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ANALYSIS: Amazon Makes Products Liability a ‘Middleman’ Issue

Nov. 4, 2019, 12:19 PM

Technology has made it easier than ever for companies to connect users directly with providers of goods and services. This trend allows these “middle man economy” companies to—at least theoretically—book profits while mitigating the liabilities that had historically come part-in-parcel with their businesses. 2020 will be an important year for courts as they determine whether companies will be able to rely on these innovative business models to avoid traditional liabilities.

Take Amazon. The company offers fulfillment services in which third-party vendors ship goods to Amazon warehouses where they are stored until a customer purchases them. Amazon facilitates the sale through its website, and then boxes the goods and passes them off to a carrier for delivery.

Products liability law is grounded in the idea that the sellers of a product should bear the risk of loss caused by defective products rather than consumers. Accordingly, all participants in the supply chain, from the manufacturer to the retail seller, are exposed to a consumer’s product defect claim.

With its fulfillment services model, however, Amazon aims to avoid these traditional products liability principles. A recent decision from the United States District Court for the District of Arizona provides a good example. Through Amazon, a consumer purchased two hoverboards from Super Engine, a third-party vendor. The hoverboards’ batteries burst into flames while they were charging and caused damage to a consumer’s home. State Farm covered the loss and sought recoupment from Amazon and Super Engine. Amazon argued that it was not liable because it merely provides services that connects consumers to vendors. The court agreed, explaining that Amazon exercised limited control over the products and never held title to them, so it could not be held liable under Arizona law.

The Arizona decision is not the only one to determine Amazon wasn’t liable under a strict liability theory. The Arizona court joins the Fourth and Sixth Circuits, the Northern Districts of Illinois and California, and the Ohio Court of Appeals. A contrary decision has been issued by the Third Circuit, but the court has agreed to reconsider that decision en banc.

The legal battle over extending products liability principles to business models like Amazon’s will have important consequences for U.S. consumers. A recent Wall Street Journal investigation found more than four thousand items for sale on Amazon’s site that were either deceptively labeled or banned by federal regulators, including sleeping mats that the FDA has warned can suffocate infants. Forty-six percent of these items were listed as shipping from Amazon warehouses. After these products were brought to Amazon’s attention, only 57% of them were removed from the platform or had their descriptions altered to more accurately describe the products, the article said.

By facilitating the sale of potentially harmful products while avoiding the legal liabilities traditionally associated with such practices, Amazon risks placing significant limits on consumers’ ability to recover for damages suffered from harmful items purchased using Amazon’s website. Injured shoppers may be surprised to discover that their only recourse lies with third-party sellers like Super Engine. Stay tuned in 2020 to see how firm a line the courts will draw to protect consumers—or whether they will allow the middle man to skirt liability.

Read about other trends our analysts are following as part of our Bloomberg Law 2020 series.