# UNITED STATES DISTRICT COURT > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/agency%3Aftc%3Ad6a38bebc686d4f1 ## Record - **Collection:** Agency decision - **Document type:** Agency decision ## Text Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 1 of 181 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 1 2 3 FEDERAL TRADE COMMISSION, 4 STATE OF ALASKA, 5 STATE OF ARIZONA, ex rel. Kristin K. Mayes, Attorney General, 6 7 Case No. ____________ PEOPLE OF THE STATE OF CALIFORNIA, 8 STATE OF COLORADO, ex. rel. Philip J. Weiser, Attorney General, 9 STATE OF FLORIDA, 10 STATE OF IDAHO, 11 STATE OF ILLINOIS, 12 STATE OF INDIANA, ex rel. Todd Rokita, Attorney General, 13 14 STATE OF IOWA, 15 COMMONWEALTH OF KENTUCKY, ex rel. Russell Coleman, Attorney General, 16 STATE OF LOUISIANA, 17 CONSUMER PROTECTION DIVISION, OFFICE OF THE MARYLAND ATTORNEY GENERAL, 18 19 20 COMPLAINT FOR PERMANENT INJUNCTION, MONETARY JUDGMENT, AND OTHER RELIEF STATE OF NEBRASKA, ex rel. Michael T. Hilgers, Attorney General, 21 STATE OF NEW JERSEY, by Attorney General Jennifer Davenport, 22 STATE OF NEW YORK, 23 STATE OF NORTH CAROLINA, ex rel. Jeff Jackson, Attorney General, 24 COMPLAINT - i Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 2 3 4 5 6 7 8 9 10 11 12 Document 1 Filed 08/31/26 Page 2 of 181 STATE OF OKLAHOMA, COMMONWEALTH OF PENNSYLVANIA, Office of Attorney General, By Attorney General David W. Sunday, Jr., STATE OF RHODE ISLAND, STATE OF SOUTH CAROLINA, ex. rel. Alan Wilson, in his official capacity as Attorney General of the State of South Carolina, STATE OF VERMONT, and STATE OF WASHINGTON, Plaintiffs, v. AMAZON.COM, INC., a corporation, Defendant. 13 14 15 16 17 18 19 20 21 22 23 24 COMPLAINT - ii Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 3 of 181 TABLE OF CONTENTS 1 INTRODUCTION ........................................................................................................................ 1 2 3 4 JURISDICTION AND VENUE ................................................................................................... 6 PLAINTIFFS ................................................................................................................................. 6 DEFENDANT.............................................................................................................................. 13 COMMERCE .............................................................................................................................. 14 5 OVERVIEW OF AMAZON'S ADVERTISING AUCTIONS ............................................... 14 6 BACKGROUND ......................................................................................................................... 26 A. Search Advertising Auctions ............................................................................................ 26 1. Types of Auctions ............................................................................................................. 26 8 2. Use of Auctions in Digital and Search Adve1tising .......................................................... 28 9 DEFENDANT'S BUSINESS ACTIVITIES ............................................................................. 31 7 A. Amazon's "Sponsored Ads" Search Adve1tising Products .............................................. 31 B. Amazon's Second Price Auction Representations to Adve1t isers .................................... 36 11 1. Amazon's Representations in Training and Marketing Materials .................................... 37 12 2. Amazon's Second Price Auction Representations Are Repeated by its Account Managers, and Even the Head of Alnazon Ads .............................................................................................. 44 13 3. Alnazon Is Aware That Its Second Price Auction Representations Have Been Widely Understood and Repeated By Alnazon's Paitner Network and Throughout the Industiy ............ 47 14 4. Alnazon's Adve1t ising Customers Believe That It Conducts Genuine Generalized Second Price Auctions, As Prolllised ........................................................................................................ 49 15 C. 16 17 1. In 2018, Alnazon Began Inflating Prices Above Second Price Auction Results Using Secret Reserve Pricing .................................................................................................................. 53 2. 18 19 Alnazon's Implementation and Concealment oflts Reserve Pricing Systems ................. 53 Alnazon Knew Its Auction Results Reporting Hid Its Reserve Pricing ........................... 58 3. Alnazon Designed and Implemented Its Undisclosed Reserve Pricing Systems to Avoid Detection ....................................................................................................................................... 60 4. Alnazon Placed Guai·drails on Reserve Prices to Keep Surcharges Secret ...................... 62 20 5. Alnazon Set Reserve Prices to Lilllit Adve1tisers ' Return on Ad Spend .......................... 66 21 6. Alnazon Fmt her Expanded Reserve Pricing Systems After 2021 .................................... 67 D. Alnazon Continued to Increase Surcharges While It Decreased Adve1t isers' RoAS ...... 70 E. Alnazon Orchesti·ated Multiple Cover Ups to Conceal Its Surchai·ges ............................. 74 1. December 2021 CPC Spike Escalations ...................................................................... ..... 7 6 2. Prime Day 2023 CPC Spike Escalations .......................................................................... 82 22 23 24 COMPLAINT - iii Case No. - :- -cv-- - FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 2 3 4 3. Document 1 Filed 08/31/26 Page 4 of 181 Customer Escalation in 2024 ............................................................................................ 88 AMAZON DEPRIVES ADVERTISERS OF A COMPETITIVE AUCTION PROCESS .. 91 AMAZON’S CONDUCT RESULTS IN SUBSTANTIAL HARM ........................................ 96 VIOLATIONS OF THE FTC ACT .......................................................................................... 97 VIOLATIONS OF STATE LAW .............................................................................................. 97 CLAIMS BROUGHT BY THE FEDERAL TRADE COMMISSION .................................. 98 5 6 7 STATE LAW CLAIMS BROUGHT BY THE PLAINTIFF STATES ............................... 101 CONSUMER INJURY ............................................................................................................. 154 PRAYER FOR RELIEF .......................................................................................................... 154 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 COMPLAINT - iv Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 Document 1 Filed 08/31/26 Page 5 of 181 Plaintiffs, the Federal Trade Commission (“FTC” or “Commission”), and the States of 2 Alaska, Arizona, Colorado, Florida, Idaho, Illinois, Indiana, Iowa, Commonwealth of Kentucky, 3 Louisiana, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode 4 Island, South Carolina, Vermont, and Washington, and the People of the State of California, by 5 and through their respective Attorneys General, and the Consumer Protection Division of the 6 Office of the Maryland Attorney General (together, the “Plaintiff States,” and collectively with 7 the FTC, “Plaintiffs”), for their Complaint allege: 8 INTRODUCTION 9 1. Since 2019, Amazon.com, Inc. (“Amazon”) has secretly and systematically overcharged its 10 approximately 1.2 million advertising customers by manipulating the “auctions” that it uses 11 to set the price of ads on its platform. Amazon represents, and advertisers believe, that 12 competitive auctions set the prices for advertising on its leading e-commerce website. But, 13 in reality, Amazon overrides and replaces the actual auction results with higher prices set by 14 Amazon to increase its profits. For years, Amazon has secretly inflated the auction prices 15 for three of its advertising products: Sponsored Products, Sponsored Brands and Sponsored 16 Display. With respect to its largest advertising product, Sponsored Products, Amazon 17 significantly inflated prices with an average “surcharge rate” of approximately 18 which increased to over 19 documents describing its “hidden” “surcharges,” Amazon’s scheme has likely illegally 20 extracted over 20 billion dollars from its unwitting advertising customers. - - — on peak shopping days. Based on numerous internal 21 2. Since launching its advertising auctions in approximately 2012, Amazon has represented to 22 customers that its advertising prices are set by “second price” auctions that rank participants 23 by a combination of their bid and relevance to shoppers’ searches, and where the winning 24 advertiser only pays the minimum amount necessary (e.g., one cent more) to beat the COMPLAINT - 1 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 6 of 181 1 second-place bidder. However, in 2018, Amazon began secretly manipulating its auction 2 results to increase its ad prices. Amazon gave its customers no notice of this change and 3 took affirmative steps to conceal it, while continuing to represent that it operated second 4 price auctions. 5 3. Amazon determined in late 2018 that it was no longer satisfied with the prices resulting 6 from its competitive advertising auctions. As a result, Amazon’s advertising organization 7 (“Amazon Ads”) decided to set and charge customers higher prices for advertising 8 placements itself. After Amazon runs its ad auctions and determines the winning and 9 second-place bidders, it then replaces the price determined by the auction with a higher price 10 designed to maximize Amazon’s profits and decrease the cost efficiency of its advertisers’ 11 campaigns. As explained internally by Amazon’s Senior Vice President in charge of 12 Amazon Ads, in Amazon’s auctions “the second price isn’t set by an actual bidder, but 13 rather by” Amazon in the form of a “proxy 2nd price that we calculate.” 14 4. Amazon’s scheme has resulted in substantial overcharges and cost increases paid by its 15 approximately 1.2 million U.S. advertising customers, which include over 500,000 small 16 and medium-size businesses. A 2022 study conducted by Amazon revealed that 17 customers for its most lucrative advertising placements are new or small business owners. - of its 18 5. Amazon’s advertising customers sell millions of products to U.S. consumers, including 19 groceries, pharmacy products, clothes, school supplies, and other essentials. Sellers on 20 Amazon incur substantial costs in the form of fees and surcharges to participate and 21 advertise on Amazon’s leading e-commerce platform. A significant portion of these costs, 22 including the advertising costs paid by Amazon sellers, are ultimately passed through to and 23 paid by Amazon shoppers in the form of higher prices. 24 COMPLAINT - 2 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 Document 1 Filed 08/31/26 Page 7 of 181 6. In 2021, using a snapshot of data, Amazon analyzed how its undisclosed surcharges 2 a1tificially increased the price of adve1tising of various categories of products (refeITed to as 3 "general ledgers" or "GLs") bought by U.S. consumers on its platfonn. The analysis found 4 that Amazon levied its highest surcharges on adve1tisements for 5 These typically low-margin products are likely to pass on cost increases to consumers. 6 Amazon also applied high surcharges to other necessities including 7 reflected in an internal cha1t below (emphasis added) . , as 8 9 11 12 13 14 15 16 17 18 19 7. Internally, Amazon refers to the differences between the actual auction prices and the 20 aitificial prices it charges customers as auction "surchai·ges." While many of Amazon's fees 21 or surcharges are disclosed to its customers, Amazon does not disclose that its auction 22 pricing has "a surcharge hidden in it." In fact, Amazon actively conceals this infonnation 23 from its customers to avoid "iITevocable damage to adve1tiser tiust" and a "downward 24 COMPLAINT - 3 Case No. - :- -cv-- - FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 8 of 181 1 spiral” of advertisers lowering their bids or decreasing their advertising spending with 2 Amazon. 3 8. Amazon takes great pains to actively conceal from customers the fact that it inflates its 4 purported auction prices. These efforts include: extensive testing of incremental surcharge 5 increases to assess the risk of detection, adding and fine-tuning design features to its pricing 6 system to help “mask” the surcharges from customers, and responding to customer 7 complaints about suspicious price increases by falsely denying that Amazon played any role 8 in raising the prices. 9 9. Through its testing process, Amazon has repeatedly confirmed that its advertising customers 10 are unable to detect its scheme. As Amazon’s confidence that its advertising customers are 11 unaware of its conduct has grown, it has substantially increased its hidden surcharges. 12 Amazon has been able to successfully exploit the fact that its “opaque” auction process and 13 reporting ensures that advertisers cannot know whether the price they are charged is the 14 minimum amount needed to win the auction, as promised, or instead an inflated amount 15 fabricated by Amazon. As a result, Amazon has successfully and profitably led advertisers 16 to believe — falsely — that they continue to compete in second price auctions. 17 10. Amazon has used its unique position as both the auctioneer and seller of the advertising 18 placements to distort and subvert the competitive process inherent in auctions. As the head 19 of Amazon Ads explained, Amazon does not rely on the competing bids it receives to 20 determine its pricing because “doing so can result in the [] loss of economic value” to 21 Amazon. Instead, he acknowledged, Amazon has “inserted” a “bid” into its auctions to 22 increase prices. According to Amazon, this enables Amazon to “adjust” prices “beyond 23 what would be organically achieved through advertiser competition.” As an Amazon Senior 24 Scientist similarly explained, to increase its auction prices, Amazon employs “an invented COMPLAINT - 4 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 9 of 181 1 auction participant representing how much Amazon thinks that paiiicular ad slot is wo1ih." 2 (emphasis added). In executing its scheme to misrepresent and rig its auctions against its 3 customers, Amazon has deceived its customers and deprived them of the benefits of 4 competition and fair and transparent dealing. 5 11. As shown in the chaii below, from approximately 2019 to the present, Amazon has 6 increasingly overcharged its customers while representing to them, across multiple 7 communications channels, that its pricing is set by second price auctions. • 8 19 20 21 22 23 24 • "GSP" or "generalized second price" is the te1m both the advertising industiy and Amazon use to describe its second price auctions to reflect that it sells multiple placements on the same search page in an auction. Tue surcharge rate for Sponsored Products search placements was calculated for 2020 to 2024 based on Amazon's internal data; the surcharge rate for 2019 was estimated based on Amazon's internal documents, which indicate that Amazon began using surcharges for Sponsored Products search placements in July 2019. COMPLAINT - 5 FEDERAL TRADE COMMISSION Case No. - :- -cv-- - One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 Document 1 Filed 08/31/26 Page 10 of 181 12. The FTC brings this action for Defendant’s violations of Section 5(a) of the FTC Act, 15 2 U.S.C. § 45(a). For these violations, the FTC seeks a permanent injunction and other relief 3 pursuant to Section 13(b) of the FTC Act, 15 U.S.C. § 53(b). 4 13. The Attorneys General bring this action for Defendant’s violations of the below enumerated 5 state laws. For these violations, the Attorneys General seek relief, including injunctive 6 relief, recission or reformation of contracts, restitution, the refund of monies paid, 7 disgorgement of ill-gotten gains, civil penalties, attorneys’ fees, expenses, and costs. 8 JURISDICTION AND VENUE 9 14. This Court has subject matter jurisdiction pursuant to 28 U.S.C. §§ 1331, 1337(a), and 1345. 10 15. Venue is proper in this District under 28 U.S.C. § 1391(b)(1), (b)(2), (c)(2), and (d), and 15 11 U.S.C. § 53(b). PLAINTIFFS 12 13 14 15 16 17 18 19 20 21 22 23 24 16. The FTC is an agency of the United States Government created by the FTC Act, which authorizes the FTC to commence this district court civil action by its own attorneys. 15 U.S.C. §§ 41–58. The FTC enforces Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), which prohibits unfair or deceptive acts or practices in or affecting commerce. 17. Plaintiff State of Alaska, through its Acting Attorney General Cori Mills, brings this action under her authority in AS § 45.50.501(a) to enforce the Alaska Unfair Trade Practices Act, AS §§ 45.50.471– 561. Under AS § 45.50.471(a) of that Act, unfair methods of competition and unfair or deceptive acts or practices in the conduct of trade or commerce are declared to be unlawful. 18. The Arizona Attorney General is authorized to bring an action under the Arizona Consumer Fraud Act (the “Arizona CFA”), A.R.S. §§ 44-1521 to -1534, pursuant to her authority under A.R.S. §§ 41-193(A)(3) and 44-1528. The Arizona CFA prohibits the act, use or COMPLAINT - 6 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 11 of 181 1 employment of any deception, deceptive or unfair act or practice, fraud, false pretense, false 2 promise, misrepresentation, or concealment, suppression or omission of any material fact 3 with intent that others rely on such concealment, suppression or omission, in connection 4 with the sale or advertisement of any merchandise whether or not any person has in fact 5 been misled, deceived or damaged. A.R.S. § 44-1522. 6 19. Plaintiff the People of the State of California bring this action by and through Attorney 7 General Rob Bonta, who is authorized by California Business and Professions Code 8 §§ 17535 and 17536 to enforce the California False Advertising Law, California Business 9 and Professions Code § 17500 et seq., and authorized by California Business and 10 Professions Code §§ 17203, 17204, and 17206 to enforce the California Unfair Competition 11 Law, California Business and Professions Code § 17200 et seq. Among other relief, 12 California Business and Professions Code §§ 17203 and 17535 authorize the Attorney 13 General to obtain injunctive relief to halt violations of, and enforce compliance with the 14 Unfair Competition Law and False Advertising Law, respectively, and also authorize the 15 Attorney General to seek all orders or judgments as may be necessary to restore to any 16 person in interest any money or other property acquired through violations of the Unfair 17 Competition Law and False Advertising Law. The Attorney General is also authorized by 18 California Business and Professions Code §§ 17206 and 17536 to obtain civil penalties. The 19 Attorney General is also authorized by California Government Code § 12527.6 to obtain 20 disgorgement. 21 20. The State of Colorado brings this action by and through Attorney General Philip J. Weiser 22 pursuant to the Colorado Consumer Protection Act, Colo. Rev. Stats. §§ 6-1-101, et seq., 23 (“CCPA”), which prohibits unfair and deceptive trade practices in the course of a 24 defendant’s business, vocation, or occupation. The CCPA authorizes the Colorado Attorney COMPLAINT - 7 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 12 of 181 1 General to seek, and the Court to grant, civil penalties, injunctive relief, and such orders as 2 may be necessary to prevent the use or employment of deceptive trade practices, to 3 completely compensate or restore to the original position of any person injured, or to 4 prevent any unjust enrichment. Colo. Rev. Stats. §§ 6-1-110 and 112. 5 21. Plaintiff State of Florida brings this action for Defendant’s violations of the Florida 6 Deceptive and Unfair Trade Practices Act, Chapter 501, Part II, Florida Statutes. For these 7 violations, Florida seeks relief, including injunctive relief, equitable monetary relief, 8 consumer restitution, the refund of monies paid, disgorgement of ill-gotten monies, civil 9 penalties, attorney’s fees, and other relief pursuant to Sections 501.207(b), 501.207(3), and 10 501.2075, Florida Statutes. 11 22. James Uthmeier, the Florida Attorney General, is the enforcing authority of the Florida 12 Deceptive and Unfair Trade Practices Act pursuant to Section 501.203(2), Florida Statutes, 13 is afforded the authority to seek the full range of relief available under Florida Deceptive 14 and Unfair Trade Practices Act, and has determined that this enforcement action serves the 15 public interest. The Florida Attorney General enforces Section 501.204(1), Florida Statutes, 16 which prohibits unfair or deceptive acts or practices in the conduct of any trade or 17 commerce. 18 23. Raúl R. Labrador is the Attorney General for the State of Idaho and has authority under 19 Idaho Code § 48-606 to bring this lawsuit on behalf of the State in its sovereign capacity 20 and in the public’s interest against Defendant for violating the Idaho Consumer Protection 21 Act, title 48, chapter 6, Idaho Code, and the Idaho Rules of Consumer Protection, IDAPA 22 04.02.01.000 et seq. 23 24. Plaintiff State of Illinois is one of the fifty sovereign states of the United States. Attorney 24 General Kwame Raoul is the duly elected and qualified Attorney General and brings this COMPLAINT - 8 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 13 of 181 1 action in his official capacity for and on behalf of the People of the State of Illinois, 2 pursuant to the Provisions of the Illinois Consumer Fraud and Deceptive Business Practices 3 Act (“Illinois Consumer Fraud Act”), 815 ILCS 505/7, and his common law authority as 4 Attorney General to represent the People of the State of Illinois. 5 25. The Illinois Attorney General believes this action to be in the public interest of the citizens 6 of the State of Illinois and brings this lawsuit pursuant to Section 7(a) of the Illinois 7 Consumer Fraud Act, 815 ILCS 505/7(a). 8 26. Plaintiff State of Indiana, through Attorney General Todd Rokita, brings this action under 9 his authority in Ind. Code § 24-5-0.5-4(c) to enjoin unfair, abusive, or deceptive acts, 10 omissions, or practices in connection with a consumer transaction, and obtain other relief 11 under Indiana’s Deceptive Consumer Sales Act, Ind. Code § 24-5-0.5, et seq. For these 12 violations, Indiana seeks permanent injunctive relief, consumer reimbursement, 13 disgorgement, civil penalties, restitution, attorneys’ fees and costs, and other equitable and 14 monetary relief. 15 27. Plaintiff State of Iowa brings this action for Defendant’s violations of Iowa Code § 714.16, 16 the Iowa Consumer Fraud Act. Iowa Code § 714.16(7) authorizes Iowa Attorney General 17 Brenna Bird to enforce the Iowa Consumer Fraud Act. For these violations, Iowa seeks 18 permanent injunctive relief, consumer reimbursement, disgorgement of ill-gotten gains, civil 19 penalties, and attorneys’ fees and costs. 20 28. Plaintiff Commonwealth of Kentucky ex rel. Russell Coleman, Attorney General is 21 responsible for the enforcement and administration of Kentucky law, including but not 22 limited to the Kentucky Consumer Protection Act, KRS § 367.110 et seq. (hereinafter 23 “KCPA”). The Attorney General is authorized to bring this suit under KRS § 367.190. He 24 COMPLAINT - 9 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 14 of 181 1 brings this action in the name of the Commonwealth of Kentucky and has determined it to 2 be in the public interest to do so. 3 29. The Attorney General of the Plaintiff State of Louisiana is authorized to bring this action 4 pursuant to the Unfair Trade Practices and Consumer Protection Act, La. Rev. Stat. 51:1401, 5 et seq. (“LUTPA”). La. Rev. Stat. 51:1405(A) makes unlawful “unfair and deceptive acts or 6 practices in the conduct of any trade or commerce.” The Defendant’s acts as alleged herein 7 violate Louisiana’s prohibition on unfair and deceptive acts or practices. 8 30. Plaintiff Consumer Protection Division of the Office of the Maryland Attorney General is 9 the Maryland agency charged with the enforcement of Maryland’s consumer protection 10 laws, including but not limited to, the Maryland Consumer Protection Act, Md. Code Ann., 11 Commercial Law Article §§ 13-101 through 13-501 (“MD CPA”). The Consumer 12 Protection Division is authorized to bring this action pursuant to § 13-406 of the Maryland 13 Consumer Protection Act for relief that includes an injunction and disgorgement of 14 restitution pursuant to § 13-406(c) of the Act, costs pursuant to § 13-409 of the Act, and 15 penalties of up to $10,000 per violation under § 13-410 of the Act. 16 31. Plaintiff State of Nebraska is a sovereign state. Michael T. Hilgers, as Attorney General of 17 the State of Nebraska, is expressly authorized to bring this action under Nebraska’s Uniform 18 Deceptive Trade Practices Act on behalf of the State of Nebraska to protect the state and its 19 residents from Defendant’s unlawful business practices. Neb. Rev. Stat. §§ 87-303.05(1), 20 303.11(1). 21 32. Plaintiffs Jennifer Davenport, Attorney General of the State of New Jersey, Christopher L. 22 Peterson, Acting Director of the New Jersey Division of Consumer Affairs (collectively, the 23 “State of New Jersey” or “New Jersey”) bring this action to enforce the New Jersey 24 Consumer Fraud Act, N.J.S.A. §§ 56:8-1 et seq. (“New Jersey CFA”). The State of New COMPLAINT - 10 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 15 of 181 1 Jersey brings this action pursuant to its authority under the New Jersey CFA, N.J.S.A. 2 §§ 56:8-8, 56:8-11, 56:8-13, and 56:8-19, to permanently enjoin Defendant from engaging 3 in unconscionable commercial practices, acts of deception, misrepresentations, false 4 promises, concealments, and/or knowing omissions of material fact, in violation of N.J.S.A. 5 § 56:8-2, and to recover statutory civil penalties, restitution, attorneys’ fees and costs and 6 other equitable and monetary relief. 7 33. Plaintiff the People of the State of New York, by their attorney Letitia James, Attorney 8 General of the State of New York (“NYAG”), brings this action pursuant to New York 9 Executive Law § 63(12), which authorizes the NYAG to seek injunctive and other relief to 10 enjoin repeated and persistent fraud or illegality in the carrying on, conducting or 11 transaction of business, and New York General Business Law §§ 349 and 350, which 12 authorize the NYAG to seek injunctive relief, restitution, damages, costs, civil penalties, and 13 other equitable relief, including disgorgement, when a person or business engages in false, 14 deceptive, abusive, or unfair acts and practices, or false advertising, in the conduct of any 15 business, trade, or commerce. In accordance with New York General Business Law 16 § 349(c), the NYAG provided pre-litigation notice to Amazon. 17 34. The North Carolina Attorney General is charged with, inter alia, enforcing North Carolina’s 18 Unfair or Deceptive Trade Practices Act, N.C. Gen. Stat. §§ 75-1.1 et seq., which prohibits 19 unfair and deceptive conduct by businesses operating in North Carolina. North Carolina’s 20 Unfair or Deceptive Trade Practices Act authorizes the State of North Carolina to seek 21 injunctive relief, rescission or reformation of contracts, restitution, the refund of monies 22 paid, disgorgement of ill-gotten monies, civil penalties, attorneys’ fees, expenses, costs, and 23 other equitable relief for Defendant’s acts or practices in violation of N.C. Gen. Stat. § 75- 24 1.1. COMPLAINT - 11 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 Document 1 Filed 08/31/26 Page 16 of 181 35. Plaintiff State of Oklahoma, Office of the Oklahoma Attorney General, by Attorney 2 General Gentner Drummond is the chief legal officer of the State of Oklahoma and brings 3 this action in the name and on behalf of the people of the State of Oklahoma to protect the 4 state, its general economy, and its residents from Amazon’s unlawful business practices. 74 5 O.S. § 18b(A). The Attorney General has authority under the Oklahoma Consumer 6 Protection Act, 15 O.S. 751 et seq., to bring this action and seek injunctive relief, civil 7 penalties, disgorgement, restitution, and other equitable relief, as well as attorneys’ fees, 8 expenses, and costs. 9 36. Plaintiff Commonwealth of Pennsylvania, Office of Attorney General, by Attorney General 10 David W. Sunday Jr. (“PA-OAG” or the “Pennsylvania Attorney General”) is the chief legal 11 officer of the Commonwealth of Pennsylvania. 71 P.S. § 732-206(a). Pursuant to the 12 Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1, et 13 seq. (“PA Consumer Protection Law”), the Pennsylvania Attorney General is authorized to 14 obtain injunctive relief, civil penalties, restitution, costs, and other equitable relief whenever 15 he has reason to believe a person is using or is about to use any method, act or practice 16 declared to be unlawful under section 201-3 of the act and that the proceedings would be in 17 the public interest. 73 P.S. § 201-4; § 201-4.1; § 201-8(b). Section 3 of the PA Consumer 18 Protection Law declares as unlawful unfair methods of competition or unfair or deceptive 19 acts or practices in the conduct of any trade or commerce as defined by subclauses (i) 20 through (xxi) of Section 201-2(4) of the PA Consumer Protection Law. 73 P.S. § 201-3. 21 37. Plaintiff Rhode Island Office of the Attorney General (“Rhode Island”) is the chief legal 22 officer for the State of Rhode Island. Pursuant to the Rhode Island Deceptive Trade 23 Practices Act, R.I. General Laws §§ 6-13.1–1 et seq., Rhode Island seeks relief, including 24 COMPLAINT - 12 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 17 of 181 1 injunctive relief, civil penalties, restitution, disgorgement, attorneys’ fees and costs, and 2 other relief available under the Rhode Island Deceptive Trade Practices Act. 3 38. Plaintiff State of South Carolina brings this action, by and through its Attorney General, 4 Alan Wilson, in its sovereign capacity in order to protect the interests of the State and its 5 citizens. The Attorney General brings this action pursuant to his parens patriae, 6 constitutional, statutory, and common law authority, including the authority granted to him 7 by the South Carolina Unfair Trade Practices Act, S.C. Code Ann. §§ 39-5-20, 50, and 110. 8 39. Plaintiff State of Vermont, through its Attorney General Charity R. Clark, brings this action 9 under 9 Vt. Stat. Ann. § 2458 to enforce the Vermont Consumer Protection Act. 10 Defendant’s actions violate § 2453, which prohibits unfair methods of competition and 11 unfair or deceptive acts or practices in commerce. Vermont seeks all remedies available 12 under § 2458, including civil penalties, injunctive and other equitable relief, including 13 disgorgement, fees and costs, and such other relief as the Court deems just and equitable. 14 40. Plaintiff Washington State Attorney General’s Office, Consumer Protection Division 15 (“Washington”) brings this action for Defendant’s violations of the Washington Consumer 16 Protection Act (WA CPA), Wash. Rev. Code § 19.86. For these violations, Washington 17 seeks relief, including injunctive relief, civil penalties, restitution, disgorgement, attorneys’ 18 fees and costs, and/or other relief, pursuant to the WA CPA, Wash. Rev. Code §§ 19.86.080 19 and 19.86.140. DEFENDANT 20 21 41. Defendant Amazon is a Delaware corporation with its principal place of business at 410 22 Terry Avenue North, Seattle, Washington 98109. Amazon transacts and has transacted 23 business in this District and throughout the United States. 24 COMPLAINT - 13 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 18 of 181 1 COMMERCE 2 42. At all times relevant to this Complaint, Defendant has maintained a substantial course of 3 trade in or affecting commerce, as “commerce” is defined in Section 4 of the FTC Act, 15 4 U.S.C. § 44. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 OVERVIEW OF AMAZON’S ADVERTISING AUCTIONS 43. Amazon is one of the world’s largest digital advertising companies. In addition to operating the world’s largest e-commerce platform, Amazon generates more than 68 billion dollars of annual advertising revenue, primarily by selling advertising space on its e-commerce website and app (“Amazon.com”). 44. Amazon sells advertising placements that appear on Amazon.com through online auctions. These “Sponsored Ads” consist of three types of advertisements — Sponsored Products, Sponsored Brands, and Display Ads — each relating to different advertising placements shown alongside search results whenever a consumer searches for a product on Amazon.com using a keyword or keywords. Amazon typically charges advertisers who win the auction each time a shopper clicks on their advertisement, and the price charged to the advertiser for each click is called the cost-per-click or “CPC.” Sponsored Products is by far the most lucrative product, accounting for more than annual revenue, and over - - of Amazon’s Sponsored Ads in the 2024 fiscal year. 45. Since at least 2012 and through 2026 (nearly two years after Amazon learned of the FTC’s investigation in 2024), Amazon has represented to advertisers and advertising agencies on its website, in its marketing and training materials, online training portals, YouTube channel, and in direct presentations given by Amazon’s account representatives, that it operates “second price” auctions. These materials represent that ads are ranked “based on the combination of bid and the ad’s relevance to shopping queries,” and that Amazon COMPLAINT - 14 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 19 of 181 1 charges the winning bidders “the minimum required to beat the ad with the next highest 2 ranked score in the auction.” Amazon represents it runs a second price auction using a basic 3 and commonly used example in its materials where the winner pays a price “slightly higher 4 than the second highest CPC [cost-per-click] bid” or “one penny more than the next highest 5 bid.” The core message Amazon conveys to its customers is the winner pays an amount 6 based on its competitor’s bid and not its own bid, as is done in a “first price” auction and 7 that prices are set by a competitive bidding process (not by Amazon). 8 46. Amazon adopted the GSP auction model because it has been the “industry standard” in 9 search advertising since the early 2000s. As the advertising industry widely understands, 10 GSP auctions are sealed-bid auctions that rank bids by both their price and relevance to the 11 shopper’s query and then charge winning bidders the minimum amount necessary to beat 12 the next-highest ranked bidder. 13 47. Amazon’s statements that it operates second price auctions have been widely repeated 14 publicly in news articles and on the websites of companies that assist and represent 15 businesses and individuals advertising on the Amazon website, including agencies that 16 Amazon itself promotes to advertisers. 17 48. Contrary to Amazon’s representations and advertising customer expectations, in late 2018 18 and early 2019, Amazon began secretly overriding the CPCs set by the second price auction 19 results and instead charged its customers higher prices set by Amazon after the auctions 20 finished. Amazon executives approved this course of action even in the face of their 21 subordinates’ “concern about advertiser pricing expectations” given that “we currently tell 22 advertisers that we run a second price auction.” Amazon executives and auction managers 23 were aware that Amazon continued to tell advertisers that Amazon operates second price 24 auctions and that these representations were no longer true. COMPLAINT - 15 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 20 of 181 1 49. Internally, Amazon executives referred to the process Amazon uses to set artificially higher 2 prices as a “soft reserve” pricing system. The term “reserve price” is commonly used in 3 auctions to mean the lowest offer that a seller will accept — in other words, the minimum 4 price set by the seller in advance of the auction running that a buyer has to bid in order to 5 compete in the auction. But Amazon’s “soft reserve” prices work differently. They are not 6 a minimum amount that an advertiser has to bid to compete in Amazon’s ad auction. 7 Instead, after Amazon runs the auction, it secretly replaces the GSP auction price with a 8 higher “soft reserve” price. Amazon’s Sponsored Products team members internally 9 referred to its “reserve pricing” as “post-hoc pricing adjustments,” which have “an element 10 of unfairness” since “[a]dvertisers may not be expecting” them. 11 50. Internal Amazon documents describe how Amazon calculates CPCs “in two stages.” First, 12 Amazon runs a GSP auction to determine the winning bid and calculate the price resulting 13 from the auction, the “GSP CPC.” Amazon then “transforms the GSP CPC to the final 14 CPC” by calculating a “soft reserve” price that can secretly raise prices by as much as 15 on ordinary days, and by as much as 16 Black Friday. - - on special shopping days like Prime Day or 17 51. To facilitate its scheme, Amazon controls and limits the auction data available to customers. 18 Amazon internally has referred to its aggregated price reporting as “opaque.” As a result, 19 Amazon’s customers are unable to verify auction results and how prices are set and 20 therefore have no way to know whether the price they are charged is the minimum amount 21 needed to beat the second-place bid or instead an inflated amount set by Amazon. 22 52. Amazon is aware that long after it started to secretly inflate prices, its customers continue to 23 believe that Amazon’s prices are set by second price auctions (as Amazon continues to 24 represent) and bid accordingly. For example: COMPLAINT - 16 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1  In a 2023 internal document, Sponsored Products team members wrote: “Many advertisers set a relatively high bid i.e. $100 or $1000 because they trust Amazon is not running a first price auction; and advertisers choose smart bidding, especial [sic] Up & Down, because they believe Amazon will not simply charge their first price. This should be obvious, just to make sure everyone is on the same page.” In an accompanying chat, a team member elaborated: “[M]any advertisers set a default high bid because they trust our Generalized Second Price Auction process.” (emphasis added)  In 2024, the Sponsored Products manager overseeing auction pricing wrote internally that “many advertisers bid far higher than what they are willing to pay…[b]ecause they assume its GSP [a generalized second price auction].” (emphasis added)  In 2024, a Sponsored Products team member who had helped conduct a largescale pricing experiment that concluded that Amazon could increase surcharges without fear of detection by advertisers wrote internally: “We don’t tell them about the surcharge, we let them assume GSP-based.” (emphasis added)  In 2024, a core member of the Sponsored Products team wrote that “only GSP logic is known publically [sic]” and that even “the mention of” Amazon Ads “tuning pricing controls is new information that is not available publically [sic].” (emphasis added) 5 6 8 9 10 11 12 13 14 15 Page 21 of 181 In 2021, Amazon’s Sponsored Products auction team acknowledged that ad agencies whose services Amazon promotes to its advertisers “are operating under the assumption that Amazon uses a GSP auction.” (emphasis added) 4 7 Filed 08/31/26  2 3 Document 1 53. Internal Amazon documents noted that, if its artificial auction price increases were 16 discovered, Amazon would risk facing severe consequences from advertisers in response. 17 For example, in 2022, the Vice President of Sponsored Products expressed concerns that if a 18 paper authored by Amazon employees that described a method for estimating advertisers’ 19 willingness to pay for ad slots were published, it might “lead others to infer we are using 20 soft floor prices which if true, will lead to bid shading and other dynamic bidding 21 responses.” Similarly, in 2023, an economist in Amazon Ads acknowledged internally that 22 “[i]f we say (or advertisers think) we are running a second price auction, but we aren’t and 23 what we are doing charges the advertisers more,” then “that’s a reputational risk when it 24 COMPLAINT - 17 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 22 of 181 1 eventually becomes clear.” He added that advertisers would start bidding lower amounts if 2 they learned that they were not actually bidding in a second price auction. 3 54. Amazon therefore sought to conceal its escalating level of undisclosed surcharges to ensure 4 its advertising customers continued to believe that prices were still being set by second price 5 auctions — and not by Amazon. As an Amazon manager in charge of Sponsored Products 6 auctions explained in 2023: “All of our proposals are about how we can tune parameters to 7 increase prices and move away from a GSP while hoping that advertisers don’t notice and 8 decrease bids or ad spend.” 9 55. Accordingly, Amazon kept its use of “soft reserve” prices a closely guarded secret, even 10 from its own sales and marketing employees in charge of interacting with advertisers. And 11 Amazon designed the soft reserve pricing system so its existence would be imperceptible to 12 advertisers. An internal Sponsored Brands memorandum noted “one of the characteristics 13 of a ‘good’ reserve price is that it simulates a ‘natural’” second price bid. 14 56. Amazon has used several different reserve pricing mechanisms to set prices above its 15 second price auction results without being detected. In 2019, the Sponsored Products 16 auction team was “extremely cautious” when it began inserting surcharges into its pricing 17 and initially limited the percentage of auctions where it artificially raised prices up to the 18 amount of the winning bid to just ■ Amazon refers to this percentage as the “First Price” 19 or “FP” rate. Similarly, the Sponsored Brands auction team initiated a secret reserve pricing 20 experiment in 2019 using a “slow rollout schedule” to avoid “a rapid increase in price” that 21 could “raise concerns among advertisers about the fairness of the auction.” 22 57. After conducting experiments in 2019 and 2020 to test advertisers’ reactions to larger 23 hidden surcharges, Amazon confirmed that advertisers were unable to detect the surcharges 24 or determine whether they were charged their own bid, in part because of Amazon’s opaque COMPLAINT - 18 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 23 of 181 1 and aggregated price reporting. Amazon recognized internally that its reporting does not 2 enable advertisers to “see performance results (CPC, original bids, etc.) at the per ‘click’ 3 level” and so advertisers do not have “visibility into the behavior of individual auctions.” 4 For example, Amazon’s invoices are not itemized by click or other charge, presenting only 5 averages that combine multiple keyword auctions across multiple types of advertising 6 placements. 7 58. As a result, the Sponsored Products auction team understood that the surcharges remained 8 hidden from advertisers. A Sponsored Products team member wrote in 2022 in an internal 9 team chat that “advertisers don’t see the surcharge over GSP.” He further explained that 10 advertisers would attribute pricing increases resulting from surcharges to competition, 11 adding: “[T]here is a general understanding that CPCs are determined by competition. This 12 also helps with external communication.” 13 59. In 2021, Amazon’s Sponsored Products team tested a new pricing mechanism that uses 14 Amazon’s estimate of the ordered product sales (or “eOPS”) that will be generated by a 15 click on the winning bidder’s ad to set higher CPC prices. Within Amazon this is known as 16 “eOPS Based Pricing,” and is the primary pricing method Amazon uses to set surcharges for 17 Sponsored Products ads. Starting in 2022, Amazon began using its eOPS Based Pricing 18 system to set hidden soft reserve prices for almost all Sponsored Products ads on the 19 Amazon search page. 20 60. This eOPS Based Pricing system sets surcharges 21 “Return on Advertising Spend,” or “RoAS” is the amount of money in 22 sales an ad generates divided by the cost of the ad. RoAS is the leading measure of the cost- 23 efficiency of advertisements used by advertisers. Amazon employees wrote in an internal 24 memo in 2021 that “for many advertisers, [RoAS] is the most important metric that COMPLAINT - 19 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 24 of 181 1 advertisers look at when they evaluate the perfonnance of their campaigns. In fact, many 2 adve1tisers use ROAS to decide how to allocate their budget across Amazon's different ad 3 programs." RoAS is measured in dollar amounts such that a RoAS of 4.00 means that for 4 each dollar spent on the ad, the advertiser generated $4.00 of sales revenue. In general, a 5 higher RoAS benefits the adve1t iser, while a lower RoAS benefits the ad seller (i.e., 6 Amazon). Amazon strategically sets its hidden surcharges to tiy and attain a consistently 7 lower market-wide RoAS for the United States than its actual auction prices provide to 8 advertisers. 9 61. An internal Sponsored Products memorandlllll noted in 2024 that Amazon can conh'ol■ by using secret reserve pricing levers. It displayed the graph below where 11 are on the x and y axes to show that Amazon can generate 12 more revenue by using secret reserves to 13 14 15 16 17 18 19 20 21 22 23 62. 24 COMPLAINT - 20 Case No. - :- -cv-- - FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 25 of 181 1 2 - Stated differently, Amazon is 3 seeking to use surcharges to capture more than 4 U.S. tied to Sponsored Products ad placements. These inflated advertising charges allow 5 Amazon to extract additional revenue from sellers on its platform, on top of the account 6 fees, referral fees, and fulfillment and storage fees that increasingly both cut into Amazon 7 sellers’ profit margins and lead to price increases borne by Amazon shoppers. 8 9 of its customers’ sales revenues in the 63. While the eOPS system generates soft reserve prices for each auction, these amounts are modified further to ensure they do not exceed the winning bid to reduce the 10 11 risk that advertisers detect and react negatively to the price increases. 12 64. As the head of Sponsored Products auctions explained in 2021 to the Vice President of 13 Sponsored Products, the surcharge constraint allows Amazon to track “how much we’ve 14 moved away from an auction mechanism.” 15 65. After the launch of eOPS Based Pricing, the percentage of clicks on Sponsored Products ads 16 that Amazon priced at the winning bid (the “first-price rate”) increased to between 30% and 17 40% in 2021, and then to 70% in 2022. Amazon continued conducting pricing experiments 18 on advertisers without their knowledge to test how much higher it could raise surcharges 19 and reduce RoAS without detection. This notably included a large-scale pricing experiment 20 in 2023 that raised surcharge limits from 22 - 23 implemented the price increase across its United States customer base. 21 in the United States. Amazon determined that advertisers subjected to this experiment did not react by reducing their bids or their advertising budgets, and as a result it 24 COMPLAINT - 21 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 Document 1 Filed 08/31/26 66. Amazon currently allows customers to be overcharged by up to Page 26 of 181 - above the second price 2 auction result on normal shopping days (capped by the amount of the winning bid). 3 67. In addition to its pricing experiments, Amazon also conducted surveys and interviewed 4 advertisers to discern their internal bidding strategies and surreptitiously help it determine 5 when to increase surcharges and at what level. In an internal 2022 chat, a Sponsored 6 Products auction team member noted: “we can ask advertisers in interviews to see if/how 7 much they pay attention to FP [first price] rate (subtly, without tipping them off).” 8 68. While Amazon’s undisclosed surcharges increase advertising prices year-round, they have 9 an outsized impact on advertising pricing during peak shopping days. For example, during 10 the Christmas holiday season and other peak shopping events (referred to as “high velocity 11 events” or “HVEs”), Amazon often raises its maximum surcharge levels by 12 allowing surcharges to potentially more than 13 - the GSP auction price. - — 69. Amazon began increasing the surcharge levels after it determined that, in its view, 14 advertisers were not sufficiently raising their bids and were therefore benefitting from a 15 higher RoAS during these peak shopping days. Amazon estimated that advertisers would 16 (or should) be content with the lower RoAS associated with normal shopping days and that 17 Amazon was entitled to capture the same percentage 18 attributed sales during peak shopping days that they targeted during normal shopping days. 19 To accomplish this scheme, Amazon deliberately calibrated its surcharges during peak 20 shopping periods to drive down advertisers’ RoAS to match the advertisers’ lower RoAS 21 during normal shopping days. 22 - of its advertisers’ ad 70. Amazon believed that the increased shopping activity during these periods would 23 “obfuscate” the resulting price increases so that advertisers would not suspect a change in 24 the auction process. A Sponsored Brands employee confirmed that a reserve price COMPLAINT - 22 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 27 of 181 1 experiment in 2018, designed to assess the impact of pricing changes on advertiser behavior, 2 illustrated that “our price increases were masked by holiday increases in advertiser 3 demand.” The head of Sponsored Products auctions later explained internally the “main 4 thinking” when they “ramped up” surcharges during Prime Day in 2023 was that advertisers 5 would falsely believe the price increases were caused by advertiser competition: 6 “Advertisers may expect other advertisers to be increasing bids in preparation for PD [Prime 7 Day], so the CPC increases may not be unexpected.” He added that “we relax surcharge 8 constraints” to inflate prices more “when there are enough confounders (e.g., 9 seasonality) that make it difficult to detect bid shading opportunities.” (emphasis 10 added). 11 71. Amazon refined its surcharge tactics over time. For example, during the early December 12 holiday shopping period in 2021, Amazon’s secret holiday pricing efforts resulted in price 13 increases that were so sudden and large that Amazon’s efforts to conceal its conduct nearly 14 failed. During what Amazon described internally as the “CPC Spike” incident, Amazon 15 received nearly two dozen complaints, including from some of its largest customers and 16 advertising agencies. Amazon assembled a damage control team which included its auction 17 team members, who knew it was their surcharge increases that caused the price spike. 18 However, instead of disclosing its conduct to the complaining advertisers, Amazon sent 19 emails to complaining customers containing a false explanation vetted by Amazon’s public 20 relations and legal departments attributing the cause of the “CPC spike” to higher advertiser 21 and shopper demand. 22 72. Instead of being transparent with its customers and disclosing its surcharge practices, 23 Amazon determined that it should try to mask future surcharge increases by gradually 24 implementing them in advance of peak shopping days. In 2022, Amazon successfully tested COMPLAINT - 23 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 28 of 181 1 this concealment strategy with its auction team, touting that it had “prevented advertisers 2 from seeing confusing steep increases in their CPCs” resulting in “no advertiser 3 escalations” or significant complaints. 4 73. In 2023, Amazon again received complaints from several of its large customers after its 5 hidden surcharges more than doubled CPCs during Prime Day 2023. Amazon chose again to 6 cover up its conduct and repeated its false explanations that the CPC increases were caused 7 by higher shopper activity. It also put in place “surcharge alarms” and caps to prevent what 8 it described as “egregious CPC increases during HVEs” from recurring. 9 74. Currently, Amazon continues to phase in surcharge increases more gradually to avoid 10 advertisers and ad agencies observing the sudden price changes that led to the complaints in 11 2021 and 2023 and has developed standard “scripts” for “escalated advertisers” raising 12 questions about increased CPCs. 13 75. Amazon has also successfully concealed surcharge increases on normal shopping days. In 14 2024, Amazon permanently raised its secret surcharges for the whole Sponsored Products 15 marketplace, and overcharged advertising customers by about 16 search ad placements, generating about - - for Sponsored Products in additional revenue from advertisers. 17 76. This surcharge increase also resulted in Amazon charging Sponsored Products advertisers 18 their own winning bid close to 80% of the time. Thus, for the vast majority of its auctions, 19 Amazon effectively and secretly converted its nominally “second price” Sponsored Products 20 auctions into first price auctions. 21 77. Similarly, Amazon’s surcharges in Sponsored Brands auctions extracted a hidden - 22 surcharge on average from its Sponsored Brands customers in 2024. For these advertising 23 placements, Amazon secretly sets the prices for 70% of ad clicks, and charges winning 24 bidders the amount of their bid 50% of the time. COMPLAINT - 24 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 2 Document 1 Filed 08/31/26 Page 29 of 181 78. In January 2025, Amazon engineers and applied scientists estimated that advertisers would save at least in 2025, and increase their RoAS from 4 - 5 includes soft reserves.” They added that even these estimates “likely understate” the total 6 advertiser savings because they did not account for a likely decrease in all bids in an auction 7 as all advertisers sought to shade their bids, which “would also decrease the GSP CPCs for 8 many clicks.” 3 9 if they engaged in “perfect” bid shading and paid the prices actually determined by the second ranked bidder (the “GSP CPC”) instead of Amazon’s inflated price “which 79. Multiple Amazon employees with knowledge of its use of hidden soft reserves expressed 10 their concerns within Amazon that the practice was not consistent with Amazon’s 11 representations to advertisers or advertisers’ understanding of how Amazon’s auctions 12 functioned. Amazon employees said expressly that Amazon was not “doing the right thing” 13 and was “playing with the auction rules” to increase Amazon’s revenue at the expense of 14 advertisers. 15 80. For example, an internal memo on auction economics written by Amazon employees in 16 2023 recognized that Amazon’s use of undisclosed reserve prices in its purported GSP 17 auctions was not “doing the right thing for the advertisers.” The memo further argued that 18 “[a] lot of changes that we have introduced in recent years for closing the gap between the 19 auction clearing price and the highest bid in the auction are not right from an economics 20 perspective,” and that because Amazon was “playing with the auction rules” by 21 “introducing soft floors” — i.e. soft reserve prices — the “customer-obsessed thing to do is 22 to shade the bids on behalf of the advertisers; but we never do that for our onsite inventory.” 23 The memo acknowledged that Amazon’s use of undisclosed reserve prices “increases our 24 short-term revenue,” but predicted that it would “hurt us in the long run.” COMPLAINT - 25 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 30 of 181 1 81. Amazon’s long and sustained efforts to deceive its customers about its auction pricing have 2 resulted in billions of rigged auctions. As a result, Amazon has been able to successfully 3 impose hidden surcharges on advertisers almost every time a shopper clicks on an 4 advertisement on the Amazon website. Amazon’s deception continues to this day. BACKGROUND 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 A. Search Advertising Auctions 1. Types of Auctions 82. Sellers who are uncertain how much to charge for their products use auctions to set prices through competition. Indeed, auctions are a pure representation of competition. The most common type of auction is the “first price” auction, where the highest bidder wins the auction by outbidding rival bidders and pays the value of that bid. “Second price” auctions occur when the highest bidder wins the auction but pays a price equal to the second-place bidder (or the minimum amount needed to exceed the amount of the second bid). Auctions can be either open auctions, in which the bids are known to the other auction participants, or “sealed bid” auctions where the bids are only shown to the auctioneer. In both first price and second price auctions, both the winner and the resulting price are a direct function of competition. 83. In sealed bid first price auctions, the bidders are confronted by the risk that their bid may greatly exceed the amount needed to win the auction, i.e. their bid will be far above the second highest bid. Bidders in first price auctions therefore face the risk of overbidding. As a result, in sequential or repetitive auctions for identical or near-identical goods, winning bidders will often reduce their bids to test how far above their competition (set by the second highest bidder) their bid came in and try to reduce their bids to the minimum level needed to win future auctions. This strategy—called “bid shading”—allows the winning COMPLAINT - 26 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 31 of 181 1 bidders to pay less for the auctioned goods and decrease their costs. Bid shading can reduce 2 the prices collected by sellers and decrease their revenue. 3 84. Second price auctions with sealed bids are called “sealed-bid second price auctions” or 4 Vickrey auctions after Dr. William Vickrey, the Nobel-prize winning economist generally 5 credited with their invention. Bidders in such auctions are incentivized to bid their true 6 valuation of the auctioned product (i.e., their willingness to pay) because they will only pay 7 the minimum amount needed to exceed the amount of the second bid. Accordingly, 8 participants do not face a risk of overbidding. Thus, when bidding for the same item again, 9 bidders do not need to shade their bids downward to try to win at a lower price. In other 10 words, a bidder in a sealed-bid second price auction does not have the same incentives to 11 engage in bid shading, because doing so would increase the risk of losing the auction 12 without reducing the price that will be paid if the bidder wins again. As a result, Amazon 13 internally referred to second price auctions as “incentive compatible” since bidders “can 14 achieve the best outcome to themselves just by” bidding their true value. 15 85. The prices set by sealed bid first price auctions are more transparent to winning bidders than 16 their second price counterparts since they do not rely on the auctioneer to inform them of the 17 amount of their own winning bid. By contrast, the winners of sealed second price auctions 18 must rely on the auctioneer to inform them of the value of the second-place bid, and 19 therefore the resulting price owed to the seller, unless other verification procedures are put 20 in place. 21 86. Accordingly, in his article, Counterspeculation, Auctions, and Competitive Sealed Tenders, 22 Journal of Finance, vol 16, no. 1, (1961), Dr. Vickrey acknowledged that sealed-bid second 23 price auctions are vulnerable to fraud. He counseled that measures should be put in place to 24 “prevent the use of a ‘shill’ to jack the price up by putting in a late bid just under the top COMPLAINT - 27 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 32 of 181 1 bid” and that “it would be necessary to show the second-best bid to the successful top bidder 2 so that he would be able to assure himself that the price he is being asked to pay is based 3 upon a bona fide bid.” The practice of shill bidding has long been recognized as fraudulent. 4 Dr. Vickrey advised that it “would probably be desirable to have all bids delivered to and 5 certified by a trustworthy holder, who would then deliver all bids simultaneously to the 6 seller.” Under these circumstances, Dr. Vickrey concluded “the seller would have no 7 incentive to do other than sell to the top bidder, showing him as his price the second-best 8 bid.” 9 87. Absent such preventive measures, the seller retains an incentive to secretly unseal the bids, 10 identify the highest offer, and submit a phony bid higher than the second-place bid but 11 slightly lower than the winning bid before the auctioneer announces the winner. That 12 incentive is even stronger when, as is the case here, the seller and auctioneer are one and the 13 same, controlling both the rules and the information needed to exploit the auction. 14 2. Use of Auctions in Digital and Search Advertising 15 88. When platforms use an auction to sell advertising space on their own digital real estate — 16 for example, when Amazon sells ads on Amazon.com — that is referred to as a “closed 17 loop” auction. As the sole “publisher” of the advertising, these “closed loop” platforms 18 typically operate their own proprietary auction systems and require advertisers to use these 19 systems to access their available advertising space inventory. Thus, the digital platform 20 serves as both the auctioneer and the seller of the advertising space to be auctioned. These 21 digital platforms also control and can limit the type and level of auction data and metrics 22 available to advertisers. 23 24 89. Digital advertising placements sold at such closed loop auctions are often displayed on search results pages which are generated in response to search terms or queries entered into COMPLAINT - 28 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 33 of 181 1 search bars or fields by users. Advertisers often pay for the advertising placement on a 2 “CPC” or “cost per click” basis, meaning that the advertiser pays the website or digital 3 platform each time a user clicks on the ad displayed. Some advertising placements are also 4 sold based on how often the ad is seen by a user — typically, these ads are priced on a cost 5 per 1000 impressions basis, also known as cost per mille or “CPM.” Each auction happens 6 in about a tenth of a second in a process known as real-time bidding. The winning bid or 7 bidders get their advertisement displayed on webpages to viewers (each individual view is 8 referred to as an impression) where the ads may be clicked by customers. Hundreds of 9 billions of ad impression opportunities, leading to clicks by customers, are auctioned by 10 digital platforms across the world every day. 11 90. Search advertising has been, and continues to be, largely sold through a form of Vickrey or 12 “sealed-bid second price” auction. These auctions are generalized to reflect the fact that 13 they sell and price multiple placements on the same search pages at the same time. 14 Generalized second price or “GSP” auctions are widely considered the industry standard 15 model used in digital search advertising. GSP auctions used in digital search advertising 16 rank advertisers’ bids based both on the amount of the bid (the proposed CPC) and by the 17 relevancy of the ads to the search terms or query that will generate a search results page on 18 which the winning ad will be displayed. This process is designed to ensure that users see 19 the ads that they are most likely to click on, benefiting both the publisher and the advertiser. 20 Publishers have an incentive to identify and display the ads that are most likely to be clicked 21 by users, because they are paid on a per-click basis. Once advertisers are ranked by bid and 22 relevance, and winners are determined, each advertiser’s price is set at the minimum amount 23 necessary to beat the next best advertiser and retain the slot — in other words, an amount 24 just slightly higher than the bid of the next-highest-ranked advertiser. COMPLAINT - 29 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 Document 1 Filed 08/31/26 Page 34 of 181 91. Such GSP auctions have been the industry standard for decades and are widely understood 2 in the advertising industry. As discussed further below, when launching its search 3 advertising auctions, Amazon adopted the industry standard GSP auction model. 4 92. Advertisers develop their bidding strategies based on the type of auction model employed 5 by the seller or exchange, which is a fact Amazon knows well as both an ad seller and ad 6 buyer. For example, after one of the largest advertising exchanges announced that it was 7 moving from a second price auction (GSP) to a first price auction, Amazon, a frequent 8 bidder (i.e., advertising buyer) in these auctions, immediately adopted an aggressive strategy 9 to shade its bids for advertising space. 10 93. Amazon also operates a separate business, called Amazon Demand Side Platform (DSP), 11 which offers services and advice to advertisers who want to place ads in locations other than 12 Amazon.com through third-party advertising auctions. With regard to those auctions, 13 Amazon expressly advises advertisers to factor in the “declared auction model” of the 14 advertising auction when devising their bidding strategy. A 2023 internal memo on 15 Sponsored Ads auction economics prepared by Amazon employees explained that if an 16 auction is first-price rather than second-price, or even if it is a second price auction that uses 17 soft reserve prices, then “the right thing to do … is to shade the bids on behalf of the 18 advertisers.” 19 94. In a 2024 article promoting its DSP bid-shading algorithm, Amazon noted “the fundamental 20 difference” between a second price auction and a first price auction “impacts bidding 21 strategies and pricing dynamics, as participants must consider whether to bid their true value 22 or shade their bid to potentially pay less.” Amazon added: “Accurately adjusting bids based 23 on the auction type is a core DSP functionality and plays a major factor in achieving 24 advertiser goal KPIs and managing costs.” COMPLAINT - 30 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 35 of 181 1 95. In January 2026, a coalition of advertising industry groups issued a report called “Digital 2 Advertising Auction Transparency Standards.” The report emphasized that advertisers’ 3 bidding strategies “are devised based on the understood rules of an auction system.” 4 96. As described further below, Amazon publicly represents and leads its customers to believe 5 they are bidding in a genuine generalized second price auction. Fundamentally, Amazon’s 6 representations communicate to advertisers that they are not participating in a first-price 7 auction where they would be charged the amount of their bid, and that prices were set by a 8 competitive bidding process, rather than arbitrarily by Amazon. By maintaining these 9 representations and perpetuating its customers’ misunderstanding, Amazon sought to 10 maximize its profits from its scheme at the expense of its customers. 11 12 97. In reality, Amazon rigs its auctions to extract surcharges, misrepresents its auction model, and suppresses its advertising customers’ RoAS. DEFENDANT’S BUSINESS ACTIVITIES 13 14 15 16 17 18 19 20 21 22 23 24 A. Amazon’s “Sponsored Ads” Search Advertising Products 98. Amazon allocates and prices advertising placements sold to advertisers on its website through real-time auctions lasting milliseconds, which are conducted each time a shopper enters a search query on its website. Amazon charges an advertiser a CPC each time a consumer clicks on its ad displayed on the search results or product pages. Amazon also auctions some advertising placements on a CPM basis where advertisers pay a set price based on the number of impressions each ad placement receives on a monthly or quarterly basis. 99. Advertisers bid on keywords that they expect will match Amazon shoppers’ search queries. When a shopper enters a query, Amazon matches advertisers’ bids to the query and then ranks the bids by the amount of the bid and a relevance factor based on, among other things, COMPLAINT - 31 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 36 of 181 1 the advertisement’s predicted click-through-rate (CTR) and conversion rate of clicks that 2 will result in sales (CVR). The advertisements are assigned to available slots from top to 3 bottom within the search results in descending ranked score order. 4 100. Amazon’s most profitable advertising program is Sponsored Ads, which is a suite of self- 5 service products used by more than one million advertisers, including small businesses and 6 authors, to set up advertising campaigns and purchase advertising on Amazon’s website 7 through these auctions. Sponsored Ads offers three main self-service products — 8 Sponsored Products, Sponsored Brands, and Display Ads — for different advertisement 9 placements displayed alongside organic results on Amazon’s search results pages and 10 product detail pages (which are webpages shoppers are transferred to when they click on a 11 product appearing in the search results). 12 101. More than - of Amazon’s overall advertising revenue — and more than - of 13 Amazon’s Sponsored Ads’ revenue — is from Sponsored Products. Sponsored Products 14 runs auctions to allocate advertisement placements in different locations on the search 15 results page — referred to as top of the search page (TOP), middle of the search page 16 (MOP), and bottom of the search page (BOP) — as well as on product detail pages. The 17 auctions are used to sell advertising placements on both mobile devices and desktop 18 computers. 19 102. Sponsored Brands runs auctions to allocate advertisement placements on the top of search 20 results pages and on detail pages. Figure 1 illustrates Sponsored Products and Sponsored 21 Brands advertisement placements at the top of a search results page for a search query for 22 “headphones.” The advertisements are labeled “Sponsored.” 23 24 COMPLAINT - 32 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 37 of 181 Figure 1: Sponsored Products and Sponsored Brands Placements 1 2 --- 3 4 SHQKZ o.ea,a. ,-F, . . ~ ,_~..,,~ _,,_ GMUU~•lf- Sikliitl -NOii14 ~Uon• Df&.11:tooth. WHCUIJI In Miao SO fo, ~ ttom._ Wof1c TV.PC.~C:tllphooe< SO 61 Keywo,ds: camera Video Bid: SO 60 Keywo,ds: camera 9 Bid: SO 45 10 11 12 13 135. The presenter’s notes accompanying the slide above state: “Bidding on Amazon Ads is a 14 second price auction. This means that the seller who bids with the most relevancy on a 15 keyword wins the auction and has their ad displayed. However, you only pay what the seller 16 who came in second place bids.” 17 136. Similar representations were embedded in “pitch deck” presentations that were approved 18 by Amazon’s public relations and legal departments for Amazon sales representatives to use 19 to describe Sponsored Ads “in 1:1 meetings with clients and onboarding new advertisers” 20 through at least 2023, and from at least 2020 to 2023, Amazon representatives regularly 21 gave presentations that stated that Amazon Ads auctions “use a generalized second-price 22 auction model” to Amazon sellers including Sony, Samsung, Harman JBL, and Coach. 23 24 COMPLAINT - 46 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 51 of 181 1 137. These explicit false representations that Amazon Ads uses a second price auction were 2 not limited to sales meetings. In February 2024, the Senior Vice President in charge of 3 Amazon Ads was personally emailed by the CEO of an advertiser, who asked: “Regarding 4 pay per click[,] If I put in a very high dollar amount per click, does that mean it will cost me 5 that much per click, or will the system only charge me the going rate for that keyword at 6 that time. So for example, if the competition is bidding between $1.50 and $2.00, if I bid $5, 7 will it charge me 5 or will it charge me somewhere between 1.50 and 2.00[?]” 8 138. The head of Amazon Ads replied with the same false representation that Amazon 9 consistently makes to its advertising customers: “Generally, the amount you pay is governed 10 by a generalized second price auction - which means that the amount you pay for a click is 11 dependent on what the next lowest bid is. So, if you bid $2.00 and the next lowest bid is 12 $1.00, you win the auction and pay $1.01.” The advertiser then confirmed that he had 13 executed his bidding strategy in reliance on this false representation: “Yes that is perfect[.] 14 So I just went ahead and put 5 dollars so that I for sure win every keyword. Thanks for 15 everything.” 16 3. Amazon Is Aware That Its Second Price Auction Representations Have Been Widely Understood and Repeated By Amazon’s Partner Network and Throughout the Industry 17 18 19 20 21 22 23 139. Amazon’s representations that it operates second price auctions have also been widely understood and repeated by companies that assist businesses and individuals in advertising on the Amazon website, including ad agencies within Amazon’s Partner Network whose services Amazon promotes to advertisers. 140. Within the last decade, an industry of companies has developed that assist companies and individuals in advertising on Amazon’s e-commerce website. Members of this industry, ranging in size from large national advertising companies to small, highly specialized digital 24 COMPLAINT - 47 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 52 of 181 1 advertising firms, have repeatedly described on their websites and online posts that Amazon 2 runs a second price advertising auction in which the winning bidder would pay just slightly 3 more than the next-highest bidder. 4 141. Amazon Ads partner agencies have repeated on their own websites the guidance they 5 receive directly from Amazon in its training materials and presentations, including that 6 Amazon operates a second price auction where the winning bidder pays only one penny 7 more than the next highest bidder. For example: 8  In January 2020, Amazon Ads partner Feedvisor posted a blog titled “Walmart vs. Amazon: A Comparison of Advertising Platforms,” which contrasted Walmart’s then “first price bid auction,” with Amazon’s “secondprice bid auction” where “you would only pay 1 cent above the secondhighest bid in the auction[.]”  In August 2021, Amazon Ads partner PPC Entourage posted an article titled “Amazon Ad Bidding Strategies Every Seller Should Know,” stating “Amazon follows Second-Price Auction rules in which the highest bidder only pays $0.01 more than the second-highest bidder.”  In August 2023, Amazon Ads partner Teikametrics posted a blog titled “Guide to Amazon Advertising for 2024,” stating: “Keep in mind that Amazon Sponsored Products ads are purchased in a second-price auction. This means, assuming you have a winning bid for a given placement, you pay one-cent over the next highest bid, which may be less than your exact bid amount.”  In December 2023, Amazon Ads partner Jungle Scout posted a guide titled “2024 Amazon Advertising Guide for Sellers,” which provides “you won’t necessarily pay $0.50 either—your actual cost may be much lower, as it depends on what the next-highest bidder has budgeted. So if your closest competitor is bidding $0.35 per click, you’ll only pay $0.36 for a click—just enough to one-up them.”  In January 2025, Amazon Ads partner Ads Badger posted a blog titled “Amazon Advertising Stats (2025 Update),” which states that “the price you pay is just a penny more than what is the next highest bidder is willing to pay for that keyword. For example, if you bid $3 and the next highest bid was $1.00, then your CPC would be just $1.01 even though the highest bid was $3.” 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 COMPLAINT - 48 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 6 7 8 Page 53 of 181 In September 2025, Amazon Ads partner Canopy Management posted an article titled “How Much Does Amazon Advertising Actually Cost in 2025?,” which provides: “The system uses auctions, so you typically pay just one cent more than the second-highest bidder. If you bid $1.00 and the next person bids $0.75, you’ll pay $0.76.”  In February 2026, Amazon Ads partner SellerMetrics posted an article titled “Amazon Bidding Strategies: Fixed vs Dynamic / New Prod vs Old,” stating: “To optimize Amazon Ad bids, it’s important to understand the logic behind winning the ad auction. Amazon uses what is called a ‘Second Price Auction.’ A second price auction refers to an auction where the winning offer will always be a penny more than the next highest bid, all else being equal. It is important to understand this because it means that you do not have to spend your maximum CPC bid to win an ad auction.” 3 5 Filed 08/31/26  2 4 Document 1 9 4. Amazon’s Advertising Customers Believe That It Conducts Genuine Generalized Second Price Auctions, As Promised 10 142. In sum, Amazon continued through 2026 to represent to agencies and advertisers that it 11 runs second price auctions where the winning bidder only pays an amount just necessary to 12 win the auction even though by 2019 Amazon began overriding the second price auction 13 results and instead inflated prices using secret reserve pricing. 14 143. Amazon knows that advertisers’ incorrect understanding that Amazon runs second price 15 auctions affects the way that they bid. For example, a manager in charge of pricing for 16 Sponsored Products auctions wrote in a February 2024 message: “Many advertisers bid far 17 higher than what they are willing to pay … because they assume its GSP.” In the same 18 message, he acknowledged that this assumption was false: “We don’t strictly do GSP, since 19 we have reserves.” A 2023 Sponsored Products memorandum also acknowledged 20 advertisers bidding “extremely high” based on their understanding that they were 21 participating in a second price auction: “some advertisers bid extremely high in order to 22 dominate auctions while continuing to pay second-price CPCs that are a small fraction of 23 the unadjusted bids.” 24 COMPLAINT - 49 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 54 of 181 1 144. A principal scientist on the Sponsored Products auction team also explained in 2024 that 2 advertisers were unaware that Amazon did anything other than apply second price auction 3 rules. When another member of his team asked if he thought that she could publish a paper 4 about some of her work on Amazon’s “black box auction changes” including its reserve 5 prices, he told her it was unlikely, because “the mention of” Amazon Ads “tuning pricing 6 controls is new information that is not available publically [sic]” and “only GSP logic is 7 known publically [sic].” 8 9 10 11 12 13 14 145. Others on the Sponsored Products auction team have expressed similar sentiments. In June 2023, a pricing team document acknowledged: “[M]any advertisers set a default high bid because they trust our Generalized Second Price Auction process.” “Many advertisers set a relatively high bid i.e. $100 or $1000 because they trust Amazon is not running a first price auction; and advertisers choose smart bidding, espcial [sic] Up & Down, because they believe Amazon will not simply charge their first price. This should be obvious, just to make sure everyone is on the same page.” 146. On October 30, 2025, almost a year after learning of the FTC’s investigation, Amazon 15 first added a reference to “reserve pricing” to a single place on its website — a page labeled 16 “Understand Amazon Ad auctions” in its “Support Center.” To reach this page from the 17 Amazon Ads Support Center homepage, a user needs to either specifically search for it in 18 the search bar (using a term like “auction”), or click first on the “Bidding and Budget” link 19 on the Support Center homepage, and then “Understand Amazon Ad auctions” — but not on 20 other available links such as “Understand bidding” or “Bidding strategies for Sponsored 21 Products.” 22 23 24 147. The October 30, 2025 language on this page regarding “reserve pricing” stated only: Reserve pricing functions help establish the value of an ad based on a variety of factors that may include placement, context, and potential performance (e.g., the same ad placement may have a different value during peak shopping period than a non-peak period). COMPLAINT - 50 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 2 3 4 5 Document 1 Filed 08/31/26 Page 55 of 181 Amazon did not define “reserve pricing functions,” or disclose that its use of that term means that it replaces auction results with higher prices that it sets itself. 148. In March 2026, Amazon again updated the reference to “reserve pricing functions” on the “Support Center” page to read as follows: 10 Because different ad placements offer different value to advertisers, shoppers, and Amazon, reserve pricing functions may affect the cost of your ad. Some reserves help allocate ad space by setting a bid threshold. Your bid must meet this amount to be allocated, and you'll be charged at least this amount if your ad wins. Other reserves influence your final CPC or vCPM based on factors including the likelihood that the ad will lead to a sale, predicted return on your ad spend, the value of any competing bids, placement, context, and predicted performance (e.g., the same ad placement may have a different value during a peak shopping period than a non-peak period). As a result, the price charged to you may exceed the runner-up bid but will never exceed the maximum bid you authorize. 11 149. The quoted paragraph above is one of several on the “Amazon Ads auctions” page under 12 the header “Ad selection and pricing.” An example of the page’s appearance, with the above 13 paragraph highlighted, is below: 6 7 8 9 14 15 16 17 18 19 20 21 22 23 24 COMPLAINT - 51 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 56 of 181 1 Understand Amazon Ads auctions 2 Learn how Amazon Ads auctions work and how to effectively manage your campaigns. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Ad selection and pricing Within the Amazon store, we offer a range of ad formats and placements across a variety of pages and contexts. Our goal is to connect advertisers to shoppers at the right moment in the ir shopping journeys. Shopping involves searches, visiting product detail pages, comparing products, considering products others have purchased or offerings from different brands, and other steps-often in a single purchase. Customers may encounter a brand or product several times during their journey in different formats and contexts. Often, a single search or product detail page will contain multiple different ad units-each of which has unique characteristics. To help choose the ads that appear in those placements and to determine the price, we usually run auctions. We run billions of auctions each day with multiple auctions often running simultaneously on a single page because of the variety of placements and ad formats. You may win one auction and not others on that page because of the unique qualities of each placement. your ad, and what else is on the page. o two auctions are entirely alike. Our auctions evaluate a variety of factors in determining what ads to show, placing particular value on the ad·s expected relevance to the customer. We predict what will help customers find, discover, and buy the products and services they want based on variables like: The content surrounding where the ad will go • The customer's search query (if applicable) The likelihood a customer will engage with the advertised product or service The customer's shopping interests How these variables interact may change across ad opportunities as we try to place your ad in the context the customer will find most useful. As a result, ads with lower bid amounts, but higher relevance to the customer, can and do win our auctions. ause different ad placements offer different value to advertisers, shoppers, and Amazon, reserve pricing functions may affect the ost of your ad. Some reserves help allocate ad space by setting a bid threshold. Your bid must meet this amount to be allocated, and ou'll be charged at least this amount if your ad wins. Other reserves influence your final CPC or vCPM based on factors induding the ikelihood that the ad will lead to a sale, predicted rerum on your ad spend, the value of any competing bids, placement, context, and redicted performance (e.g., the same ad placement may have a different value during a peak shopping period than a non- eak eriod). a result, the rice cha ed to u m exceed the runner-u bid but will never exceed the maximum bid u authoriz We are cont inually experimenting to refine and improve our ad auctions, customer experience, and the performance of the ads we show. This might include introducing, removing, or modifying the data points or factors used in the auction process, or introducing new formats and features that help make ads more useful to customers while delivering returns to advertisers. Campaign management Given the variety of factors that go into ad auctions, you can effectively manage your advertising investment by reviewing your campaign performance and adjusting your bids to meet your goals. Rather than trying to optimize for specific auctions, focus on setting bids that align with your overall goals and adjust them based on the balance between performance and cost that works for you. As your campaign runs, you should closely monitor your performance using the ~ R 2 t l i ! ) g ~ we provide to ensure your campaign is meeting your goals; if it's not, you can adjust your campaign settings anytime to achieve a set-up that works for you. As you consider what to bid, be sure to review relevant product materials to understand bidding strategies and options, and other campaign features and options, so you can set up your campaign in a way that's most likely to help reach your advertising objectives. Note: We will never charge you more than the maximum bid you authorize and you should only bid what you are willing to pay. Accordingly, as you enter your bids, make sure to account for applicable bid adjustments and dynamic bidd ing features that may increase or decrease your entered bid amount for some ad opportunities. 18 19 20 21 22 23 24 150. This reserve pricing reference on one page on Amazon’s website fails to clearly and conspicuously disclose the nature, scope, and extent of Amazon’s secret reserve pricing systems that have been in place since 2018. There are no other references to Amazon’s use of reserve pricing to raise prices on Amazon’s public website, and Amazon has not taken any additional steps to correct the affirmative false statements it made (and continues to make) regarding the functioning of its auctions. COMPLAINT - 52 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 Document 1 Filed 08/31/26 Page 57 of 181 C. Amazon’s Implementation and Concealment of Its Reserve Pricing Systems 2 151. In late 2018, Amazon started to employ undisclosed “soft reserve pricing” systems that 3 added secret surcharges on top of the price set by the second price auctions. Amazon 4 initially launched these hidden pricing systems to extract more profit from its Sponsored 5 Brands customers. Then, Amazon began to deploy similar systems to raise its Sponsored 6 Products prices in 2019. By 2023, Amazon also added hidden reserve prices to Display Ads 7 auctions. 8 1. In 2018, Amazon Began Inflating Prices Above Second Price Auction Results Using Secret Reserve Pricing 9 10 11 12 13 14 15 16 17 18 19 20 21 22 152. From 2012 to 2018, Amazon ran generalized second price auctions, which Amazon internally recognized as the “industry standard” for search advertising, consistent with its representations to advertisers. An internal 2021 Amazon document titled “SP Pricing Historical Context and Future Direction” recounted this history: “As of 2018, SP [Sponsored Products] ran a GSP auction without any reserves,” explaining that the “perspective was that this was an industry standard mechanism and we didn’t want to interfere with the auction[].” 153. By 2018, however, Amazon determined it was no longer satisfied with the prices competitively set by its second price auctions, so it began to devise ways to use secret reserve pricing systems to add hidden surcharges above competitive pricing set by the GSP auctions. 154. In January 2019, Amazon’s auction managers considered moving to a “first price auction” model where the winning bidder is charged the price of its own bid (rather than a price that is just enough to exceed the second-highest ranked bid), but recognized that if 23 24 COMPLAINT - 53 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 58 of 181 1 they did so, advertisers would lower their bids or start bid shading to avoid overpaying for 2 ad placements. 3 155. Internally, Amazon managers noted that a “first price auction would incentivize 4 advertisers to lower bids in many cases, which will likely destabilize the market and likely 5 be a one-way door,” meaning a decision that cannot easily be reversed. 6 156. Amazon sought to preserve advertisers’ belief that they were still competing in genuine 7 GSP auctions so that they would continue to bid as high as possible, even after Amazon 8 secretly discarded GSP pricing. While working to maintain this false belief, Amazon 9 introduced undisclosed reserve-pricing mechanisms that allowed it to override the auction’s 10 competitively determined second-price outcome and impose higher, algorithmically 11 generated prices that Amazon internally described as the “fair market” it believed it was 12 entitled to collect. 13 157. For example, an internal 2021 Amazon document called “Pricing Introduction” discussed 14 the rationale Amazon used for adding pricing controls “on top of the GSP auction” where 15 there is a large gap between the winning bid price and GSP auction price. The document 16 explained that: (1) prices set by GSP auctions can, in Amazon’s view, be “significantly 17 below ‘fair market value’” because advertisers in GSP auctions bid “the maximum amount 18 [they] are willing to pay when [their] ad is clicked” but can only “end up paying a small 19 fraction of [their] bid”; (2) this “gap between bid and charged amount” in GSP auctions 20 “leads to significant revenue opportunity cost” for Amazon; and (3) Amazon can capture 21 this “revenue opportunity” by secretly using a “soft floor reserve pricing mechanism” to set 22 prices that are closer to the winning bids to levels “beyond what would be organically 23 achieved through advertiser competition.” That document is excerpted below: 24 COMPLAINT - 54 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Document 1 Filed 08/31/26 Page 59 of 181 Prices computed according to GSP logic can be significantly below ‘fair market value’ in some contexts because of a multitude of reasons (demand deficiency, large heterogeneity in auction scores or budgets running out mid-day). For instance, in 2019, advertisers ended up paying less [than] 50% of their bid, in average, for Sponsored clicks on the top of search page. Reserve price controls applied on top of the GSP auction enable us to adjust CPCs beyond what would be organically achieved through advertiser competition. Sponsored Brands (formerly Headline Search Ads) is an Amazon native CPC advertising program, that helps Amazon shoppers discover brands through branded ad impressions. SB auction follows a 2nd-price auction mechanism, where highest ranked ad in the auction is provided price-support by 2nd highest ranked ad. Due to lack of auction depth and large difference in expected cost between top-2 ranked ads, the highest ranked ad can end up paying a small fraction of its bid amount when clicked. Here, bid amount is the maximum amount the advertiser is willing to pay when her ad is clicked. The gap between bid and charged amount leads to significant revenue opportunity cost to Amazon. In 2019, SB auction implemented soft- floor reserve pricing mechanism to monetize the revenue opportunity. A soft floor reserve price offers (floor) price support in a 2nd price auction mechanism, and switches the auction to follow a 1st price mechanism when bid of winning ad falls below the reserve price. Initially, we launched query level and keyword level reserve prices. Before Black Friday, we introduced seasonal adjustments to reserve prices, which enabled SB to monetize large-scale seasonal events till the end of the year. Finally, we launched automated reserve price adjustment technique, which continually ensures a controlled tradeoff between marketplace level revenue and ROAS. Reserve pricing has been a key driver in helping SB reach its revenue goals for 2019. 158. In short, Amazon believed that it could extract more revenue from advertising customers than it was obtaining using a second price auction, and that the way to do it was to secretly charge prices that were closer to the bid submitted by the winning advertiser. A Sponsored Products team member concisely summarized Amazon’s motivation for implementing “soft reserve” pricing in an internal memo: “Reserve prices are good for Amazon because they don’t change the allocation [of ads] and advertisers must pay more for the same advertising. Obviously, the benefit to Amazon comes at the cost of advertisers.” (emphasis added). 159. Similarly, another internal Amazon document titled “Pricing for Sponsored Products” memorialized when Sponsored Products started “using soft reserve controls” in GSP 23 24 COMPLAINT - 55 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 60 of 181 1 auctions that “had a low monetization rate,” on the grounds that “we [Amazon] were leaving 2 money on the table.” 3 160. As Amazon explained in its internal documents, beginning with Sponsored Brands in 4 2018, Amazon started to employ undisclosed “reserve pricing” systems that added secret 5 surcharges on top of the price set by the second price auctions. Sponsored Brands team 6 members internally described its reserve pricing as “soft floors” that are “the same thing” as 7 a “surcharge,” and referred to the actual prices charged by Amazon as a 8 “surchargedSecondPrice” that has a “a surcharge hidden in it.” 9 161. In early 2019, Amazon’s Sponsored Products “Allocation and Pricing” team also began 10 to “explore alternative pricing mechanisms.” A 2019 team planning document stated: 11 “Sponsored Products currently uses a Generalized Second Price (GSP) auction. This 12 maintains an invariant that an advertiser is charged the minimum amount necessary to win 13 the specific slot they were awarded” (emphasis added). Similarly, another team document 14 stated: “Our current pricing follows Generalized Second Price mechanisms and excludes 15 direct revenue maximizing variations” including “reserves.” 16 162. In March 2019, the Director responsible for Sponsored Products’ auctions acknowledged 17 that Amazon was increasingly “moving away from thinking about pricing with rigid rules” 18 including the rule “that we must maintain GSP.” Instead, he continued, Amazon was 19 “thinking about pricing as the policy which empirically produces the best long-term 20 profitability taking into account advertiser behavior.” 21 163. Although up until 2018 Amazon’s Sponsored Products auction team had been adhering to 22 the GSP auction model represented to advertisers, in 2019, they proposed a new plan that 23 included running experiments including the use of “non-GSP” pricing and a “blended 24 average of first and second price” auctions, despite the representations made to advertisers COMPLAINT - 56 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 61 of 181 1 concerning how GSP auctions functioned. While the team acknowledged that the 2 experiments “must be done to minimize risk of irrevocable damage to advertiser trust,” they 3 also knew they would have to consider “tradeoffs” with respect to “fairness.” Weighing 4 heavily in favor of proceeding with these plans was the “huge opportunity” to increase 5 advertising revenue. 6 164. In its 2019 operating plan reviewed by the Vice President of Sponsored Ads and other 7 members of Amazon’s senior executive team, Amazon’s Sponsored Products division 8 reported that it “introduced CPC reserves” in 2019, and that “[o]ur data shows a ■ ad 9 revenue opportunity by improving monetization through pricing.” However, a Sponsored 10 Products team document added “we cannot unlock this opportunity without a precise 11 understanding of how pricing changes influence advertiser trust and responses (e.g. changes 12 to bids or budgets),” and so the reserves were initially implemented “with extremely 13 conservative guardrails on advertiser impact to minimize risk of a permanent damage.” 14 Amazon’s Sponsored Products division was primarily concerned that Amazon’s short-term 15 revenue gains might be reversed in the long-run if advertisers discovered Amazon’s tactics 16 to surreptitiously raise advertisers’ prices. 17 165. Amazon senior executives sanctioned and directed Amazon Ads’ employees to continue 18 using hidden reserves to increase revenues and, at times, even to hit periodic financial 19 targets. For example, in 2023, after noting that Display Ads was going to “miss” its then- 20 current financial “plan by 21 of Ad Products and Tech: “I’d like to pull out all of the stops (without doing unnatural acts) 22 to close our gaps to plan. I suspect that the entire gap won’t be closed, so whatever can be 23 done with reserves (ideally at least 24 COMPLAINT - 57 Case No. __:___-cv-______ - ,” the head of Amazon Ads told the Senior Vice President - would be helpful).” The Senior Vice President FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 62 of 181 1 confirmed: “Will come back with a bridge that includes improving monetization using 2 reserves.” 3 2. Amazon Knew Its Auction Results Reporting Hid Its Reserve Pricing 4 166. Included in Amazon’s assessment of these risks was the fact that Amazon knew the 5 auction results it presented to advertisers were “opaque” and that advertisers would not be 6 able to verify that their CPCs were set by second price auctions, as Amazon represented. 7 Because Amazon did not provide invoices or auction results at an individual CPC or 8 individual auction level, it knew that advertisers could not detect whether Amazon 9 manipulated or misrepresented the auction results. 10 167. Amazon’s Sponsored Products auction team understood that advertisers’ “perceptibility” 11 of Amazon’s reserve pricing is affected by Amazon’s “reporting frequency/aggregation,” 12 which masked individual auction results. An internal 2020 Sponsored Products pricing 13 document noted that because “[a]dvertisers do not necessarily observe the individual 14 outcomes of repeated auctions” but instead only “observe aggregate performance over 15 sometimes very heterogeneous actions,” their “ability to causally attribute changes in 16 outcome [the CPC charged] to changes in bids” is “impair[ed].” 17 168. Ultimately, Amazon was able to leverage its lack of detailed data reporting and 18 advertisers’ inability to verify individual auction results. For example, despite the 19 increasingly high first price rate in Amazon’s Sponsored Ads auctions, advertisers are 20 unaware that they frequently pay the amount that they bid for a click, rather than the 21 minimum amount needed to win the slot they were awarded, as would be the case in a 22 legitimate GSP auction. 23 169. One reason that advertisers cannot detect a high first price rate is the manner in which 24 Amazon reports the results of its Sponsored Ads auctions. The Sponsored Products team’s COMPLAINT - 58 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 63 of 181 1 operating plan for 2019 described Amazon’s auctions as having “highly obfuscated 2 reporting.” As one Amazon internal memo about the institution of surcharges for Sponsored 3 Brands put it, advertisers are unlikely to “adjust their bids in an attempt to lower their 4 payout” because “[a]dvertisers do not have visibility into the behavior of individual 5 auctions.” Instead, “[r]eporting is provided at a keyword level,” and “[t]his would make it 6 very difficult for advertisers to detect and react to a 1st-price opportunity.” 7 170. In addition, soft reserve prices are applied differently for different placements on the 8 Amazon website — for example, at the top of the search results versus in the middle or on a 9 product detail page. And Amazon’s reserve pricing systems generate different prices for 10 desktop versus mobile device placements in ways that are difficult for advertisers to detect. 11 In 2019, when the Vice President of Sponsored Products asked whether the use of 12 surcharges might create “first price problems” for Sponsored Products, he was told that 13 “[a]dvertisers can only see placement level reports that aggregate impressions across all 14 devices [i.e. desktop and mobile] and cannot readily understand the relationship between 15 CPC and [their bid] as they tweak their bids.” 16 171. Moreover, advertisers often do not even know the amount of their bids because they 17 adopt tools provided by Amazon to adjust their bids automatically. An FAQ document 18 prepared by the head of Sponsored Products auctions in advance of a 2020 meeting between 19 the Vice President of Sponsored Products and the Senior Vice President of Amazon Ads 20 stated that because of the effect of these automatic bid adjustments (sometimes referred to as 21 “proxy bidding” or “smart bidding”), “an advertiser doesn’t even know what bid is being 22 entered (and thus can’t know if the CPC charged was first price).” Or, as the head of 23 Sponsored Products auctions put it in an earlier email to the Vice President of Sponsored 24 Products, the combined effects of “bid adjustments and pricing” make Amazon’s ad COMPLAINT - 59 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 64 of 181 1 auctions a “black box” to advertisers, and “since advertisers only see the amount they get 2 charged, they can’t differentiate between adjustments made by smart bidding and auction 3 pricing.” 4 172. As explained in internal memos, Amazon also believed it could further mitigate the risk 5 of detection by “setting guardrails on aggressiveness” of its reserve pricing systems and 6 “closely monitor[ing] advertiser response to pricing changes.” 7 3. Amazon Designed and Implemented Its Undisclosed Reserve Pricing Systems to Avoid Detection 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 173. Amazon developed its undisclosed reserve pricing systems with several guardrails and constraints to conceal their existence from advertisers, who believed that they were participating in a genuine second price auction for advertising space. As Amazon documents acknowledged at the time, Amazon “currently use[s] second price like language when explaining CPC calculation,” and so pricing that appeared to deviate from GSP rules would result in “eroding trust.” Accordingly, Amazon employees internally discussed the need to use guardrails to set a “reserve price” that “simulates a ‘natural’ second price CPC based on the second highest bid/auction runner up[.]” 174. Amazon initially launched its reserve prices in Sponsored Brands auctions during the Christmas holidays in 2018, so that the “price increases were masked by holiday increases in advertiser demand.” Amazon then “dial[ed] up” its reserve prices for Sponsored Brands advertising in early 2019, but on a “slow rollout schedule” to “not increase advertiser prices too precipitously.” After identifying a , the Sponsored Brands team further developed “reserve pricing controls” for Sponsored Brands auctions in order and get “close to [its] forecasted target.” 24 COMPLAINT - 60 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 Document 1 Filed 08/31/26 Page 65 of 181 175. In mid-2019, Amazon launched reserve prices in Sponsored Products second price 2 auctions as well. The Sponsored Products team initially used reserves to increase prices for 3 search queries that had either the highest average RoAS (i.e., in order to reduce advertisers’ 4 RoAS for these queries) or the lowest monetization rate (the ratio between the CPC charged 5 to the advertiser and that advertiser’s winning bid). By 2020, Sponsored Products used two 6 additional reserve pricing mechanisms. One reserve mechanism set the reserve price ■ 7 8 9 - The second reserve mechanism 10 176. From 2019 to 2021, Sponsored Products selected the highest reserve price derived from 11 these three alternative pricing systems (referred to internally as Smart Reserves V1, V2, and 12 V3) to calculate a hidden surcharge added on top of the second price auction result. In 13 2022, Sponsored Products launched the “eOPS based” pricing reserve that is in effect today, 14 and which raises advertisers’ prices in order 15 16 17 177. Amazon’s policy was to keep the existence of these surcharges hidden from its account managers and sales representatives who interacted with its advertising customers. 18 178. Sponsored Ads employees who did know about Amazon’s use of hidden reserve prices 19 carefully controlled their language, even in internal documents, to avoid further exposing 20 the secret. In April 2024, an Amazon scientist prepared a draft of a presentation on the 21 economics of advertising auctions for an internal Amazon conference that included the slide 22 below. Another Amazon scientist advised him that he needed to edit the slides, because they 23 contained the word “surcharges,” and “we have been advised to avoid this term in any 24 internal or external communication.” COMPLAINT - 61 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 1 2 Page 66 of 181 ADEXPO Ranking and Pricing in Auctions Real-worla complexity 3 4 5 6 • • • • Second-price auction Generalized - click-through rate (CTR) Irrelevance Penalty Surcharge 7 8 9 10 a~~on ads At'l,UO N (OH I U(WI 1U 11 179. In July 2024, members of the Sponsored Products auction team discussed using a 12 different word than “surcharge” in their internal communications. A team member 13 prompted ChatGPT: “Give me some different terms for the term ‘surcharge’ in Sponsored 14 Product pricing. This term is currently used to describe the additional price that we charge 15 on top of the second price CPC we charge to advertisers for every click. This additional 16 price is determined based on the performance/value we deliver to advertisers through the 17 ad.” The team then considered replacing “surcharge” with alternate terms which included, 18 among others: “value adjustment,” “price refinement,” “price adjustment,” “inflated CPC,” 19 “price exaggeration factor,” “performance premium,” and “profit extraction lever.” The 20 auction team ultimately suggested “performance premium.” 21 4. Amazon Placed Guardrails on Reserve Prices to Keep Surcharges Secret 22 23 180. To hide these surcharges and Amazon’s abandonment of second price auctions from - advertisers, Amazon used “guardrails” and “ 24 COMPLAINT - 62 Case No. __:___-cv-______ constraints” on reserve prices that FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 1 capped the size of surcharges 2 both the guardrails and the 3 and second-place bidders. 4 Document 1 - 181. Amazon imposed a “ 5 Filed 08/31/26 Page 67 of 181 Amazon applied constraints after the auction established the winning constraint or guardrail,” which due to hidden 6 surcharges, rather than one penny or slightly more than the second-place bidder. Internally, 7 Amazon discussed the need to be “extremely cautious” and having “strict bounds on ■ 8 ” when they started using reserve prices because 9 10 11 12 182. Accordingly, the initial constraint set by Amazon was only ■ , so that the reserve pricing system would be restricted from charging . In 2020, two applied scientists working on 13 14 Sponsored Products’ auctions discussed how constraint should limit the 15 likelihood that advertisers would discover the surcharges and realize they could reduce what 16 they pay by lowering their bid: “Basically, we want to ‘bound the probability that any 17 advertiser shading their bid would find a soft operating point (where they win and get 18 charged a lower cpc).’” 19 183. Amazon internally described “surcharge constraints” as “a way to bound how far we 20 deviate from GSP [generalized second price auctions] to avoid discussions about us ‘not 21 running an auction’” and to “minimize the possibility of loss of advertiser trust.” These 22 surcharge constraints capped the “surcharge rate” (i.e., the percentage amount above the 23 second price auction price that Amazon would charge customers as a result of its reserve 24 prices) at two levels. COMPLAINT - 63 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 68 of 181 1 2 3 184. In 2020, the Director who oversaw Sponsored Products auctions summarized for the Vice - 4 President of Sponsored Products why “the 5 advertiser who used automatic bid adjustments, and as a result “doesn’t know what bid is 6 being entered 7 even with automatic bid adjustments, “if an advertiser adjusts their original bid up, they will 8 get charged a higher CPC for existing clicks being charged first price,” and “if they adjust 9 their bids down, they’ll see a corresponding decrease in the CPC.” To avoid advertisers 10 realizing that they were not, in fact, competing in a genuine second price auction, and could 11 reduce what they paid by lowering their bids, the 12 Amazon to minimize the “risk” of “what advertisers observe if they change bids[.]” 13 185. Over time, Amazon experimented with higher guardrail” mattered even for an He explained that - constraint was still needed by constraints in non-U.S. markets. 14 In February 2021, Amazon “decided to target a cumulative 20% CPC increase” in Germany 15 and an up to 9% CPC increase in the United Kingdom, France, Italy and Spain. To do so, 16 Amazon implemented a “blend” of its then current auction, which it described as a “GSP 17 with low/moderate soft reserve prices” and an “(effectively) first-price auction which it 18 defined as a “GSP with very high soft reserve prices” across “all traffic at the marketplace 19 level.” 20 186. Internally, in 2022, the Sponsored Products auction team noted that they “have been 21 closely monitoring and haven’t detected significant behavior change regarding advertisers’ 22 budgets and bids due to the launch of eOPS based pricing.” In particular, as the first price 23 rate — the percentage of clicks charged at the winning bid price — increased to 70% in 24 2022, the Sponsored Products team observed “no sign of bid shading or budget decreases” COMPLAINT - 64 Case No. __:___-cv-______ FEDERAL TRADE COMMISSION One Bowling Green, Suite 318 New York, NY 10004 (212) 607-2829 Case 2:26-cv-03097 Document 1 Filed 08/31/26 Page 69 of 181 1 from advertisers who consistently were charged the price of their maximum bids for more 2 than 90% of their CPCs. The Sponsored Products team recognized it could “test bid 3 shading” by “analyzing the gap between advertisers’ bid versus” the GSP auction result of 4 the “minimum winning price (1 cents plus the runner up bid).” 5 187. In subsequen [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Aftc%3Ad6a38bebc686d4f1. Public record. Not legal advice.