Should Amazon Be Responsible When Its Vendors' Products Turn Out to Be Unsafe? -- Journal Report

What exactly is Amazon.com?

It began, of course, as a site with a very focused mission: a place where people could buy books. But over the years, not only has it widened its scope as a seller, it has evolved into a flea market, hosting countless third-party retailers in its marketplace.

Now, because of all those other merchants operating on its platform, Amazon faces rising concerns from legislators and the public -- as well as lawsuits -- about the sale of dangerous, banned and counterfeit products. Amazon, the critics' argument goes, is responsible for the products sold on its site.

The company has said it is just operating a store that connects buyers and sellers. It is up to the sellers who use the site to meet proper safety standards. A similar argument is made by ride-sharing companies, online babysitting services and social-media platforms.

In an annual Securities and Exchange Commission filing last year, Amazon disclosed for the first time that counterfeit and fraudulent products are a risk factor. It said Amazon may be "unable to prevent sellers in our stores or through other stores from selling unlawful, counterfeit, pirated, or stolen goods," among other issues.

Amazon told The Wall Street Journal that it recruits sellers in many countries and that these merchants are central to its goal of offering customers good selection at good prices. Amazon said it requires products to comply with applicable laws and regulations. It said that in 2018 it blocked more than three billion suspect listings for various forms of abuse.

The arguments over Amazon's role come at a time of growing scrutiny of the impact of Amazon and fellow tech giants Facebook Inc., Twitter Inc., Alphabet Inc.'s Google and YouTube units, and Apple Inc. on an array of markets, national discourse and privacy.

In the following opinion essays, experts flesh out the reasoning behind each side's position. Edward Janger, a professor at Brooklyn Law School, argues that under bricks-and-mortar legal precedents, Amazon should be held liable for unsafe third-party products. Eric Goldman, a professor at Santa Clara University School of Law, argues that it isn't feasible to apply such precedents to Amazon.

YES: Let's Treat the Company as We Would Any Offline Retailer

By Edward Janger

Amazon has become the biggest marketplace the world has ever seen, and one of the world's richest corporations. Consumers use its platform to purchase everything from groceries to refrigerators, Band-Aids to hospital beds.

Sometimes the items purchased through Amazon malfunction or even explode. Personal-injury cases against Amazon have included allegedly defective hoverboards and dog collars.

Amazon has denied liability, claiming that it is not a seller of the products purchased on its site from third-party merchants. It maintains that it in those cases it is neither a retailer nor a merchant warrantor, just an information conduit and immune as an internet-services provider. With two notable recent exceptions, courts have gone along, absolving Amazon of liability.

The courts that have ruled for Amazon are wrong, and wrong in historic fashion.

For the past seven decades, an unchallenged principle of American tort law has been that anybody in the distribution chain of a product -- the manufacturer, the distributor or the retailer -- should be held responsible for personal injury or property damage caused by a product defect.

Obviously, manufacturers bear responsibility for faulty products -- but so do retailers and distributors. (In some states, downstream participants in the distribution chain are liable only if the manufacturer is insolvent or otherwise can't be found.)

So, if a dog collar sold by PetSmart snapped and blinded the owner in one eye, or a hoverboard sold by Best Buy caught fire and burned down a house, both of which have been alleged against Amazon, those bricks-and-mortar retailers could be held liable. This would be true even if the product was purchased in a sealed box. Indeed, these retailers could also be held liable for sales through their online stores.

Amazon is the latest in a long line of merchants that have sought to structure their businesses to place themselves beyond the reach of tort liability. Their position is clear: a formal lack of ownership of the products sold means they should not be held responsible for harm caused by potentially dangerous defective products.

In our opinion, Amazon's leverage over its relationships with its suppliers and its approach to customers render this claim untenable. Amazon exercises enormous control over the sale of products on its platform.

Amazon is not merely a conduit.

Amazon's algorithm determines how customers find sellers and, where multiple sellers sell the same product, which one will be presented to the consumer first in response to a search.

Sellers pay Amazon for "sponsored" placement that shows up on the first page of results. Amazon also determines which vendor or product will be labeled as a "Best Seller" or "Amazon's Choice."

Furthermore, payment goes through Amazon, and Amazon takes a cut. When sellers elect "Fulfillment by Amazon," Amazon stores the goods, ships them in Amazon boxes, and may even substitute another supplier's goods in response to a consumer order.

Products sold on the site are designated as "Ships from and sold by Amazon," "Sold by Seller X and fulfilled by Amazon" or "Ships from and sold by Seller X."

Amazon is clearly the seller in the first category but argues that it is not the seller in the other two. In those cases, Amazon seems to be claiming metaphorically that it is a telephone, simply connecting buyers and sellers.

While Amazon claims that it makes the seller and fulfillment method clear on the detail page -- as well as in the checkout process and order confirmation -- we disagree.

Surely, consumers cannot be expected to realize that this change in boilerplate changes their rights and Amazon's obligations. As far as they are concerned, their transaction is with Amazon.

While Amazon's defenders may argue that the company isn't in a position to scrutinize all who sell on its platform, this is a red herring. Amazon already requires its sellers to indemnify it, and in most cases to purchase liability insurance as well.

Just because Amazon has transformed the way in which consumers buy doesn't mean that it should be excused from liability that is generally borne by other sellers of faulty products.

If Amazon is not treated as a seller, injured consumers will be left holding the bag.

Prof. Janger is the David M. Barse Professor of Law, Brooklyn Law School. He wrote this essay with Aaron D. Twerski, the Irwin and Jill Cohen Professor of Law, Brooklyn Law School. They can be reached at [e-mail].

NO: It's Impractical for Amazon and Harmful to Consumers

By Eric Goldman

Amazon's Marketplace lets merchants from around the globe sell to buyers they couldn't find any other way. It is an economic juggernaut. EMarketer estimated that Amazon's marketplace generates nearly a quarter-trillion dollars of annual sales, and Marketplace Pulse figures three million merchants are active in the marketplace, many of them small businesses.

Amazon's Marketplace also has been a boon to consumers. First, stiff competition among merchants drives prices down. Second, consumers have an amazing diversity of product choices -- both mass market and niche -- and can find exactly what they are looking for with minimal search costs.

Amazon's massive scale -- millions of merchants selling tens of millions of products -- means inevitably some products will hurt people or property. That is not unusual or surprising; retailers at times sell unsafe items despite their best efforts. Still, is it possible to greatly reduce the number of unsafe items from Amazon's marketplace while preserving the marketplace's benefits to consumers and merchants?

A common consumer-protection technique is to make intermediaries liable for the acts of third parties. The legal risks force the intermediary to internalize the costs of any harm caused by the third party. To reduce those costs, intermediaries will police the behavior of third parties and reduce the harm that might otherwise result.

Regulators could apply this approach to Amazon by making it liable for marketplace merchants' sales. Unfortunately, that wouldn't make sense for several reasons.

Unlike many other retailers, Amazon lets merchants decide what goods to sell, and Amazon doesn't always take physical possession of those goods. Thus, Amazon cannot easily inspect or test those goods. Even when merchants choose Fulfillment by Amazon (where Amazon warehouses and ships the physical items), the volume and diversity of merchant offerings makes inspection and testing functionally impossible.

What about vetting the merchants instead? Amazon provides self-service sign-up options for merchants. It would add costs and delays for Amazon to vet merchants enough to stand behind their offerings. Many small or new legitimate merchants wouldn't make it through the vetting process, and that would hinder their business prospects.

And if Amazon were required to vet every product or merchant, it might decide to take a drastic step -- shutting down its marketplace and converting into a traditional retailer for everything it sells.

Amazon already acts as a retailer for many items, so it could move some merchant-supplied items into its retailing mix and cut the rest. But it would devastate the site's merchant community. And other merchant sites like eBay couldn't easily make that switch and would be at a competitive disadvantage, exacerbating Amazon's leverage over the retail market.

None of this means that Amazon should completely ignore the issue of product safety. It could, and probably should, do more to police its marketplace from unsafe products. But any steps the company takes should be voluntary. If it's forced to act by regulators or courts, Amazon might very well see it as an unnecessary expense and just close the marketplace. After all, if it's going to be liable for trying -- and inevitably failing -- to ensure merchant safety, why try at all?

For the foreseeable future, the legal issues surrounding these choices will likely remain unresolved. To date, courts have split on when Amazon and other marketplace operators are liable for purchases from merchants that go wrong. Some courts treat Amazon as the legally responsible seller; other courts say the merchant is only the legally responsible seller; and yet other courts have held that marketplace operators like Amazon are immune from liability due to a federal law that says websites aren't liable for third-party ads.

There are good reasons to be nervous about holding Amazon legally responsible. Imposing liability for unsafe products almost certainly will keep many completely legitimate and safe items from reaching consumers and accelerate industry consolidation.

Prof. Goldman is a law professor and co-director of the High Tech Law Institute at Santa Clara University School of Law. His websites participate in Amazon's standard Associates program, and he self-publishes books through Amazon's Kindle Direct Publishing. He can be reached at [e-mail].

(END) Dow Jones Newswires

February 28, 2020 09:24 ET (14:24 GMT)

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