New York (CNN Business)When David Wilk, a lawyer in Williamsport, Pennsylvania, got a call from a woman looking to sue Amazon, little did he know it would become the most high-profile case of his career.
“I will never have another case like this in my life,” Wilk said.
On Wednesday, the case “Oberdorf v. Amazon” will undergo a rare hearing in Philadelphia by all the federal judges on the US Third Circuit Court of Appeals. The closely-watched case hinges on the question of whether Amazon can be held liable for damages caused by goods sold in its third-party marketplace, where outside sellers sell their products alongside Amazon’s own offerings.
The decision, which is subject to appeal, could influence numerous other cases and, ultimately, the way Amazon (AMZN) runs its business.
Five years ago Wilk’s client, Heather Oberdorf, was blinded in one eye when she says a faulty dog collar broke and caused her retractable dog leash to recoil and hit her face and glasses. She had bought that dog collar from a third-party seller on Amazon, called the Furry Gang, which neither she nor Amazon has been able to locate, despite what Wilk described as “extensive efforts.”
According to Amazon’s 2018 annual report, 58% of its sales came from its millions of third-party sellers, many of whom ship directly to consumers. US courts have routinely held that Amazon is not liable for defects or intellectual property issues related to these third-party sales, viewing Amazon as a platform that connects buyers and sellers. Court hav eheld that plaintiffs seeking damages must sue the third-party seller directly.
The original appeals court decision in Oberdorf v. Amazon was a significant departure from previous rulings. In their 2019 opinion, two of the three judges on the panel ruled Amazon was liable under Pennsylvania law as the seller of the dog collar that injured Oberdorf.
The court looked at multiple factors, including whether Amazon was the only party available for Oberdorf to sue, whether holding the company responsible would be an “incentive” to enforce safety protocols, and the legal terms the company signs with its third-party sellers. The judges decided Amazon should be liable under all of these factors.
“Although Amazon does not have direct influence over the design and manufacture of third-party products, Amazon exerts substantial control over third-party vendors,” the opinion said. The Third Circuit granted Amazon’s request to review the decision before the full appeals court, a sign of the court’s awareness that any decision is likely to have have lasting implications.
Amazon declined to comment for this story, but previously has argued that it is not a “seller,” and only provides a marketplace for other sellers. “If you purchase any of the products or services offered by these businesses or individuals, you are purchasing directly from those third parties, not from Amazon,” according to its conditions of use. “Amazon does not assume any responsibility or liability for the actions, product, and content of all these and any other third parties.”
Further, the company claims its listings are protected by the Communications Decency Act, which states that online platforms cannot be treated as the publisher of information provided by a third party on their sites.
If the full appeals court rules against Amazon, “I think it could have a significant effect throughout the country,” said Professor Aaron Twerski, who has written extensively about the Oberdorf case with his Brooklyn Law School colleague Edward Janger.
Though this case is brought under Pennsylvania law, Twerski said it would take only a few states to shift some precedent toward holding Amazon liable. Ultimately the issue could end up before the Supreme Court.
A substantial shift in case law holding Amazon liable for third party sales would change the way the marketplace operates, according to Sucharita Kodali, vice president and principal analyst at Forrester. She believes Amazon would respond by demanding more stringent vetting measures for third-party sellers and their products. Right now, many product categories don’t even require a seller to gain approval from Amazon to set up on the platform.
“They should have done this long ago. Yes, there would be fewer sellers but really, do we need two million in the first place?” she said via email. “And if the shady ones go away, I promise you, no one will shed a tear.”
The overall impact might be fewer third party sellers, but Kodali believes the impact on Amazon’s overall finances would be muted given that the company has multiple revenue streams and its strongest third-party sellers aren’t the problematic ones.
Wilk — the lawyer who will argue the case — thinks at its core the decision is about how e-commerce functions in our everyday lives, and that the courts must catch up to consumers’ perception that Amazon is responsible for the goods it sells.
“Really what it comes down to is is the court going to recognize how people buy things in the modern world?” he said.
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