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Amazon’s ‘Marketplace’ Business Model Probed by Texas Justices

March 25, 2021, 6:53 PM

The Texas Supreme Court asked Thursday how Amazon.com Inc.'s web marketplace business practices fit into Texas product liability law—whether Amazon is most like a big retailer, a farmer’s market real estate owner, a consignment seller, or even someone who rents out a warehouse space.

Amazon says it’s not a “seller” under state law with potential liability for a toddler’s battery-ingestion injury, which her mother, Morgan McMillan, blamed on a remote control bought through the company’s website.

Amazon stored the item in its warehouse before the sale took place, McMillan’s attorney Jeff Meyerson, who practices in Austin, Texas, told the court via Zoom.

There was “no commerce before the sale,” and then Amazon placed the remote into “the stream of commerce"—a phrase used for seller liability under Texas law—when it processed the transaction, took it off the shelf, and handed it to a delivery company in a “Fulfillment by Amazon” transaction, he said.

Brendan Murphy, arguing for Amazon, said Texas law creates a line between those who place something in the stream of commerce and “facilitators” of transactions. Amazon is merely a facilitator because it doesn’t source or select the product, take title to it, or put a price on it, he said.

If there’s a new rule, the Legislature should be the one to make it, said Murphy, who’s with Perkins Coie LLP in Seattle.

Strict Liability Lines

Justice Debra Lehrmann asked him abut the risk of leaving consumers without a remedy for a defective product when it’s “impossible to know the real manufacturer.”

That’s a policy concern with many competing interests, Murphy answered. The legislature is in the best position to make the trade-offs, he said.

Scott Keller of Lehotsky Keller LLP in Austin argued for the U.S. Chamber of Commerce, which appeared as a friend of the court.

McMillan, Keller said, is asking for a significant expansion of strict liability that could encompass shipping companies and malls.

The company that sets the price on the product is the one that can allocate risk, he said.

The case arrived at the Texas Supreme Court when the U.S. Court of Appeals for the Fifth Circuit asked it to answer whether Amazon is a “seller” of third parties’ marketplace products where it doesn’t hold title to them, but stores and ships them in fulfilling the order.

Judge Don R. Willett of the Fifth Circuit, who used to be a Texas Supreme Court justice, said “there are no on-point Texas cases to guide us.”

“Our only guides in this case are a broad statutory definition of ‘seller’ and fact-specific caselaw involving dissimilar marketplace mechanics,” Willett said for the panel when he certified the question to the justices.

What Is Amazon Like?

Nevertheless, the justices probed where Amazon might fit among existing categories of businesses. Justice Eva Guzman asked whether the amount of control the company exerts matters, and whether warehousing and shipping matter. And she asked whether Amazon controlled prices during the pandemic to prevent price-gouging.

“Is Amazon equivalent to a bailee?” Justice Brett Busby asked, drawing a parallel to establishments that take possession of something temporarily, like a repair shop or parking garage.

Justice Jeffrey S. Boyd proposed, as “ends of the spectrum,” a retailer like Target with wholesaler relationships and the real estate developer who owns the space where a farmer’s market is set up. Could Amazon be somewhere in the middle, like an auto consignment seller whose “salesman helps you sell your car”?

There are no consignment cases, Meyerson said. But the relevant statute is very broad, he said.

The case is Amazon.com, Inc. v. McMillan, Tex., No. 20-0979, oral argument 3/25/21.

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editor responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com

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