Landmark product liability ruling puts Amazon’s third-party marketplace in a new legal pinch

An appeals court in California ruled Thursday that federal law does not shield Amazon from liability for defective products offered by third-party sellers through its online marketplace — the latest blow to the one of the tech giant’s most controversial legal positions.

Although it’s not the first time a court has issued such a decision, lawyers for the plaintiff say this ruling is unique in setting a precedent for future cases, as the first published opinion of its kind against the company.

“It is impossible to overstate the magnitude of this ruling,” said the plaintiff’s lawyer, Jeremy Robinson, in a statement issued by law firm CaseyGerry. “Consumers across the nation will feel the impact of this.”

The case involved a replacement laptop battery that allegedly exploded several months after purchase, causing severe injuries to the plaintiff in the suit, Angela Bolger. The product was offered on Amazon by Lenoge Technology (HK) Ltd., operating under the name “E-Life.”

Amazon handled the transaction and shipping from its warehouse, as it does for many third-party products under its Fulfillment by Amazon program. However, as detailed in the court ruling, Amazon argued it was not liable because, in its view, it did not distribute, manufacture or sell the product.

Judge Patricia Guerrero rejected Amazon’s stance, writing for California’s Fourth District Court of Appeal:

As a factual and legal matter, Amazon placed itself between Lenoge and Bolger in the chain of distribution of the product at issue here. Amazon accepted possession of the product from Lenoge, stored it in an Amazon warehouse, attracted Bolger to the Amazon website, provided her with a product listing for Lenoge’s product, received her payment for the product, and shipped the product in Amazon packaging to her. Amazon set the terms of its relationship with Lenoge, controlled the conditions of Lenoge’s offer for sale on Amazon, limited Lenoge’s access to Amazon’s customer information, forced Lenoge to communicate with customers through Amazon, and demanded indemnification as well as substantial fees on each purchase. Whatever term we use to describe Amazon’s role, be it “retailer,” “distributor,” or merely “facilitator,” it was pivotal in bringing the product here to the consumer.

Amazon declined to comment in response to our inquiry. It’s not clear if the company plans an additional appeal, but if the ruling stands, the financial implications could be massive.

Third-party sales account for 60% of physical product sales on Amazon, CEO Jeff Bezos said in his recent statement to the U.S. House antitrust subcommittee.

Amazon includes a section on product liability in the risk factors it outlines for shareholders in its regulatory filings: “Third parties who sell products using our services and stores increase our exposure to product liability claims, such as when these sellers do not have sufficient protection from such claims,” the filings say. “Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all.”

In its ruling, the appeals court sent the case back to the trial court with instructions to reverse its earlier summary judgment ruling and continue with proceedings on the plaintiff’s claims.