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July 8, 2019

In my article last month, “Should Amazon be Liable for Products Sold in its Marketplace,” I discussed how the Fourth Circuit, like many courts before it, ruled Amazon was not a “Seller” when considering products sold on its website by third-party vendors. While the Fourth Circuit in Erie Insurance Company v. Amazon.com, Inc., 2019 WL 215146, ruled in Amazon’s favor, Judge Motz wrote separately to signal that change may be becoming. I suspect even Judge Motz was surprised by how quickly her prophecy came to fruition.

Last week a U.S. Court of Appeals held for the first time that Amazon was a “Seller” and therefore potentially liable for defective products purchased on its website. The Fourth and Sixth Circuits previously held that Amazon should not be subjected to liability because it does not take the title of third-party products nor exercise sufficient control over the sales transaction to constitute a “Seller.” The Third Circuit diverged from those Courts and partially dismissed Amazon’s summary judgment motion in Oberdorf v. Amazon.Com, 2019 WL 2849153.

Oberdorf involved injuries caused by a retractable leash sold by an Amazon third-party vendor. The Third Circuit rejected Amazon’s argument that Amazon was not a “Seller” because it did not take the title or possession of the leash from its Third-Party Vendor. Instead, the Court considered the following four-factors articulated by the Pennsylvania Supreme Court in a 1989 decision concerning an auctioneer:

  1. Whether Amazon is the only member of the marketing chain available to the injured plaintiff for redress;
  2. Whether imposition of strict liability upon Amazon serves as an incentive to safety;
  3. Whether Amazon is in a better position than the consumer to prevent the circulation of defective products; and
  4. Whether Amazon can distribute the cost of compensating for injuries resulting from defects by charging for it in its business.

The 2-1 majority of the three-judge panel found all four factors weighed in favor of subjecting Amazon to strict liability and deemed Amazon a “Seller” under Pennsylvania’s product liability law. The panel further held the Communications Decency Act, which may provide safe harbor to computer service providers acting in a publisher’s role, did not bar Plaintiff’s negligence and strict liability claims arising from Amazon’s role in the sales process. The CDA did bar Plaintiff’s failure to warn claims.

While Amazon may be potentially liable as “Seller,” in general, Amazon can demand contribution from the responsible third-party vendor or pursue indemnity under the Business Solutions Agreement which all Amazon sellers must sign. However, as the Court pointed out in Oberdorf, many third-party vendors are not amenable to process in the U.S. or unknown (even to Amazon). The Third Circuit ruling shifts the burden of identifying the responsible third party from the customer to Amazon which the Court found was better positioned to do so.

For the time being, the ruling is limited to the jurisdiction of the Third Circuit but it nevertheless may have an impact on Amazon’s business model. In his 2019 Annual Letter to investors, Jeff Bezos revealed that sales from third-party sellers made up for more than 58% of the merchandise sold on Amazon, for which Amazon collected nearly $43 billion in commissions and fees. Amazon has not yet responded to the Third Circuit opinion but I expect the trillion-dollar company will not simply accept responsibility for over half of the 606 million products sold on its website.