Product liability risks for online marketplaces – an international comparison of litigation profiles

The number of internet users has increased exponentially over the last 10 years, as has the number of consumers using online platforms to satisfy their shopping needs. The COVID-19 pandemic has further amplified our online culture, contributing towards the ongoing debate as to what extent online marketplaces can be held liable for products sold by third parties.

Here we consider these issues from a contrasting international perspectives, analysing currently unfolding US litigation against online platforms and the potential impact this could have on existing product liability claims in England and Wales.

International legal comparisons

The EU Product Liability Directive (PLD) is over 35 years old and since its inception many products have been replaced with advanced technological alternatives. Smart devices, artificial intelligence (AI) and software advancements have enabled goods to reach a much wider audience at a much faster pace, but who is responsible if a product causes harm or injury? Does the PLD remain fit for purpose? Although the potential for dangerous products being sold through online market places is a global phenomenon lawmakers’ response in liability laws varies greatly across jurisdictions.  

As the PLD was implemented into UK law through the Consumer Protection Act 1987, it is not anticipated that there will be immediate significant impact on product liability laws in the UK post-Brexit. However, the positions taken by the EU and UK after any respective reviews of such laws could result in a departure of the two sets of product liability laws and further onerous requirements for companies operating in both markets.

The current shared focus in terms of potential liability for the UK, the EU and the US are the operators of online marketplaces as opposed to the third-party sellers.

The California Consumer Protection Bill AB 3262 2020 proposed to introduce increased liability for online marketplaces which aimed to compensate injured consumers. However some affected retailers are rallying against its implementation on the basis that such changes will stifle their business.

US litigation

Recent developments in case law have seen courts across the US grapple with whether online marketplaces can be held strictly liable for products sold by third-party sellers.

The US courts have considered factors such as the business model used, which encourages consumers to interact directly with the online marketplace and not the third party seller, and the extent of control the platform exercised over the product. The courts’ findings represent a shift in the role of the online platform.

Overview of US cases

One of the first cases to decide whether e-commerce platforms can be considered a key part of the supply chain or whether it was integral to the sale of a defective product was Bolger v Amazon.com. In 2016, the trial court held that the defendant could not be held liable for a defective laptop battery which exploded and caused third-degree burns to the plaintiff. However, in August 2020, the California Court of Appeal reversed the lower court’s decision and - for the first time for an appeals court - concluded that “but for” the defendant’s “own acts” the plaintiff “would not have been injured” and therefore the defendant’s “own acts and its control over the product in question, form the basis for its liability”.

In reaching its decision, the court noted that the defendant’s business model encouraged consumers to interact directly with its website rather than those of third party sellers: customers place their products in the website’s “cart” and returns and exchanges are processed and managed by the defendant. Key to this decision was that California law is not limited to holding “sellers” liable for product defects and the California “doctrine of strict liability…cut[s] through such technicalities to compensate plaintiffs for injuries caused by defective products”.

Shortly following this, in April 2021, the California Court of Appeal in Loomis v Amazon.com [2021] also held the defendant liable as it considered it to be part of the product’s distribution chain.

Other states, like New York, generally hold an entity liable only if that entity qualifies as a “seller” in the transaction. In December 2020, a New York Supreme Court found that the defendant online platform exercised sufficient control over a thermostat, which allegedly caused a house fire, to be considered a “seller” because it had the power to refuse product registration, process customer returns, and prepare products for shipment, all while taking a cut of the profits and shipping the product in defendant-branded packaging (State Farm Fire & Cas Co. v Amazon.com, Inc. 2020 NY Slip Op 20326 (8 December 2020)).

Other courts have also found online platforms to be a “seller” based on their relationship with third-party sellers and the structure of its online marketplace which supported a finding that the platform controlled the allegedly defective product at issue (State Farm Fire & Cas. Co. v Amazon.com, Inc. (W.D. Wisc. 2019) (applying Wisconsin law).

Holding the online platform liable for defective third party products represents a shift by both the US courts and the public as to how they consider online marketplaces to be “pivotal in bringing the product…to the consumer.” Consumers have expanded the scope of their reliance on the supply chain and further examination is needed as to whether e-commerce platforms were key to the sale of defective products when assessing product liability.

Ultimate liability may turn on how courts define a “seller.” Recently, the Supreme Court of Texas, on certified question from the Fifth Circuit, held that the definition of “seller” did not extend to a defendant online platform in the context of third-party products when the company was being sued for a toddler’s injury from an allegedly defective remote control purchased on the online platform (Amazon.com Inc v McMillan [2021]).

Similarly, a federal district court applying Illinois law granted summary judgment on a negligent failure to warn claim against online platform defendant, finding that under Illinois law, the key criterion for being a “seller” under Illinois law was exercising control over the product, not over the purchasing process (Great Northern Ins. Company v Amazon.com, Inc. [2021]).

The Ninth Circuit, applying Arizona law, likewise held that the defendant online platform was not liable for a hoverboard sold on its platform that caught fire because they were not considered an “integral part of the enterprise,” [b]ut rather was more akin to the U.S. Post Office and lacked control or influence over the product (State Farm Fire & Cas. Co. v Amazon.com, Inc. (9th Cir. 2020)).

EU and England & Wales position

Whereas the US has seen seismic shifts in product liability case law developments in this area there is still little to no case law in Europe or England and Wales on this topic despite it being the subject of emerging debate.

With the increase in product liability claims in the US, it is possible that there is scope for the onset of similar disputes to reach England and Wales.

Comment

The onset of the online platform litigation in the US should alert online platforms to the potential liability risks they face for the products they sell. E-commerce platforms may also want to consider their relationships with third-party sellers and note that they can mitigate these risks by demonstrating they played a very minor role in the sale process.

Overall, it is clear that the pace of growth in respect of online selling will only muddy the waters further when it comes to the potential liability of e-commerce platforms. Above all, the priority moving forward for the UK will be to ensure that there is a balanced approach, which will be best achieved by combining the strengths and strategies of both jurisdictions.

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