On The Case

Amazon is (so far) winning its war against products liability exposure

(Reuters) - For the second time just three weeks, a federal appeals court has determined that Amazon is not liable for facilitating the sale of a defective product manufactured by another company. Like the 4th U.S. Circuit Court of Appeals in last month’s Erie Insurance v. Amazon, the 6th Circuit held in Monday’s Fox v. Amazon that Amazon cannot be held responsible under state product liability law because it was not the seller of the defective product – even though the product was advertised on Amazon’s platform and Amazon shipped and collected payment for it.

The 4th and 6th Circuits join a long list of courts to reach that conclusion, including, most recently, an Ohio state appeals court in February in Stiner v. Amazon and two federal trial judges in March, in San Francisco’s Carpenter v. Amazon and Chicago’s Garber v. Amazon. The 3rd Circuit is poised to weigh in on the key question of whether Amazon is a seller under product liability law in Oberdorf v. Amazon, which was argued last October. The 9th Circuit will apparently also get a crack at the issue in the Carpenter case, in which the plaintiff docketed an appeal in April.

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The key to Amazon’s strategy to avoid liability is that the company does not take title to goods manufactured by other sellers. Yes, the products are sold via Amazon’s website. Yes, they’re stored in its warehouses and delivered in Amazon packaging. And yes, Amazon processes customers’ payments. But for the most part, courts have found that if Amazon didn’t own title to products that turned out to be defective, it can’t be liable as a seller of those products.

What’s interesting about the 4th and 6th Circuit opinions, though, is that they show hairline fractures in Amazon’s defenses. In a concurrence in the 4th Circuit’s May 22 decision, Judge Diana Motz mused that longstanding product liability law does not account for newly ubiquitous Internet retailers like Amazon. It is surely no accident, Judge Motz said, that Amazon has designed its relationship with third-party sellers to avoid taking title to their products and assuming product liability risk. But she warned that “considerations of public policy may justify a change in the common law” when old laws appear outdated.

Amazon, she noted, has so far been very successful at removing product liability cases to federal courts, which are bound to apply state laws as they exist, thereby “stunting,” to use Judge Motz’s word, the evolution of state law to reflect the role of Internet retailers. But that reckoning, she said, may yet come – from state legislators, state Supreme Courts or even the U.S. Supreme Court, which, as Judge Motz pointed out, just held in the antitrust case Apple v. Pepper that Apple should be considered a seller of iPhone apps even though it technically just facilitates their sale by app developers.

Meanwhile, in Monday’s 6th Circuit opinion, written by Judge Eric Clay for a panel that included Judge Jane Stranch and U.S. District Judge Benita Pearson of Youngstown, Ohio, sitting by designation, the court concluded that mere title of an allegedly defective hoverboard wasn’t enough to decide the issue of whether Amazon was a seller of the product. The hoverboard was apparently a product of a company called W2M Trading Corp, which had a third-party seller agreement with Amazon in which Amazon controlled communications with buyers and facilitated payments. (Some of the facts of Amazon’s relationship with W2M and W2M’s relationship with the company that fulfilled orders for the hoverboard remain murky.)

Amazon’s lawyers at Perkins Coie had argued that because Tennessee has adopted the Uniform Commercial Code, a “seller” under Tennessee product liability law can only be someone who accepts a price to transfer title of a product to a buyer. The 6th Circuit rejected the argument, noting that Tennessee’s law extends liability to people who lease defective products, and those people don’t hold title. Instead, the 6th Circuit adopted the test suggested by lawyers for the plaintiffs in the case – members of the Fox family, whose home burned down when the hoverboard’s battery caught fire – who argued that a seller should be construed to be anyone who exercises control over the sale or lease of a product.

But unfortunately for the Fox family, the 6th Circuit concluded that the evidence did not show conclusively that Amazon exercised sufficient control over the sale of the hoverboard to be deemed a seller. Amazon didn’t choose to sell the product, set its price or make representations in the marketplace about the hoverboard’s safety. So even though Amazon stored and shipped the product and processed payment for it – and even though the Foxes thought of Amazon as the product’s seller – Amazon isn’t liable under Tennessee product liability law, the 6th Circuit said.

“We may have helped other people” suing Amazon “but we didn’t help ourselves,” said Steven Anderson of Anderson & Reynolds, who argued for the Foxes at the 6th Circuit. Anderson, like 4th Circuit Judge Motz in her concurrence, said state product liability laws, most of which date to the 1970s, simply never contemplated Internet retailers like Amazon, which, in his view, is a seller in all but name.

Amazon spokeswoman Cecilia Fan declined to comment.

I should point out that the 6th Circuit decision was not a complete win for Amazon. The court revived the Foxes’ Tennessee tort law claim that Amazon negligently failed to provide adequate warning about the risk that hoverboard batteries would catch fire. The company did apparently send an email to Fox and other Amazon customers who had purchased hoverboards, citing “news reports of safety issues” and offering “some additional information about lithium ion batteries and safety tips for using products that contain them.” The email did not, however, disclose that Amazon had conducted an internal investigation of hoverboards, that it had ceased sales of the products or that the safety risk included fire and explosion.

The 6th Circuit concluded that by sending the email, Amazon assumed a duty to warn customers, so the Foxes are entitled to make a case that Amazon breached its duty to provide adequate warning.

There’s no doubt that Amazon designed a shrewd system to stave off exposure to product liability claims. Whether its dominance prompts a new look at old state laws remains to be seen.