Can Amazon Be Strictly Liable For Defects In The Products Sold Through Its Website? A U.S. Appeals Court Says "Yes"

• Published date: 25 June 2020
• Subject Matter: Consumer Protection, Litigation, Mediation & Arbitration, Product Liability & Safety, Trials & Appeals & Compensation
• Law Firm: McCarthy Tétrault LLP
• Author: Canadian Appeals Monitor and Anu Koshal

Introduction

In a decision with potentially seismic implications for Amazon.com ("Amazon") and other online marketplaces, in July 2019 a three-judge panel of the Third Circuit Court of Appeals in the United States held that Amazon can be strictly liable for defective products sold by third parties through its online marketplace, even though Amazon does not design, manufacture, or warrant the products, and does not take ownership of the product as it passes from the third-party vendor to the purchaser.¹ The Third Circuit's decision sent shockwaves through the technology and e-commerce industry. Amazon immediately filed a petition to have the case re-heard en banc by the entire Third Circuit of Appeal, arguing that the majority's decision "effected a sweeping change in Pennsylvania tort law that will alter vast swaths of commerce within the Commonwealth."² The petition was granted, the decision was vacated, and on February 20, 2020 the case was re-heard by all fourteen judges of the Third Circuit. Depending on what the full Third Circuit decides, this case could very well make its way up to the Supreme Court of the United States.

Why This Case Matters

The case is notable for two reasons:

1. This appears to be the first time that a U.S. appellate court has held that Amazon can be strictly liable under a state's strict products liability regime for defective products sold by third parties. The decision is contrary to numerous previous decisions from other U.S. courts, which have held that Amazon cannot be strictly liable for such defects; and
2. If upheld, this decision could significantly increase Amazon's exposure to product liability claims, and change how Amazon and other online marketplaces (such as eBay, Wayfair, Newegg, and others) deal with third party vendors.

The Background

Amazon's Services Business Solutions Agreement

Amazon is the world's largest retail company. It provides an online marketplace where it sells its own products, as well as products from more than one million third party vendors, to customers around the world. These third party vendors select which products to sell on Amazon, the product price, and the means of shipping. Amazon lists the products on its website, collects order information from customers, and processes payment. Unlike traditional retailers, in most cases Amazon does not take ownership or possession of the product from third party vendors at any point in the sales process. Instead, once the payment is processed, the vendor ships the product directly to the customer.

Amazon's relationship with third party vendors is governed by Amazon's Services Business Solutions...