FTC Amazon Advertising Lawsuit: What Sellers Need to Know About the "Soft Reserve" Allegations

Amazon's advertising auction system is facing a major legal challenge from the Federal Trade Commission (FTC), and the allegations could have significant implications for brands and sellers running Sponsored Products campaigns.

The FTC alleges Amazon used a hidden "soft reserve" price that caused advertisers to pay more than they otherwise would have under the platform's advertised auction mechanics.

Amazon strongly disputes the allegations and says its advertising system is designed around relevancy, conversion performance, and advertiser value, not simply the highest bid.

For sellers, the lawsuit isn't a reason to immediately slash PPC bids. It is a reason to inspect your own advertising data and understand where your money is going.

1. The FTC Amazon Advertising Lawsuit: What Sellers Need to Know

Amazon's Sponsored Products system operates through advertising auctions where advertisers compete for valuable shopper placements. The FTC's case challenges how those auctions have allegedly worked behind the scenes.

According to the FTC's allegations, Amazon's advertising practices affected approximately 1.2 million advertisers, including brands and small and midsize businesses. The issue isn't simply that CPCs increased.

The central question is whether Amazon's auction mechanics caused advertisers to pay more than they reasonably expected based on the platform's stated auction structure.

That distinction is important because PPC costs directly affect:

• ACoS
• TACoS
• Contribution margin
• Customer acquisition costs
• Overall profitability

For sellers spending thousands—or hundreds of thousands—of dollars on Amazon PPC, even a small difference in effective CPC can become significant at scale.

2. The Core Allegation: Hidden "Soft Reserve" Pricing in Auctions

The FTC's core allegation focuses on Amazon's second-price auction system.

Under the traditional concept of a second-price auction, the winning advertiser doesn't necessarily pay its maximum bid. Instead, the amount paid is determined by competing bids and the auction mechanics.

The FTC alleges that Amazon introduced a "soft reserve" price beginning in 2019 without adequately disclosing the mechanism to advertisers. According to the allegations, the reserve effectively functioned like a hidden minimum or additional bid in determining the final price.

The FTC claims this resulted in advertisers paying their maximum bids approximately 30–40% of the time in 2021, increasing to nearly 80% of won auctions by 2024.

That is the part of the case sellers should pay attention to. If an advertiser sets a maximum CPC of $2.00, for example, the important question isn't simply whether the advertiser wins.

It's how the final CPC is determined once the auction is won, as the FTC argues that the alleged mechanism caused advertisers to pay more than they otherwise would have.

3. Amazon's Rebuttal: Relevancy, Flat CPCs, and the 92% Rule

Amazon has strongly rejected the FTC's allegations, describing the lawsuit as "misguided." The company's defense centers on the argument that Amazon's advertising auction isn't simply a highest-bidder-wins system.

Amazon points to three major factors:

Amazon also says Sponsored Products conversion rates increased by 24% during the period it analyzed. The company's argument is therefore essentially this:

Higher bids alone don't determine the outcome, and advertisers have benefited from Amazon's relevancy-based auction system.

Amazon further argues that its system prevents irrelevant advertisers with high bids from automatically taking valuable placements, which creates an important distinction for sellers: winning an auction and winning profitably are two different things.

4. The Financial Stakes: $20 Billion Alleged vs. $8 Billion Saved

The financial disagreement between the FTC and Amazon is enormous, as the FTC alleges that the advertising practices resulted in more than $20 billion in excess charges to approximately 1.2 million advertisers.

According to Amazon's response, its relevancy-based advertising system saved advertisers approximately $8 billion between 2021 and 2025 by preventing irrelevant high bidders from winning placements.

The disagreement illustrates why this lawsuit matters beyond Amazon's legal department.

Advertising is now one of Amazon's largest businesses, and sellers increasingly depend on Sponsored Products to maintain visibility. For individual sellers, however, the legal outcome is still outside their control.

5. Actionable Next Steps: How to Audit Your PPC Spend Today

Don't react to the lawsuit by blindly cutting bids. Instead, use it as a reason to conduct a proper PPC audit.

1. Audit your Search Term Report

Identify keywords and search terms that have generated significant spend but zero orders over the last 60 days. Separate them into:

• High-spend / zero-sale terms
• Low-conversion terms
• Profitable terms
• High-ACoS terms
• Strong conversion opportunities

2. Monitor CPC against conversion

Track whether CPC is increasing while conversion rates remain flat or decline. A rising CPC combined with stagnant conversion can quickly damage campaign profitability.

3. Review your relevancy

Amazon says relevancy plays a major role in ad selection, and it makes listing quality increasingly important.

Review:

• Keyword targeting
• Product titles
• Bullet points
• Main images
• A+ Content
• Product-market alignment
• Search-term relevance

4. Don't optimize around the lawsuit alone

The FTC allegations remain allegations, while Amazon has presented a competing explanation of its advertising system. Your strategy should therefore be based on your actual campaign economics, not headlines.

6. Partnering With a Top Amazon Agency

Our PPC strategy focuses on:

• Reducing wasted ad spend
• Identifying inefficient search terms
• Improving keyword targeting
• Optimizing bids
• Increasing listing relevancy
• Improving conversion rates
• Allocating budget toward profitable campaigns

An experienced amazon agency also looks beyond ACoS. The real question is:

How much profit is your advertising generating after every relevant Amazon cost is accounted for? That is the number sellers should optimize around.

Conclusion

For sellers, the practical response is not to stop advertising—it is to start measuring advertising efficiency more carefully. Review CPC trends, conversion rates, search-term performance, ROAS/ACOS, and changes in spend to identify campaigns where costs are rising without corresponding performance gains.

The case is still pending, so sellers should watch how the litigation develops before drawing definitive conclusions about Amazon's advertising practices.