The (Potentially) Shifting Landscape of Online Marketplace Liability

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Consumers are doing more and more shopping online. But when a consumer buys a product that is defective or counterfeit, are online marketplaces liable for misconduct by third-party sellers?

E-commerce platforms have generally avoided being treated like their brick-and-mortar counterparts by arguing that they do not actually “sell” goods, but rather provide services (e.g., payment processing, storage, shipping) to third-party sellers, who in turn sell products to consumers. However, recent court decisions and looming legislation may change this dynamic, opening up online marketplaces to product liability and intellectual property claims for products sold by third-parties on their platforms.

As previously discussed on this blog, the Pennsylvania Supreme Court agreed in July 2020 to decide whether Amazon may be held strictly liable for defective products sold by third parties on its website. While that case is still pending, a California appellate court recently weighed in with its own answer to that question under California law.

In Bolger v. Amazon.com, LLC, a consumer alleged that she purchased a replacement laptop battery on Amazon.com, which caught fire and severely burned her. Amazon moved for summary judgment on the ground that the doctrine of strict liability was inapplicable because Amazon did not manufacture, sell or distribute the laptop battery. Rather, a third-party seller using Amazon’s services sold the product to the plaintiff. The lower court agreed with Amazon and granted summary judgment. But California’s Court of Appeal (Fourth Appellate District) reversed that decision on appeal, explaining that “[w]hatever term we use to describe Amazon’s role, be it ‘retailer,’ ‘distributor,’ or merely ‘facilitator,’ it was pivotal in bringing the product here to the consumer.”

On September 22, 2020, Amazon petitioned the California Supreme Court to review the Court of Appeal’s decision in Bolger, arguing that legislatures, not the courts, should decide whether online marketplaces that facilitate third-party sales should be strictly liable to the same extent as brick-and-mortar retailers. Indeed, as Amazon noted in its petition, California’s legislature is currently considering a proposed bill on this very issue.

How this issue plays out may have ripple effects beyond the realm of product liability cases. Online marketplaces have avoided direct liability for intellectual property infringement using the same argument that third parties, not the marketplaces, “sell” the products to consumers. See, e.g., Milo & Gabby, LLC v. Amazon.com, Inc. (dismissing trademark infringement claim on summary judgment because “the evidence demonstrates that Amazon is not the seller of the alleged infringing products”). But that could change if courts or legislators decide to treat online marketplaces the same as traditional brick-and-mortar “sellers” under tort law.

Notably, this issue has caught the eye of federal legislators, who earlier this year introduced two bills on this subject. First, the SHOP SAFE Act of 2020 (H.R. 6058), would “amend the Trademark Act of 1946 to provide for contributory liability for certain electronic commerce platforms for use of a counterfeit mark by a third party on such platforms, and for other purposes,” unless the platforms take certain reasonable steps (identified in the proposed legislation) to prevent such infringement. Second, the INFORM Consumers Act (S. 3431), would “require online marketplaces to disclose certain verified information regarding high-volume third party sellers of consumer products to inform consumers.” https://www.congress.gov/bill/116th-congress/senate-bill/3431/text. Both of these proposed bills have bipartisan support. If enacted, they would give consumers and intellectual property holders greater ability to pursue claims against online marketplaces and the third-party sellers using the platforms.

With numerous courts and legislative bodies actively considering these issues, online marketplace liability is sure to remain a hot topic in the law. We will continue to monitor this area and will keep our readers apprised of any important developments.

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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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