The FTC and 22 state AGs sue Amazon, alleging it overcharged advertisers over $20B since 2019 via hidden surcharges, with costs largely passed on to consumers (Annie Palmer/CNBC)

The Federal Trade Commission and 22 states have sued Amazon, alleging the company manipulated advertising auctions, overcharging about 1.2 million advertisers by an estimated $20 billion over seven years. The dispute centers on Amazon's alleged replacement of the second-price auction system with its own higher bid prices, often exceeding what advertisers submitted.

Internal Amazon documents suggest they knew advertisers believed they were participating in fair second-price auctions. The lawsuit alleges Amazon slowly implemented the changes to avoid detection and monitored advertiser reactions. Amazon denies the allegations, stating advertisers adjust bids based on ad performance, not auction mechanics.

The company argues its system prioritizes ad relevance over highest bidder and claims advertisers saved $8 billion. Amazon provided the FTC with its data and explanation of the auction system. Regulators are seeking an end to the practices, penalties, and damages for advertisers. The case could alter Amazon's advertising business, leaving sellers to wonder if they truly understood their costs.