As companies increasingly open and support online marketplaces for third parties to sell goods and products, the question has arisen as to what happens when one of those products is defective. Who is liable for any harm the consumer may suffer? Most jurisdictions that have confronted this question have limited liability to the third-party sellers and product manufacturers, but California has charted a different path. Two recent California Court of Appeals decisions have held that Amazon is strictly liable for defective products sold by third parties through the Amazon marketplace.

Bolger v. Amazon.com

In August 2020, in Bolger v. Amazon, the Fourth District Court of Appeals held that Amazon was strictly liable for severe burns caused by the explosion of a replacement battery that the plaintiff bought from a third-party seller through the Amazon marketplace. The court imposed this liability because it found that Amazon was "pivotal" in the consumer acquiring the defective battery. The court cited a number of factors to support this decision:

• Amazon had possession of the battery and shipped it through an Amazon warehouse to the plaintiff using Amazon packaging.
• The plaintiff found the battery on the Amazon website.
• The Amazon website contained a product listing for the battery.
• Amazon accepted payment for the battery.
• Amazon controlled all communication with the plaintiff.
• Amazon received "substantial fees" for the purchase and "demanded indemnification" from the seller.

The Bolger court held that Section 230 of the Communications Decency Act did not shield Amazon from liability because it was not holding Amazon liable "as the speaker or publisher" of the product listing, but instead because of Amazon's actions, which made it an "active participant" in the stream of commerce that resulted in the plaintiff receiving the defective battery.

Based on this distinction, it appeared that the court holding might be limited to situations where the online marketplace took an active role in handling the physical product—such as by storing and then shipping the defective product to the consumer, as Amazon did in the Bolger case.

Loomis v. Amazon.com

Recently, on April 26, 2021, the Second District Court of Appeals eliminated that possible limitation on the Bolger holding.

The plaintiff in Loomis v. Amazon purchased a hoverboard via Amazon's website from a third-party retailer who shipped the product directly to the plaintiff. The hoverboard subsequently caught on fire, causing both property damage and personal injury to the plaintiff. Although Amazon never had possession of the defective hoverboard and did not ship the item, the Loomis court held that Amazon still could be strictly liable for any product defects.

To reach this conclusion, the appellate court first found that "Amazon placed itself squarely" between the seller and the buyer, and therefore was part of the vertical chain of distribution. The court based this conclusion on five facts:

1. The plaintiff "perused" the Amazon website to find the hoverboard.
2. Amazon processed the order and payment.
3. Amazon transmitted the order to the seller.
4. The plaintiff contacted Amazon when she had a question about when the hoverboard would be delivered and could not contact the seller directly.
5. If the plaintiff had wanted to return the hoverboard (which she did not attempt), this return would have been processed by Amazon.

The court then noted that the more appropriate test might be whether Amazon was part of the "stream of commerce" that delivered the hoverboard to the plaintiff. Under this theory, the court again ruled against Amazon, but left open a number of questions for the jury, including whether Amazon's "conduct was a necessary factor" in bringing the hoverboard to market and whether Amazon had control over or a substantial ability to influence the manufacturing or distribution process.¹

Guidance for Online Marketplaces

The result of both cases seems to be driven by the court's concern that consumers will be left without recourse if they have to pursue third-party sellers and manufacturers who may be overseas or difficult to locate. These decisions suggest that other online marketplaces may be strictly liable for product defects in California if they process payments, refunds, and returns, and if they exclusively handle customer communications. The likelihood of liability will only increase if the online marketplace ships or stores the product for the third-party retailer.

Given the size of California's market, online marketplaces should take this potential liability seriously and consider whether they need to update their insurance coverage, the service fees charged to sellers, and potentially their terms of service to include indemnification or other provisions protecting them from liability for sales made on their platforms by third parties.

For additional information on these decisions or any related matter, please contact Josh Baskin or another member of Wilson Sonsini's internet strategy and litigation practice.

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[1] The Loomis court never considered Section 230 of the Communications Decency Act because Amazon did not assert it as a defense to the product defect claims.