Crack in the Dam that Shields Online Retail Platforms from Liability for Defective Products from Third-Parties



On August 13, 2020, in a case involving an Amazon customer injured by a defective battery purchased online, the California Court of Appeal overturned a trial court ruling that had determined Amazon was a mere provider of services for online marketplace sales and would not be subject to product liability for third-party products sold on its platform. In effect, Amazon could now be held liable for defects in third-party products sold on its website. Amazon has historically shielded itself from product liability for the sale of non-Amazon products by dual arguments in terms of being a passive conduit service provider to consumers and protection afforded under the Communications Decency Act of 1996, which holds that an internet service provider will not be held liable for publishing third party content.  
This new ruling holds that Amazon can be held strictly liable in California to consumers injured by defective products purchased through its online website. With a population of 40 million people and the increase in online sales since COVID “quarantining” the exponential increase in potential liability in California is monumental. The Court of Appeal found that Amazon placed itself in the chain of distribution of the product and was “pivotal” in bringing the product to the consumer despite Amazon’s pleas that it lacks control over products on its marketplace. The Court doubled-down by pointing out all of Amazon’s actions that were less than passive – it constructed the website, accepted the name-brand company as a third-party seller, marketed the product for sale, controlled the conditions of the product sale on its online platform, limited the brand-name company’s access to Amazon’s customer information forcing the company to only communicate with consumers through Amazon, took possession of the product, accepted the consumer’s order for the product, billed the consumer for the purchase price and ultimately shipped the product to the consumer in Amazon-branded packaging.  

The ruling could also expand to other states where similar issues have been decided with issues pending appeal. For example, in Arizona, Tennessee and Pennsylvania:

  • Pennsylvania case Oberdorf v. Amazon involving a defective dog collar that triggered a retractable leash damaging consumer’s eye (Amazon found to be a product seller and subject to PA strict liability). 
  • Arizona case State Farm v. Amazon regarding defective hover boards (Amazon platform ruled not a retail “seller”).
  • Tennessee case Fox v. Amazon dealt with a hover board purchase (Amazon may be held liable due to warning email it sent to customers re safety issues).

The August 13, 2020 California Court of appeal ruling (Bolger v., Inc.,  Cal. Ct. App., 4th Dist., No. D075738) demonstrates that the case law is generally evolving as to the scope of liability for online retailer platforms and the increasing trend to extend liability where such companies were previously protected. 

Whereas Amazon may be equipped to address the increase of claims and sort out liability in vendor agreements, smaller online “re-sell” platforms may be forced to weather the storm of a barrage of new lawsuits and increased liability, particularly where the primary product manufacturer or distributor cannot be held responsible either by lack of jurisdiction or contractual coverage issues. The Court of Appeal felt this way as well in ruling that Amazon may be the only member in the stream of distribution reasonably available to an injured consumer. In effect, the ruling means that an enormous portion of the retail economy will now be properly subject to strict liability for defective products.
Amazon will most likely appeal the decision. In the meantime, the floodgates may start to open and companies that offer similar online services will need to assess their exposure to liability as well as any company that does business on such platforms as the cost of doing business may increase significantly. In California, the Legislature is considering a bill treating “electronic retail marketplaces” like retailers for purposes of California strict liability law which may answer some questions for allocation of liability as to electronics but that will not account for the multitude of non-electronic products purchased from online retailers.

In 2019, California was deemed the fifth largest economy in the world.  The recent Court decision could impact any company, regardless of where it is located, that does business in California through sales, distribution or shipment by way of an online platform.

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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