Amazon's Invincibility: the Effect of Defective Third-party Vendors' Products on Amazon

• Publication year: 2019

Amazon's Invincibility: The Effect of Defective Third-Party Vendors' Products on Amazon

Amy E. Shehan
University of Georgia School of Law

AMAZON'S INVINCIBILITY: THE EFFECT OF DEFECTIVE THIRD-PARTY VENDORS' PRODUCTS ON AMAZON

Amy Elizabeth Shehan^*

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Table of Contents

I. Introduction.........................................................................1216

II. Background on Amazon.....................................................1218

III. Two Approaches to Product Liability Law...................1220

A. RESTATEMENT...............................................................1221
B. PRODUCT LIABILITY STATUTES......................................1222

IV. Common Arguments From Plaintiffs and Why Each of Them Ultimately Fail..............................................1223

A. AMAZON IS NOT A SELLER..............................................1223

1. Amazon is a Facilitator........................................1224
2. Amazon's Lack of Control.....................................1225
3. The Advancement of the Policies Behind Product Liability Laws.......................................................1226

B. AMAZON IS NOT A BAILOR..............................................1228
C. AMAZON IS NOT A MERCHANT NOR A SELLER UNDER THE UNIFORM COMMERCIAL CODE......................................1229

V. Communications Decency Act..........................................1230

VI. Conclusion.........................................................................1234

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I. Introduction

Online shopping is the fastest growing use of the Internet.¹ Amazon, a veritable retail giant, has played a substantial role in the rise of ecommerce.² As a pioneer in online shopping, Amazon has evolved from selling only books³ to selling everything imaginable: diapers, sushi pillow cushions, batteries, wigs for dogs, and the list goes on.⁴ As consumers increasingly purchase products with the click of a button from the comfort of their own home, brick-and-mortar stores struggle to compete with giant ecommerce companies like Amazon.⁵

As Amazon's role in the retail landscape continues to evolve and expand, it faces greater legal exposure. In recent years, Amazon has faced product liability challenges. Product liability law governs the "legal liability of manufacturers or sellers of goods to compensate buyers, users, and even bystanders for damages or injuries suffered because of defects in goods purchased."⁶

Product liability law poses a challenge for Amazon because Amazon operates an online marketplace. While Amazon sells some of its own products on its marketplace, "a significant portion of the products" are sold by third-party vendors.⁷ Recently, several courts have considered whether Amazon should be held liable for defective

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products sold by third-party vendors on Amazon's online marketplace. Since there is no uniform federal scheme that addresses product liability,⁸ jurisdictions faced with this issue have approached it differently. Some states have their own product liability statutes, while other states have adopted the Restatement, either in whole or in part.⁹

Plaintiffs seeking to hold Amazon liable for third-party vendors' defective products primarily argue that Amazon is a "seller" within the meaning of a state's product liability statute or the Restatement.¹⁰ If courts agree that Amazon is a seller, then Amazon can be held liable for defective products sold by third-party vendors on its marketplace. However, if Amazon is not a seller, then, under current product liability law, Amazon cannot be held liable for defective products sold by third-party vendors on its marketplace. Plaintiffs also advance a variety of creative arguments ranging from bailment theories¹¹ to arguments based on the Uniform Commercial Code.¹² Similarly, Amazon has creatively claimed immunity from liability as an online service provider under the Communications Decency Act.¹³ This Note will examine these arguments in depth.

But first, Part II of this Note provides background information on Amazon, including the Amazon Services Business Solutions Agreement, Amazon's "A-to-z Guarantee," and the Fulfillment by Amazon program. Part III of this Note examines the two approaches to product liability law: the Restatement approach and state product

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liability statutes' approach. Part IV of this Note explains why Amazon does not fall within the definition of a seller, bailor, or merchant for purposes of liability. Lastly, Part V of this Note examines the Communications Decency Act and explains why Amazon should receive immunity from liability regarding defective products sold by third-party vendors on the Amazon Marketplace.

II. Background on Amazon

The volume of sellers on Amazon's marketplace has grown steadily over the years.¹⁴ Currently, more than one million third-party vendors use Amazon's marketplace to sell products,¹⁵ accounting for approximately "40 percent of Amazon's gross revenue."¹⁶ To promote sales by third-party vendors, Amazon has a "merchant integration team" whose role is "to help new sellers learn how to list products, how to describe their products on Amazon's website, and how to handle order fulfillment."¹⁷ Amazon has also streamlined the third-party vendor listing process: To create a listing on the marketplace, a third-party vendor simply provides a description of the product to Amazon.¹⁸

To avoid liability, Amazon requires all third-party vendors to agree to the Amazon services Business solutions Agreement (BSA).¹⁹ The terms of the BSA range from enrollment to tax matters to password security.²⁰ For example, section 6 of the BsA requires third-party vendors to indemnify Amazon for any claims, losses, or

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damages arising from or related to the sale of third-party products.²¹ Section 9 of the BSA requires third-party vendors to maintain liability insurance naming Amazon as an insured upon reaching an insurance threshold.²² Under the BSA, third-party vendors have exclusive authority to determine the products they wish to sell and the price of their products.²³

Amazon also guarantees products purchased from third-party vendors on its marketplace through its "A-to-z Guarantee."²⁴ Specifically, "[t]he condition of the item . . . and its timely delivery are guaranteed under the Amazon A-to-z Guarantee."²⁵ However, the A-to-z Guarantee is not a warranty and provides that Amazon will issue a refund of the sale price only if one of three specified conditions are met.²⁶ Additionally, the A-to-z Guarantee carries several restrictions which further limit its scope.²⁷

Amazon also operates a program known as Fulfillment by Amazon (FBA) in which sellers provide their inventory to Amazon for storage in an Amazon fulfillment center until the products are purchased.²⁸ Once a product is purchased, Amazon places the

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product in an Amazon-labeled box and delivers it to a shipper.²⁹ Third-party vendors who participate in the FBA program "retain title to their products and pay for storage space."³⁰ If a third-party vendor declines to participate in the FBA program, Amazon has no control over or interaction with the third-party vendor's product at any time throughout the course of the transaction.³¹

However, even in the absence of an FBA relationship, Amazon retains some control over the sales process. For example, Amazon retains the right to determine the appropriateness of the products sold on its marketplace³² and the right to edit the content of product listings.³³ Amazon also "collect[s] money from purchasers and direct[s] it to third-party vendors after deducting a fee."³⁴ Customers do not pay third-party sellers directly,³⁵ and Amazon continuously reminds purchasers "that they are purchasing from an identified third party, and not from Amazon itself."³⁶

III. Two Approaches to Product Liability Law

There is no uniform federal scheme of product liability.³⁷ As a result, states vary on their approach to product liability: some states have adopted the Restatement in its entirety, some have adopted the Restatement in part, and others have chosen to independently draft a state product liability statute.³⁸

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A. RESTATEMENT

In 1965, the American Law Institute (ALI) published the Restatement (Second) of Torts, which contained a single provision, § 402A, focused on products liability.³⁹ The text of § 402A reads:

(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if (a) the seller is engaged in the business of selling such a product, and (b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.
(2) The rule stated in Subsection (1) applies although (a) the seller has exercised all possible care in the preparation and sale of his product, and (b) the user or consumer has not bought the product from or entered into any contractual relation with the seller.⁴⁰

Notably, this rule imposes strict liability—the seller is liable to the consumer even if the seller "has exercised all possible care in the preparation and sale of the product."⁴¹ At the time the ALI published § 402A, product liability case law was not well-developed.⁴² As a result, the ALI sought to propose what the law should become, meaning that § 402A is not a true restatement of the law. Many states quickly adopted § 402A,⁴³ and today most

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states have adopted it in some form.⁴⁴ Due to the widespread use of this section, the ALI published the new Restatement (Third) of Torts: Products Liability in 1997.⁴⁵ However, some states, such as Pennsylvania, have explicitly declined to adopt the Third Restatement.⁴⁶

B. PRODUCT LIABILITY STATUTES

On the other hand, some states have declined to adopt any version of the Restatement, opting for a state-specific product liability...