3rd Circuit Creates New Obligations for Online Platforms

Dorsey & Whitney LLP

Dorsey & Whitney LLPThe 3rd Circuit recently held Amazon.com liable for damages for a product sold by a third-party.  This is a potentially landmark ruling in the ongoing battle between consumers and online platforms regarding the obligations related to e-commerce.  It has been noted that over 50% of Amazon’s sales comes from third-party sellers, so any obligation on Amazon’s part to ensure that third-party products and services do not create liability for Amazon will be problematic, as online platforms will have no choice but to pass along the cost to consumers.  While as this court noted, “vendors have a powerful interest in providing quality products” due to Amazon’s rating system and potential penalties, it is increasingly difficult for online platforms to manage given the explosive growth of e-commerce, especially in the past few years.

In Oberdorf v. Amazon.com Inc., Case No. 18-1041 (opinion here), the 3rd Circuit reversed the Middle District of Pennsylvania’s summary judgment ruling in favor of Amazon under both product liability law and the Communications Decency Act (CDA) (which protects online platforms in certain situations).  The case involved a defective dog collar purchased from a third-party seller on Amazon.  The 3rd Circuit did not agree with Amazon that the third-party seller must be responsible, especially because in the third-party seller could not be located by either the plaintiff or Amazon, as their account had been discontinued years ago.  The 3rd Circuit also held that Amazon was able to remove the listing, and therefore had control over product, essentially.  Significantly, the 3rd Circuit held that “Amazon can adjust the commission-based fees that it chages to third-party vendors based on the risk that the third-party vendor presents.”  Online platforms must therefore be cautious in light of this ruling, balancing charging higher fees to third-party sellers in exchange for more substantive review of product listings.  This Court has now given online platforms a green light to raise fees so that they can conduct more extensive review of the products or services on their platform.  The Court found that Amazon had properly indemnified itself against liability, so adjusting its commission is the Court’s way of raising liability for Amazon here and online platforms everywhere.

The Court held that the online platform’s role was beyond that of a typical sales agent, because it exerts substantial market control over product sales by restricting pricing, offering customer service, and communicating with customers, so not all online platforms would be likely to have such obligations.  It is the first time, according to the Court, that the Amazon Marketplace service has been found to be a “seller” under a state law (Pennsylvania).  As online platforms became increasingly sophisticated and increasingly niche towards customers, this factual scenario will only increase.  While it does not implicate shippers or distributors who move goods or offer services, the closer an online platform is to the consumer, the harder it will be to escape this type of liability.

The Court did, however, limit the scope of liability to Amazon’s role in the sales process, and barred any claims under the CDA, because 47 U.S.C. Section 230 offers a “safe harbor” exemption to online platforms for content provided in a publisher’s role, such as deciding whether to publish, withdraw, postpone or alter content.  In this matter, the plaintiff claimed that Amazon was responsible for the content about the dog collar offered for sale.  While the Court found that the information about sale of the product was not protected by the CDA, otherwise the information about the product was protected and not actionable against Amazon.  Amazon was not held liable for the description of the product or verifying its accuracy.

This is a relatively rare instance of finding liability for online platforms, albeit in merely reversing a summary judgment ruling and remanding the case.  The dissent warned that “[t]his case implicates an important yet relatively uncharted area of law.”  In the ongoing war between online platforms, e-commerce sellers and buyers, it is a new tool in the arsenal.  With the recent enactment of a strict e-commerce law in China and the White House’s recent announcement of a focus on e-commerce counterfeiters, the legal system is ramping up to increase control on online platforms, which as this Court noted, will drive up compliance costs and legal fees so that online platforms can further de-risk e-commerce.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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