Federal Court Rules Amazon Strictly Liable For Third-Party Sales

Crushing blow ends Amazon's dodging liability for defective products.

June 18, 2020, Los Angeles, CA – The U.S. District Court for the Southern District of Texas dealt Amazon a crushing blow; Amazon could be held liable as a “seller” under Texas’ product liability statute for injuries, death, or property damage caused by defective products sold by third-party vendors on its website. About 60% of Amazon sales are from third-party sellers.

Amazon enables and facilitates unvetted merchants, often in China, to sell counterfeit, fraudulent, replica, and dangerous products. For years, Amazon successfully thwarted lawsuits for third-party marketplace sales on its platform claiming (while collecting a fee, warehousing, and delivering the items) Amazon is "merely a venue" for the sale of such products, as opposed to being the actual seller.

Additionally, Amazon claims, the Communications Decency Act (CDA) 47 U.S.C. § 230(c)(1) barred the plaintiff’s claims. The CDA states that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

In McMillan v. Amazon 18-CV-2242¸ plaintiff, Morgan McMillan alleged that a generic Apple TV remote purchased on Amazon and utilizing Amazon's "Fulfillment by Amazon (FBA)" service caused permanent injuries to her 19-month-old daughter. The seller is located in China and utilized FBA services. FBA is often utilized to hide the origin of the product and create the illusion the items are sold directly by Amazon. Amazon ships commingled products from FBA centers closest to the customer says Amazon VP Dharmesh M. Mehta.

The court determined that Amazon was a “seller” because it exerted control over the sale, was an integral component in the chain of distribution, and was engaged in the business of placing the remote into the stream of commerce. Additionally, Amazon was the sole platform for communication between McMillan and seller, Hu Xi Jie.

Although the analysis regarding whether Amazon is a “seller” under Texas’ product liability statute is fact-specific, McMillan suggests that Amazon will be deemed a “seller” (at least in the Southern District of Texas) any time a third-party sells a product through FBA.

In 2013, bedding manufacturer Milo & Gabby challenged Amazon's counterfeit practices and victimization by overseas knock-off sellers. Amazon prevailed in Milo & Gabby v. Amazon.com, Inc. -- and the subsequent appeal in 2017 -- allowing Amazon to operate carte blanche to facilitate and profit from the sale of counterfeit and other illegal products. The ruling concluded with, “the company was not behind the counterfeit content listed on its site, and had technically not made an 'offer to sell' — the legal requirement to hold Amazon liable for third-party sales of counterfeit goods. The case also laid out the criteria that future plaintiffs would need to satisfy in order to successfully sue over similarly infringing items.

This should not be confused with products Amazon itself directly sells on its platforms. A U.S. Federal Court lawsuit, Maglula, Ltd. v. Amazon.com, names Amazon as repeatedly being the direct seller of its counterfeit products, including the sale of returned counterfeit Maglula merchandise to third-party liquidation-centers for resale.

Daimler AG, the parent company of Mercedes-Benz, sued Amazon claiming the e-commerce giant was a direct-seller and distributor of counterfeit Mercedes-Benz products. The case was settled and sealed.

What is particularly concerning is that many consumers believe products sold by Amazon itself (“Ships from and sold by Amazon.com”), or "Amazon's Choice" are vetted, and therefore they are protected from counterfeit, fraudulent, or dangerous goods. They are not.

Trademark and copyright-laws are broken en masse on the Amazon platform — and reported ad nauseam.

Rep. Jerrold Nadler (D-NY) says, “Consumers should be able to trust that what they see and purchase online is what they will get, but counterfeiters continue to join platforms with ease and masquerade as reliable sellers in order to infect American households with dangerous and unsafe counterfeit products. Consumer lives are at risk because of dangerous counterfeit products that are flooding the online marketplace." Nadler has introduced a bipartisan bill that will establish trademark liability for online marketplace platforms when a third-party sells a counterfeit product that poses a risk to consumer health or safety. View the full SHOP SAFE bill here. 

Editor's Note:
McMillan v. Amazon.com, Inc., No. 18-CV-2242, 2020 U.S. Dist. LEXIS 102025, the United States District Court for the Southern District of Texas

The U.S. Chamber of Commerce has filed an amicus brief. click here