As e-commerce retailer behemoth Amazon continues to expand its share of the online market, so too do the legal issues created by its platform. A recent New York trial court decision, State Farm Fire and Casualty Company v. Amazon.com Svcs. Inc., 70 Misc.3d 697 (2020) weighed in on one issue: whether Amazon is liable under product liability law for defective products sold by third-party sellers on its platform. Siding with the plaintiff, it ruled that because Amazon exercises significant control over products sold on its platform and distributed through its warehouses, it could be held liable under New York law for distributing the defective product.
This issue has divided courts throughout the country. Many courts have held that because Amazon does not take title to the products sold on its platform by third party sellers, it is not a “seller” and thus cannot be held liable for the product if it turns out to be defective. But other courts, including a Third Circuit opinion applying Pennsylvania law, and an intermediate California appellate court, have held that because Amazon exercises significant control over what is sold on its platform and distributed through its warehouses, it can be held liable under products liability law.
These decisions may also have implications for intellectual property cases, particularly counterfeits and other trademark infringements.
The State Farm Case
The case involved a thermostat purchased on Amazon, whose alleged defect caused a fire in a home. State Farm, as subrogee of the home owner, brought a products liability claim against Amazon. The thermostat was sold by a third-party seller on Amazon. In such cases, Amazon does not take title to the product. However, the seller has to register with Amazon, and the product must be approved for sale. In addition, many third-party sellers use Amazon’s Fulfillment Services, whereby a quantity of product is sent to Amazon’s warehouse, which then fills the order after it is placed on the website.
Amazon moved for summary judgment, arguing that because it did not take title it cannot be held liable for distributing the defective product. The trial court, however, rejected that argument. It first noted that New York common law looks to hold the parties in the best position to maintain product safety. As New York’s highest court held:
Where products are sold in the normal course of business, sellers, by reason of their continuing relationships with manufacturers, are most often in a position to exert pressure for the improved safety of products and can recover increased costs within their commercial dealings, or through contribution or indemnification in litigation; additionally, by marketing the products as a regular part of their business such sellers may be said to have assumed a special responsibility to the public, which has come to expect them to stand behind their goods.
Sukljian v. Charles Ross & Son Co., 69 N.Y.2d 89, 95, 503 N.E.2d 1358 (1986).
The State Farm court then noted that Amazon exercises tight control both over what may be sold on its website and what may be distributed through its Fulfillment Services warehouse network. “Viewing these facts in the light most favorable to Plaintiff, Amazon exercises sufficient control over the product to be considered among ‘retailers and distributors’” who are strictly liable for defective products.
Other Courts
The State Farm court appears to be a more recent trend in product liability law. For some time, many courts sided with Amazon and held that the fact that it does not take title means it is not a “seller” and hence had no liability. But more recently, a few courts have ruled the other way. In Oberdorf v. Amazon.com Inc., 930 F.3d 136 (3d Cir. 2019), the Third Circuit predicted that Pennsylvania would impose liability on Amazon. That opinion was later withdrawn and the question certified to the Pennsylvania Supreme Court; the case was settled before that court could take up the issue. Courts in Wisconsin and California have also ruled against Amazon. State Farm Fire and Casualty Company v. Amazon.com, Inc., 390 F.Supp.3d 964 (W.D. Wisc. 2019); Bolger v. Amazon.com LLC, 53 Cal. App. 5th 431, 267 Cal. Rptr. 3d 601 (Cal. Ct. App. 2020), rev. denied, No. S264607 (Cal. 2020).
What these courts focus on is Amazon’s close involvement in and control of the third-party sellers’ market, including policies about what may be sold on the platform, customer service requirements, and pricing requirements. For those third-party sellers who use Amazon’s Fulfillment Services, there are additional controls and restrictions. And, Amazon takes a hefty percentage of the sales as a commission.
Implications For Intellectual Property Cases
Such decisions may also have an indirect impact on counterfeiting and other trademark cases. Amazon has a very negative reputation among brand owners for having large numbers of counterfeits and other infringements. While Amazon does have a counterfeiting takedown program, many brand owners consider the effort half-hearted at best.
Trademark law distinguishes between direct and secondary liability. Someone who sells a counterfeit or infringing item is strictly liable for infringement. A party that merely aids another in selling is only contributorily liable – and that requires a showing that the party knew that item was counterfeit and gave substantial assistance to the primary infringer. That is a much more difficult showing.
Amazon has always insisted it cannot be held directly liable, for similar reasons as it has advanced in products liability cases.
The Trademark Act holds liable any person who uses a trademark in commerce “in connection with the sale, offering for sale, distribution, or advertising of any [counterfeit or infringing] goods or services.” Given the close control that Amazon exerts over products sold through its platform, it is likely that brand owners will argue that Amazon is using the trademarks contained in the offerings on its platforms in connection with “distribution or advertising.” The decisions of courts like State Farm, though in a different legal context, give weight to such arguments.
This issue has divided courts throughout the country. Many courts have held that because Amazon does not take title to the products sold on its platform by third party sellers, it is not a “seller” and thus cannot be held liable for the product if it turns out to be defective. But other courts, including a Third Circuit opinion applying Pennsylvania law, and an intermediate California appellate court, have held that because Amazon exercises significant control over what is sold on its platform and distributed through its warehouses, it can be held liable under products liability law.
These decisions may also have implications for intellectual property cases, particularly counterfeits and other trademark infringements.
The State Farm Case
The case involved a thermostat purchased on Amazon, whose alleged defect caused a fire in a home. State Farm, as subrogee of the home owner, brought a products liability claim against Amazon. The thermostat was sold by a third-party seller on Amazon. In such cases, Amazon does not take title to the product. However, the seller has to register with Amazon, and the product must be approved for sale. In addition, many third-party sellers use Amazon’s Fulfillment Services, whereby a quantity of product is sent to Amazon’s warehouse, which then fills the order after it is placed on the website.
Amazon moved for summary judgment, arguing that because it did not take title it cannot be held liable for distributing the defective product. The trial court, however, rejected that argument. It first noted that New York common law looks to hold the parties in the best position to maintain product safety. As New York’s highest court held:
Where products are sold in the normal course of business, sellers, by reason of their continuing relationships with manufacturers, are most often in a position to exert pressure for the improved safety of products and can recover increased costs within their commercial dealings, or through contribution or indemnification in litigation; additionally, by marketing the products as a regular part of their business such sellers may be said to have assumed a special responsibility to the public, which has come to expect them to stand behind their goods.
Sukljian v. Charles Ross & Son Co., 69 N.Y.2d 89, 95, 503 N.E.2d 1358 (1986).
The State Farm court then noted that Amazon exercises tight control both over what may be sold on its website and what may be distributed through its Fulfillment Services warehouse network. “Viewing these facts in the light most favorable to Plaintiff, Amazon exercises sufficient control over the product to be considered among ‘retailers and distributors’” who are strictly liable for defective products.
Other Courts
The State Farm court appears to be a more recent trend in product liability law. For some time, many courts sided with Amazon and held that the fact that it does not take title means it is not a “seller” and hence had no liability. But more recently, a few courts have ruled the other way. In Oberdorf v. Amazon.com Inc., 930 F.3d 136 (3d Cir. 2019), the Third Circuit predicted that Pennsylvania would impose liability on Amazon. That opinion was later withdrawn and the question certified to the Pennsylvania Supreme Court; the case was settled before that court could take up the issue. Courts in Wisconsin and California have also ruled against Amazon. State Farm Fire and Casualty Company v. Amazon.com, Inc., 390 F.Supp.3d 964 (W.D. Wisc. 2019); Bolger v. Amazon.com LLC, 53 Cal. App. 5th 431, 267 Cal. Rptr. 3d 601 (Cal. Ct. App. 2020), rev. denied, No. S264607 (Cal. 2020).
What these courts focus on is Amazon’s close involvement in and control of the third-party sellers’ market, including policies about what may be sold on the platform, customer service requirements, and pricing requirements. For those third-party sellers who use Amazon’s Fulfillment Services, there are additional controls and restrictions. And, Amazon takes a hefty percentage of the sales as a commission.
Implications For Intellectual Property Cases
Such decisions may also have an indirect impact on counterfeiting and other trademark cases. Amazon has a very negative reputation among brand owners for having large numbers of counterfeits and other infringements. While Amazon does have a counterfeiting takedown program, many brand owners consider the effort half-hearted at best.
Trademark law distinguishes between direct and secondary liability. Someone who sells a counterfeit or infringing item is strictly liable for infringement. A party that merely aids another in selling is only contributorily liable – and that requires a showing that the party knew that item was counterfeit and gave substantial assistance to the primary infringer. That is a much more difficult showing.
Amazon has always insisted it cannot be held directly liable, for similar reasons as it has advanced in products liability cases.
The Trademark Act holds liable any person who uses a trademark in commerce “in connection with the sale, offering for sale, distribution, or advertising of any [counterfeit or infringing] goods or services.” Given the close control that Amazon exerts over products sold through its platform, it is likely that brand owners will argue that Amazon is using the trademarks contained in the offerings on its platforms in connection with “distribution or advertising.” The decisions of courts like State Farm, though in a different legal context, give weight to such arguments.