ATTORNEY GENERAL RAOUL JOINS FTC IN FILING LAWSUIT AGAINST AMAZON OVER SECRET AD SURCHARGE SCHEME

Lawsuit Alleges Amazon Concealed Unfair Charges in its Digital Advertising Auction Pricing

Chicago – Attorney General Raoul joined the Federal Trade Commission (FTC) and a bipartisan coalition of 22 attorneys general in filing a lawsuit against Amazon alleging the company engaged in deceptive and unfair practices that secretly inflated prices in its online search advertising auctions.

In their lawsuit, Raoul and the coalition allege that for over seven years, Amazon has covertly and substantially increased the prices that more than one million brands and sellers were required to pay to advertise on its platform. As a result, the complaint alleges that Amazon’s scheme has likely illegally generated tens of billions of dollars of revenue for the company by, for example, substantially increasing the prices charged to advertising customers on ordinary shopping days and applying far greater increases to prices on high-volume shopping days such as Prime Day and Black Friday.

“Amazon’s scheme deceptively misled the hundreds of thousands of small businesses that advertise their products on the Amazon platform,” Raoul said. “I appreciate the commitment of the FTC in working to hold Amazon accountable, and I will continue to join with my fellow attorneys general in protecting Illinoisans from deceptive and fraudulent business practices.”

Raoul and the coalition allege in their lawsuit that Amazon has imposed undisclosed surcharges on its advertising customers, which include over 500,000 small- and medium-sized businesses that participated in auctions for advertising placements on Amazon.com and its mobile app. During an auction, prospective advertisers bid to place sponsored product ads, sponsored brands ads and display ads alongside the results that appear when a consumer searches for a product using a keyword on Amazon’s store. Placements are auctioned to the highest-ranked bidder for each keyword.

Amazon has represented to prospective advertisers that it runs generalized-second price (GSP) auctions, which have been the accepted industry standard for digital advertising placements. In GSP auctions, the winner pays only “one cent more than the next highest bidder” for each successful bid for an advertising keyword. The complaint states that Amazon has made these or similar representations on its website, in training videos and in other public-facing materials, as well as in presentations made to advertisers by its hundreds of sales personnel.

However, over the past several years, Amazon’s surcharges have resulted in advertisers paying their own bid amount an increasingly often, effectively converting its nominally “second price” auction into a first price auction. For years, Amazon’s auction pricing had “a surcharge hidden in it,” in the words of one internal Amazon document. The complaint alleges that, beginning in 2019, Amazon changed its auction rules without notice by adding an undisclosed surcharge that Amazon referred to internally as a “soft reserve price.” This resulted in advertisers paying substantially more than the price determined by the GSP auction.

Amazon and its senior executives are alleged to have taken active steps to conceal its surcharge pricing system from its advertisers, including giving false and misleading answers to advertisers who asked the company directly if it had changed its auction format, so that they would continue to be deceived about how the prices they pay are set. The complaint quotes from Amazon’s internal documents, stating that revealing the surcharges would result in “irrevocable damage to advertiser trust” and a “downward spiral” of advertisers lowering their bids, leading to dramatic losses of revenue for Amazon.

The lawsuit was filed in the U.S. District Court for the Western District of Washington. The coalition is seeking consequential amounts in restitution to affected advertising customers, as well as penalties, costs and an injunction against Amazon for the alleged violations of state and federal consumer protection statutes.

Joining Raoul and the FTC in filing this lawsuit are the attorneys general of Alaska, Arizona, California, Colorado, Florida, Idaho, Indiana, Iowa, Kentucky, Louisiana, Maryland, Nebraska, New Jersey, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Vermont and Washington.

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