Amazon may be facing a major challenge from the US Federal Trade Commission (FTC). The US government agency is reportedly considering legal action that could result in significant financial penalties for the e-commerce company. A Bloomberg report cited people familiar with the matter, claiming that the FTC has drafted a potential complaint against Amazon over allegations that it misled advertisers about aspects of its ad business.According to the report, the investigation is being conducted by the FTC’s consumer protection unit and could be resolved either through a lawsuit or a settlement as early as this summer. Several state attorneys general are also involved in the probe, potentially increasing Amazon’s financial risks if violations are found, the report added. However, any formal FTC action related to the advertising investigation would require approval from FTC Chairman Andrew Ferguson and Commissioner Mark Meador before becoming final, the report highlighted.
Why the FTC is investigating Amazon’s ad business
The probe focuses on Amazon’s advertising business, particularly the sponsored listings and sponsored ads that appear prominently in search results on the company’s marketplace, the report notes.According to Bloomberg, regulators are examining whether Amazon adequately disclosed pricing terms and conditions associated with these advertisements. The investigation has also looked into Amazon’s advertising auction system and whether advertisers were properly informed about “reserve pricing” requirements, which are minimum price thresholds advertisers may need to meet before purchasing ad placements.The FTC has reportedly sought additional information from Amazon regarding how these advertising systems operate and how pricing is communicated to advertisers.While the FTC’s ability to impose monetary penalties is limited in certain circumstances, the involvement of multiple states could significantly increase Amazon’s potential liability.State consumer protection and unfair competition laws can allow regulators to seek penalties that accumulate daily. Given the scale of advertising activity across Amazon’s platform, those penalties could potentially amount to billions of dollars if regulators prevail.Advertising has become an increasingly important business segment for Amazon. According to company filings, the business generated $68.6 billion in revenue last year. The segment includes sponsored product listings within Amazon’s marketplace as well as display and video advertising services.The advertising investigation is one of several regulatory challenges Amazon is facing in the US. The FTC has been examining various aspects of Amazon’s business practices since at least 2019. Last year, the company agreed to pay $2.5 billion to resolve a separate consumer protection investigation related to its Prime subscription program.Amazon is also preparing for a trial next year over FTC antitrust allegations that the company used its market position to influence how brands price products on competing retail platforms.