advertisers who believed they were competing in an open, transparent auction. Hours later, Texas Attorney General Ken Paxton chose a different path, filing his own parallel lawsuit rather than joining the coalition, splitting the legal fight into two separate tracks.
A Bidding System That Stopped Behaving Like One
Amazon spent years marketing its ad placements as second-price auctions, the standard format across the industry in which the winning bidder pays only a hair more than the runner-up's offer. Regulators say that promise stopped being true around 2019, when the company began layering an undisclosed markup onto the process, an amount employees referred to internally as a soft reserve, and which one internal document called an invented auction participant. The result, according to the complaint, was a slow erosion of the auction's competitive character: in 2021, advertisers ended up paying exactly what they had bid on roughly 30 to 40 percent of auctions; by 2024, that share had climbed to close to 80 percent. Regulators say Amazon tracked the shift internally while keeping advertisers in the dark, even as some asked directly whether the rules had changed.
Texas Chooses Its Own Legal Path
Rather than sign on to the multistate effort, Paxton filed a separate suit the same day, built around Texas-specific numbers: upward of 18,000 sellers and vendors based in the state buy ad placements on Amazon, and the hidden markups pushed their costs up by roughly 17 percent on an average day and past 25 percent during high-traffic events like Prime Day. Texas investigators estimate the practice generated about $4.5 billion nationwide in 2024 alone. "I will not allow this multi-billion-dollar corporate scam to go unchecked," Paxton said in announcing the case. Because Texas is not among the 22 states in the federal coalition, Houston's advertisers, a mix of small importers and family-run online shops, many Latino-owned, will see their claims heard on a separate legal timeline from sellers in the other coalition states.
Florida, California and the Rest of the Coalition Line Up
Florida, led by Attorney General James Uthmeier, joined the FTC's case alongside California, New York, New Jersey, Illinois and 17 other states, giving the lawsuit direct reach into four of the five metro markets where Latino-owned businesses depend heavily on Amazon storefronts, including South Florida's Doral area, long known as a hub for import-export and e-commerce sellers with ties across Latin America. Rob Bonta, California's attorney general, put it bluntly in remarks to press: Amazon "has rigged billions of ad auctions." His office's own filing separately accuses the company of running afoul of California statutes barring unfair competition and false advertising. New York and New Jersey extend the case into the tri-state region, home to another concentration of Latino-owned online sellers, while Illinois brings Chicago's merchants into the same legal action. Collectively, the coalition wants courts to impose civil penalties, order restitution for overcharged advertisers, and force Amazon to change how its auctions work going forward.
Amazon Says the Case Misreads How Advertisers Behave
Amazon has rejected the claims outright, calling the lawsuit misguided in a corporate blog post. "The FTC's claim fundamentally misunderstands how advertisers operate," Amazon wrote, arguing that businesses set their bids according to campaign results rather than assumptions about auction mechanics. The company also argues that even under the government's own framing of events, weighing ad relevance alongside bid amount saved advertisers more than $8 billion between 2021 and 2025, compared with a system that ranked purely by who bid the most. Amazon's advertising division pulled in more than $68 billion in revenue last year, making it the third-largest seller of digital ads in the country, trailing only Google and Meta.
What Happens From Here
None of the allegations have been proven in court, and Amazon is expected to fight both cases. The lawsuits land amid a broader stretch of legal trouble for the company: Amazon agreed last September to pay $2.5 billion to resolve claims that it made Prime memberships difficult to cancel, and a separate federal case accusing it of illegally protecting a monopoly over online retail is scheduled for trial in early 2027. Any penalties or refunds tied to the new cases would likely take months or years to work through the courts, and neither the federal coalition nor Texas has offered a timeline for when, or whether, affected advertisers might see money back. For now, sellers in Doral, Houston, Los Angeles, Chicago and the New York area have no way to confirm what they were actually charged, or why, until a judge weighs in.
