Amazon wins again in counterfeit liability lawsuit

Amazon should not be held liable for counterfeit products sold by third-party vendors that it handles via its ‘fulfilled by Amazon’ service, says a new court ruling.

The appeals court decision – delivered last week – focused on a 2014 case in which a defective LED headlamp purchased on Amazon’s platform experienced a battery malfunction and caught fire, causing more than $300,000 in damage to a property.

The case was brought by the insurance company (Erie) that had to cover the damages, alleging that the online retailer had been negligent as it was effectively the seller of a defective and dangerous item.

An earlier Maryland district court ruling found that Amazon was not liable, and in fact should be immune from suit under federal laws protecting Internet intermediaries’ in the online publication of a third-party’s information.

Not the end of the story?

In the latest ruling, the appeals court has ruled that Amazon is not liable, but it has overruled the lower court on the immunity issue. That could be important, as the judge in the case Diana Gribbon Motz, said while she rejected the insurer’s claims that Amazon was a seller “I write separately to emphasize why this may not always be so.”

The suggestion is that state and federal laws are no longer equipped to handle the changing nature of e-commerce that has disrupted the traditional, linear supply chain in the US.

Amazon does not face the usual product regulations and liability that local retailers face if they sell a dangerous, defective or deadly product for the 60 per cent of its sales that originate from third-party sellers, even though it receives a fee for each item sold.

“Amazon disrupts the traditional supply chain. By design, Amazon’s business model cuts out the middlemen between manufacturers and consumers, reducing the friction that might keep foreign (or otherwise judgment-proof) manufacturers from putting dangerous products on the market,” Motz writes in the judgment.

“Amazon played an outsized role in the transaction at issue in this case,” she continues, adding: “nearly the only thing Amazon did not do was hold title,” which is behind its protection from liability. In the case at issue, title was held by the Chinese company that manufactured the headlamp - Dream Light – even when it transferred possession to Amazon.

The case raises the question whether state and federal consumer protection laws are fit for purpose in the age of Internet commerce.

Motz point out that “nothing in today’s holding prevents Maryland’s own courts or legislators from taking up and resolving these difficult, fast-changing, and cutting-edge issues differently.”

“To be sure, Amazon’s strategy of removing nearly every products liability case to federal court has complicated this endeavour and arguably stunted the development of state law.”

Photo by Christian Wiediger on Unsplash

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