On 31 August 2026 the FTC and the attorneys general of 22 states sued Amazon in the U.S. District Court for the Western District of Washington, alleging that it secretly inflated the prices advertisers pay in its search-ad auctions. Nothing in your account changed. No setting, no fee, no policy, no deadline. A case this size runs for years and there is no refund to plan around.

The part worth your time is not the lawsuit. It is Amazon’s own public rebuttal, which sets out plainly when a Sponsored Products advertiser pays their full bid and when they pay less. Both sides agree on that mechanic. It is the thing you should be bidding against, and most sellers are not.

What changed

  • A complaint was filed, not a policy. The FTC and 22 state attorneys general filed on 31 August 2026 in the Western District of Washington; the Commission vote authorising staff to file was 2-0. The ad products named are Sponsored Products, Sponsored Brands and Display.
  • The core allegation: that beginning in 2019 Amazon changed its auction rules without notice, adding an undisclosed charge it referred to internally as a soft reserve price, and that this turned a nominally “second price” auction into something functionally closer to a first-price one. The FTC says the conduct affected more than one million brands and sellers, including over 500,000 small and medium businesses.
  • The alleged trend line. Per the complaint as described by the FTC, the share of the time Sponsored Products advertisers paid the full amount of their own bid rose from between 30% and 40% in 2021, to 70% in 2022, to approximately 80% in 2024. These are allegations; they have not been tested in court.
  • Amazon denies the case — and confirms the mechanic. In its published response Amazon calls the suit misguided and states that both reserves exist and how they price: an advertiser bids a maximum; when the winning bid exceeds both the hard reserve and the soft reserve, the advertiser pays the soft reserve, which is less than they bid; when the bid clears the hard reserve but does not meet the soft reserve, the advertiser can still win the placement and pays their bid. Amazon’s words: “In no scenario does an advertiser pay more than their bid.”
  • Amazon’s counter-numbers, from that same response: in 2024 approximately 92% of selected Sponsored Products ads were not the highest bid, and the mean winning bid was “typically about the 128th bid by amount”; average cost-per-click for Sponsored Products search ads was flat from 2019 through 2024 adjusted for inflation; and Amazon estimates advertisers saved over $8 billion from 2021 to 2025 because relevancy, not bid alone, decides ranking.

What it means for a private-label seller

Strip out the litigation and the two accounts describe the same shape: there is a floor under your cost-per-click that you did not set and cannot see. They disagree about whether it was disclosed and what it is worth. They do not disagree that it is there.

That matters because of how bidding on this platform is usually taught. The second-price story — bid your true maximum value, because you will only ever pay a cent more than the runner-up — is the justification behind a great deal of “bid aggressively, the auction protects you” advice. On Amazon’s own published description, the auction does not work that way. Above the soft reserve you pay the soft reserve; below it you pay your bid. In neither case does a higher bid buy you a cheaper click. It only raises the ceiling on what you might pay.

So the practical read is unglamorous: your max bid should be a price, not a bravery setting. If you set bids from what a click is worth at your target ACOS, this changes nothing about your process, which is rather the point. If you set them from auction folklore, you have been paying for the folklore.

Two cautions. First, the complaint alleges Amazon applied far greater price increases on high-volume days such as Prime Day and Black Friday. That is an allegation, not a finding — but it is cheap to test against your own data before Q4, and you should. Second, expect a wave of “claim your Amazon ad refund” pitches. There is nothing to claim. Nobody outside Amazon can tell you what your soft reserve is on a given placement either; anyone selling you that number is guessing.

And the older rule still stands underneath all of this: ad-attributed sales are not automatically incremental sales. A lawsuit about auction pricing does not change what your ads were actually worth.

What to do about it

  1. Pull 60 to 90 days of your Sponsored Products targeting report and put average CPC next to max bid, keyword by keyword. Where CPC sits at or very near the bid, you are paying your bid on that term. That set is your real cost curve, and it is the only version of this story that is about your account.
  2. Reprice those bids from the maths, not the ceiling. Max bid = selling price × conversion rate × target ACOS. If the number that falls out is below what you have been bidding, the gap was never protecting you.
  3. Check event days against baseline before you set Q4 budgets. Compare your CPC on Prime Day and Black Friday last year to the fortnight either side, on the same terms. If the spread is large, plan event bids from event conversion value rather than assuming your normal bid maths carries over.
  4. Do not restructure the account around the case. There is no settlement, no claims process and no deadline. Anything you change this week should be justified by your own numbers alone.

Sources