Federal Court Rules Amazon Can Be Held Liable for Third Party Sellers’ Products

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A federal court passed down a blockbuster ruling last week, holding that e-commerce giant Amazon can be held liable for third party sellers’ products, effectively allowing Amazon to be held liable for defective products sold by third party vendors via the Amazon marketplace.

New Ruling Finds eCommerce Platform Liable for Third Party Seller Products

Departing from the ruling of other federal courts that had previously held that Amazon could not be held liable, the 3rd Circuit Court of Appeals in Philadelphia reversed a previous ruling, thus becoming the first circuit court to rule against Amazon.

With this holding, Amazon could be facing a myriad of lawsuits soon as approximately half of the goods currently sold on Amazon come from third party vendors.  In the past few years, Amazon has faced increasing criticism from consumers over Amazon’s decision to open the marketplace to Chinese vendors as the website immediately became filled with third-party vendors that sold cheap goods that were often found to be either counterfeit or defective.

Amazon’s Acceptance of “Any” Vendors Opened Door to Complaints and Liability for Third Party Sellers

As Amazon increasingly ceded ground to third-party sellers, it was not only consumers that complained. Other third-party vendors also began to complain that they were constantly being undercut by copycat sellers that sold copies of their goods that were both cheaper and of lesser quality. As a consequence, these vendors often ended up with reviews that negatively affected their brand when the complaining consumers had not even purchased the products from the true vendor. Moreover, these vendors complained that even if Amazon shut down the copycat accounts, new accounts engaging in the same behavior were up within a matter of days, sometimes within hours.  

As a result, many authentic brands have pulled their goods from Amazon, increasingly leaving consumers with access to only counterfeit goods or goods of less quality overall.  It’s no wonder a court would find Amazon to have liability for third party sellers’ products causing harm in the marketplace.

How Third Party Vendors on Amazon Are Seemingly Allowed to Cause Brand Infringement

For instance, if a consumer searches for SPANX®, a famous trademarked brand of shapewear, the search query will return hundred of hits for SPANX® products at considerably lower prices, sometimes more than 50% cheaper, than SPANX® sells for identical products on its own website.  If a potential consumer looks at the reviews, many complain that the products lack true packaging, seemed used, and are of poor quality.  

Despite this, however, Amazon allows the vendor goods to be marked as SPANX® and links the SPANX® vendor link to a storefront that uses SPANX® with the federal registered ® symbol. Similarly, other confusing storefronts exist for famous brands without any true vetting from Amazon that ultimately may mislead or confuse consumers over who the true source of the goods is.

Third Party Seller Product Liability and the Law

While product liability is generally governed by state law, a significant amount of lawsuits against Amazon have often found their way to federal courts because more and more consumers have appealed to the federal courts to find recourse.  As the third party vendors often close shop and disappear when sued, leaving both Amazon and consumers without any trace of their whereabouts, consumers have appealed to federal courts for help.  

Third Circuit Court Finds Amazon Liable for Third Party Sellers Due to Creating an Enabling Environment

In the 3rd Circuit decision, the court held that because Amazon’s business model specifically enables third party vendors to essentially conceal their true identities from consumers, third party sellers have been able to sell defective, dangerous, and counterfeit goods without any type of quality control or oversight.  As such, because many consumers have been injured (e.g., blinded, house burnt down, etc.) without any sort of recompense, the 3rd Circuit decided that Amazon should be open to liability for injury caused by these third party vendors on its marketplace platform.

While this ruling finding Amazon liable for third party sellers’ products marks a significant victory for consumers and authentic brand owners alike, only time will tell whether other circuit courts, and perhaps one day the Supreme Court, will rule in the same favor.

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