California Appeals Court Holds Amazon Strictly Liable

This is a very interesting situation and could affect some businesses and all consumers. Amazon is likely to appeal to the California Supreme Court, so this is not over.

Amazon and many other online retailers (Walmart and Target just to name two) sell both their own stuff and other vendors’ stuff on their web site. Amazon calls theirs a “marketplace”. In many cases, Amazon even fulfills the order. Amazon’s objective in this lawsuit is to use the same argument that Uber and others use – we are just a technology platform – don’t blame us for what happens there.

That strategy worked ten years ago, but it has been working less and less – just ask Uber how much their legal fees have been lately.

At the core, it is about who is financially liable when something goes wrong in cyber-land. In this case, the product was a battery. The battery was not sold by Amazon, but it was sold on the Amazon web site, Amazon did collect the money and Amazon even shipped the product to the customer.

If you go into a retail store, there is the concept of strict liability which means that if that battery that you bought in, say, Target, explodes, Target is liable. For the most part, up until now, who is liable when that is sold in the online world has been muddy and folks like Amazon liked it that way. They certainly don’t want to be liable.

In a sense, I agree. In a sense. But Amazon would also like to not be responsible if they are the seller either.

It looks like that idea is not going to fly as more courts say that companies that sell online, no matter what their business model, is the seller and therefore liable.

But here is the problem.

The Amazon (and other) marketplace is a very dynamic place. Vendors come and go and there are literally millions of products on the marketplace at any one time. If Amazon and others are required to test every product, it can’t be done.

If they ask some vendor to certify that the product is safe, there is no way to validate that. And no way to verify that the vendor can defend Amazon and pay a judgement.

Amazon could buy insurance to cover the risk and just charge marketplace vendors an even higher percentage than they already do.

Or they could just decide that the marketplace model is not worth the pain and dump it.

So what is the upshot –

If you run an online business and you allow third party merchants to sell on your platform, understand the risk.

If you are a merchant who uses an online platform, know that your business model could be at risk.

If you are a consumer, understand that your choices may decrease.

While this only affects California and could be overturned, it isn’t looking good for Amazon. The Assembly passed a bill this year (but the Senate did not) that would have made this law.

Since California is like the world’s 5th or 6th biggest economy, other states are watching and will probably follow suit.

If this is of interest to you, I invite you to read Professor Goldman’s extremely detailed analysis. While he is a law professor, he writes, amazingly, in English that humans can comprehend. Credit: Eric Goldman

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