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Is Amazon liable for the mass of third-party products its hosts and oftentimes, packages and ships, by way of its sweeping marketplace? According to a recent decision from a U.S. court of appeals, the answer is yes. Last week, a 3-judge panel for the U.S. Court of Appeals for the Third Circuit Court of Appeals determined that Amazon is, in fact, liable for the damage caused by a defective dog leash purchased from its marketplace in December 2014, opening the door for what could be a downright damning development for the $1 trillion market titan.

The case at issue got its start in January 2015 when the leash that Heather Oberdorf purchased on Amazon snapped, causing her to permanently lose vision in one of her eyes. In June 2015, Oberdorf – unable to make contact with Furry Gang, the seller of the $20 dog leash – filed suit against Amazon in a federal court in Pennsylvania, citing claims of strict products liability, negligence, and misrepresentation.

From the outset, Amazon argued that it is not the “seller” of the product, and the district court agreed. “Unless the third-party vendor participates in a special ‘Fulfillment by Amazon’ program (which was not the case here), Amazon has no interaction with the third-party vendor’s product at any time,” Judge Matthew W. Brann of the Middle District of Pennsylvania held in December 2017.

“Amazon does maintain some control over the Amazon Marketplace sales process,” the judge noted, including serving as the conduit through which payment flows, requiring third-party vendors, as a condition of utilizing the Marketplace, to agree to conduct all communication with consumers through its messaging platform, retaining the right to edit the content and determine the appearance of product listings, and imposing rules on how third-party vendors should handle shipping and returns. However, Brann determined that, “like an auctioneer, Amazon is merely a third-party vendor’s means of marketing,” not the seller of the products. This is because “third-party vendors—not Amazon—choose the products and expose them for sale by means of the [Amazon] Marketplace.”

The judge further asserted that this is bolstered by the fact that Amazon has “no role in the selection of the goods to be sold,” it also cannot have any “direct impact upon the manufacture of the products” sold by the third-party vendors.

Given that  Pennsylvania law only mandates that a “seller is held strictly liable for defective products,” the district court tossed out Oberdorf’s product liability claim. Judge Brann similarly ruled in favor of Amazon on the negligence claim, holding that the e-commerce giant is protected by Section 230 of the Communications Decency Act, a law that shields online businesses from lawsuits resulting from content posted by their users. Still yet, because the plaintiff failed to present evidence for the other claims, he dismissed those, and the case as a whole.

On appeal to the Third Circuit, Oberdorf landed a significant victory. The 3-judge panel determined in a 2-1 decision that Amazon may be deemed the “seller” that can be held liable under state law for sales on its marketplace.

According to the majority, despite the fact that the product at issue in this case was “sourced and shipped by [a] third-party vendor [Furry Gang], … Amazon’s involvement in transactions extends beyond a mere editorial function; it plays a large role in the actual sales process.” More than that, the court held that Amazon is “fully capable, in its sole discretion, of removing unsafe products from its website.” The court also found it to be significant that Amazon “enables third-party vendors to conceal themselves from the customer, leaving customers injured by defective products with no direct recourse to the third-party vendor.”

As for Amazon’s Communications Decency Act defense, the court held that while the Act protects Amazon to an extent (namely, its failure to warn), it does not shield it from Oberdorf’s claims that it is liable for “selling, inspecting, marketing, distributing, failing to test, or designing” the collar, overturning the lower court’s finding.

The case will now return to the district court for a determination of whether the leash was, in fact, defective.

The Third Circuit’s decision is a significant one for a number of reasons, not least because it marks the first time that a federal court of appeals has found that Amazon is the “seller” of its marketplace products; two other federal appeals courts have held that Amazon cannot be held liable as a seller of products from third-party vendors. Last week’s decision is important, as it stands to have sweeping effects given that more than half of the products sold by Amazon each year come from third-parties. With that in mind, the outcome “could impose on Amazon greater responsibility over the goods posted on its site,” Bloomberg predicts, “possibly adding new costs and complexities to a business model designed around efficiency.”

*The case is Heather Oberdorf, et al v. Inc., Case No. 18-1041 (3d Cir.).