Texas Attorney General Ken Paxton (R-Texas) filed one lawsuit Monday against Amazon, while the Federal Trade Commission and 22 states filed a separate federal case over allegations that the company misled advertisers about how it priced digital advertising auctions.
Paxton filed the Texas case under the Texas Deceptive Trade Practices Act. The FTC and 22 states brought their federal lawsuit in the U.S. District Court for the Western District of Washington. Both cases allege Amazon described its advertising auctions as second-price auctions while using undisclosed pricing mechanisms that pushed advertisers’ costs higher.
The lawsuits focus on Amazon’s Sponsored Products, Sponsored Brands and Sponsored Display ads, which businesses use to place ads alongside search results and product pages.
Texas alleges $4.5 billion in extra charges
Paxton’s lawsuit alleges Amazon stopped operating a genuine second-price auction years ago while continuing to tell advertisers winners would pay only the amount needed to beat the next-highest bidder.
According to the Texas complaint, Amazon began overriding auction-generated prices in late 2018 for Sponsored Brands and by mid-2019 for Sponsored Products. The complaint says Amazon extended the practice to Sponsored Display in 2023 and used what it called “soft reserve” prices to raise final charges.
Paxton’s office alleges those undisclosed pricing adjustments increased advertising costs by roughly 17% on ordinary shopping days and more than 25% during major events such as Prime Day. It says the practice generated roughly $4.5 billion in additional nationwide revenue for Amazon in 2024.
More than 18,000 Texas sellers, vendors and authors advertise on Amazon, the complaint says. Paxton argues higher advertising expenses can increase businesses’ costs and ultimately consumer prices.
“Amazon lied to Texas small businesses and charged them for an auction it never ran,” Paxton said in the release.
The Texas lawsuit seeks civil penalties of up to $10,000 for each violation and an order requiring Amazon to accurately describe its auctions and give Texas advertisers records showing bids, surcharges and final charges.
FTC and states allege tens of billions in charges
In the federal suit, the FTC and 22 states make similar allegations on a national scale.
The FTC says Amazon’s hidden surcharges likely extracted tens of billions of dollars from more than 1 million advertising customers over more than seven years, including more than 500,000 small- and medium-sized businesses.
The federal complaint alleges Amazon’s pricing system increasingly caused Sponsored Products advertisers to pay their full bids. It says that rate rose from 30% to 40% in 2021 to 70% in 2022 and about 80% in 2024.
The FTC alleges Amazon concealed the changes because advertisers could lower their bids if they understood how the pricing system worked. FTC Chairman Andrew N. Ferguson said the alleged conduct caused advertisers to pay higher prices and that they largely passed those higher costs to consumers.
Amazon disputes allegations
In a public response to the FTC case, Amazon strongly rejected the allegations and disputed the same core claims that Texas raises.
Amazon says it has always priced clicks using a form of generalized second-price auction and argues that the government misunderstands how its system balances bids with ad relevance. The company describes soft reserve prices as real-time minimum values that reflect the market value of ad placements and says advertisers never pay more than their maximum bids.
Amazon also disputes claims of financial harm. It says the average cost per click for Sponsored Products search ads remained flat after adjusting for inflation from 2019 through 2024, while conversion rates increased by more than 24% from 2021 through 2025.
Amazon also says the highest bidder did not win about 92% of selected Sponsored Products ads in 2024, which the company cites as evidence that its system gives substantial weight to ad relevance.
The company says advertisers adjust bids based on campaign performance rather than simplified descriptions of auction mechanics. Amazon says it has updated its guidance to explain reserve pricing and added regular reviews and training.
Two lawsuits, one central dispute
Although the Texas and federal cases involve different plaintiffs and legal claims, both center on whether Amazon accurately described its advertising auctions.
Government plaintiffs allege Amazon promised second-price pricing while using undisclosed adjustments that increased charges. Amazon says its system lawfully combines relevance and bids, reserve pricing is common in the industry, and advertisers have not been overcharged.
Those competing claims are now before state and federal courts.
