3rd Circuit to Review Decision That Could Shutter Online Marketplaces

CDA 230 Does Not Protect Online Businesses From Product Liability Claims Related to 3rd-Party Vendors

marketplace

The 3rd Circuit Court of Appeals has decided to review en banc a controversial panel decision issued last month over the liability of online marketplaces for the goods they sell.  The 3rd Circuit panel’s order in Oberdorf v. Amazon, (930 F.3d 136, 2019 WL 2849153 (3d Cir. July 3, 2019)) represented the first time a federal appeals court found an online marketplace strictly liable for the products sold on its platform by third-parties.

Amazon’s Marketplace allows third-party vendors to sell goods to Amazon customers via its website.  Ms. Oberdorf purchased a defective dog collar from a third-party vendor, Furry Gang, via Marketplace.  The collar subsequently broke, causing a retractable leash to recoil back and permanently blind Oberdorf in one eye.  Furry Gang could not be located by either Oberdorf or Amazon; Oberdorf sued Amazon for strict products liability and negligence under Pennsylvania state law for selling the defective dog collar.  Amazon’s position is that it is not a “seller” as defined under Pennsylvania products liability law because it merely provides an online marketplace for products sold by third-party vendors.

The panel’s majority ruling held that Amazon could be considered a “seller” and thus held strictly liable for defective products sold via its online platform pursuant to state products liability law.  However a strong dissenting opinion was also issued, disagreeing with the the majority view that Amazon should be considered a “seller” for purposes of products liability law.  The case is important because if the panel’s ruling is upheld, online marketplaces are in danger of liability awards that could put them out of business.

The District Court below had found that Amazon was not liable for Oberdorf’s injuries under Pennsylvania state law.  The District Court ruled that Amazon is not subject to strict products liability claims because Amazon is not a “seller” under Pennsylvania law.  The District Court also found that Oberdorf’s claims were barred by the Communications Decency Act (CDA) because she seeks to hold Amazon liable for its role as the online publisher of third-party content.  Amazon’s motion for summary judgment was granted by the District Court and Oberdorf appealed that ruling to the 3rd Circuit.

Surprising many legal scholars, the panel majority overturned the District Court’s ruling by applying a four factor test to decide that Amazon is a “seller” and thus strictly liable for injuries resulting from defective products sold on Marketplace.  The Pennsylvania Supreme Court uses a four factor test to determine if an actor is a “seller” for product liability purposes and the majority opinion weighed all four factors against Amazon:

(1)  Whether the actor is the only member of the marketing chain available to the injured plaintiff for redress;

(2)  Whether the imposition of strict liability upon the actor serves an incentive to safety;

(3)  Whether the actor is in a better position than the consumer to prevent the circulation of defective products”; and

(4)  Whether the actor can distribute the cost of compensating for injuries resulting from defects by charging for it in his business, i.e., by adjustment of the rental terms.

The second important issue on appeal is whether Oberdorf’s claims, both for negligence and strict liability, including failure to provide adequate warnings regarding the use of the dog collar, are barred by § 230 of the Communications Decency Act (CDA).

The CDA states, in relevant part, 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.”

This section, referred to as the CDA safe harbor provision, precludes courts from entertaining claims that would place a computer service provider in a publisher’s role, and therefore bars lawsuits seeking to hold a service provider liable for its exercise of a publisher’s traditional editorial functions—such as deciding whether to publish, withdraw, postpone, or alter content.  The CDA is intended to allow interactive computer services companies “to perform some editing on user-generated content without thereby becoming liable for all defamatory or otherwise unlawful messages that they did not edit or delete. Section 230 is largely credited with protecting Internet innovation and is widely considered a key driver for the recent growth in online business and fostering the free flow of information.

The 3rd Circuit found that to the extent Oberdorf’s negligence and strict liability claims rely on Amazon’s role as an actor in the sales process (a “seller”), they are not precluded by the CDA. However to the extent that Oberdorf is alleging that Amazon failed to provide or to edit adequate warnings regarding the use of the dog collar on its website, those claims are precluded by the CDA.

So while the majority ruled that the failure to warn claims were barred by the CDA, the products liability claims against “sellers” were not barred by CDA. This ruling heightens the legal risk for online businesses that facilitate the sale of products by third-party vendors.

Panel Judge Scirica issued a stinging dissent to the majority ruling, “like every federal court to consider this issue so far, I would find Amazon Marketplace not a seller.”  The dissent noted that in no other scenario has a Pennsylvania court imposed “seller” liability on a defendant whose role in the sale did not include transferring ownership or possession of the product.  Scirica reasoned that Amazon’s role in providing the the product was too tangential for liability to attach.

The dissent also pointed to the 6th Circuit’s ruling that Amazon Marketplace is not a “seller” for products liability purposes (Fox v. Amazon.com, Inc., — F.3d —, 2019 WL 2417391, at *5–7 (6th Cir. June 10, 2019)) and to the 4th Circuit’s ruling that Amazon Marketplace was not a “seller” even where Amazon had shipped the goods to the consumer (Erie Ins. Co. v. Amazon.com, Inc., 925 F.3d 135, 144 (4th Cir. May 22, 2019)).

Given the number of cases to find contrary to the 3rd Circuit’s ruling, its powerful dissent, and the economic significance of the outcome of this legal battle in the online marketplace, it comes as no surprise that the 3rd Circuit has decided to review the case en banc.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s