The U.S. Court of Appeals for the Third Circuit recently issued a decision that could change the liability landscape for online marketplaces such as Amazon.

As e-commerce continues to grow, courts are increasingly confronting questions regarding whether online marketplaces can be considered “sellers” and can thus be held liable for injuries caused by allegedly defective products that were sold on the marketplace by third-party vendors. In Oberdorf v., the Third Circuit became one of the first courts to hold that online retail giant Amazon could in fact be liable for claimed defects in products distributed by third-party vendors on Amazon’s marketplace.

The Oberdorf case concerned a plaintiff who was injured after an allegedly defective dog collar broke, causing the attached retractable leash to suddenly recoil into the plaintiff’s eyeglasses; the incident led to permanent blindness in one eye. Though Amazon does manufacture and sell its own products, the dog collar in this case was distributed by a third-party vendor on Amazon’s website. In such cases, the vendor generally provides all information for the product listing, which Amazon simply formats in exchange for a commission. For additional fees to the vendor, Amazon may also provide services such as advertising and a “fulfillment by Amazon” service, in which Amazon takes physical possession of the product and ships it to a consumer. In all other instances, including the Oberdorf case, the vendor itself is responsible for shipping its product directly to the consumer.

Courts issue conflicting decisions regarding product liability claims against online marketplaces

The plaintiff in Oberdorf asserted a host of strict products liability claims against Amazon. Significantly, neither the plaintiff nor Amazon was able to locate a representative of the vendor that supplied the allegedly defective dog collar.

Amazon moved for summary judgment that the District Court, sitting in diversity and therefore applying Pennsylvania law, granted based its finding that Amazon could not be considered a “seller” under Pennsylvania strict liability law. On appeal, the Third Circuit reversed, and premised its holding in large part on the fact that, in this case, the plaintiff’s only recourse was against Amazon, as no one had been able to locate a representative of the third-party vendor at issue. Additionally, the Third Circuit found that although Amazon had no direct influence over the design or manufacture of its vendors’ products, it retained sufficient control over its vendors that it could remove unsafe products from its website, especially if Amazon received feedback or reviews from customers that a product was allegedly defective. The Third Circuit expressly stated that subjecting Amazon to strict liability in cases such as these would incentivize Amazon (or similar marketplaces) to ensure that allegedly defective products were not being distributed through its website.

Are online marketplaces sellers of products distributed by third parties?

Prior to Oberdorf, several other federal courts including the Fourth and Sixth Circuits, the Southern District of New York, and the District of New Jersey, had confronted this issue and had almost universally reached the opposite conclusion in refusing to deem the online marketplace a “seller” of a product listed for sale by a third-party vendor. [See, e.g., Erie Insurance Co. v., Inc., 925 F.3d 135 (4th Cir. 2019); Fox v., Inc., 2019 WL 2896326 (6th Cir. 2019); Eberhart v. Inc., 325 F. Supp.3d 393 (S.D.N.Y. 2018); Allstate N.J. Insurance Co. v. Inc., 2018 WL 3546197 (D.N.J. 2018).] Importantly, these cases all turned on interpretations of each respective state’s law, but the common thread of reasoning in these cases has largely been that where a marketplace plays no role in manufacturing or designing the product, and does not “take title” to the product, it cannot be held liable for alleged product defects.

In fact, several courts have found that even where Amazon does “fulfill” the order by shipping it to a customer, mere shipment of a product without the vendor first transferring ownership interest to Amazon in exchange for money does not constitute the transfer of title that would be necessary to deem Amazon a “seller” for purposes of imposing liability.

Though all of the courts that have confronted this issue have engaged in fact-specific inquiries, the Oberdorf decision could have significant repercussions for imposition of liability on online marketplaces. In defending these claims, internet marketplaces and retailers should continue to engage in a careful evaluation of the facts of each particular case—including the marketplace’s level of control exercised over a product’s listing, distribution, and vendor; in addition to the public policy considerations of granting a plaintiff recourse where a vendor may be at large, and promoting the circulation of safe products.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York State, including Albany, Buffalo, Ithaca, Melville, New York City, Rochester, Saratoga Springs, Syracuse, Uniondale and White Plains, as well as New Haven, Connecticut and Newark, New Jersey