The curious case of Amazon’s product liability strategy

Until recently, Amazon had a unified, and largely successful, approach to avoiding lawsuits over defective products sold on its marketplace. But now things have shifted, and Amazon finds itself in a bind. With courts starting to turn against Amazon, does it lean into liability for marketplace products, and thus enable itself to claim responsible corporate citizenship, or does it continue to resist?

First, some background. Amazon's prior litigation strategy for product liability lawsuits began with removing the cases, which were mostly subrogation cases brought by insurers whose insured suffered property damage from a defective product purchased on Amazon, to federal court. This assured product liability law would remain static since federal courts are not empowered to advance state law. Instead, federal courts sitting in diversity can only apply the law as it presently exists.

Next, Amazon would argue it was not the "seller" of the product under the applicable state law. This argument keyed off of Amazon's marketplace business model, where third parties list products for sale on Amazon's website. Despite exercising near total control over the transactions on its marketplace, Amazon claimed it was merely a service provider to a third-party seller; a claim bolstered by Amazon's refusal to take title to the product and, in many cases, possession.

This strategy allowed Amazon to garner a string of early victories in courts around the country, including an opinion from the 4th U.S. Circuit Court of Appeals, Erie Ins. Co. v. Amazon, 925 F.3d 135 (2019), and the 6th Circuit, Fox v. Amazon, 930 F.3d 415 (2019), as well as an Ohio appellate court, Stiner v. Amazon, 120 N.E.3d 885 (Ohio Ct. App. 2019). Amazon also convinced several federal district courts find in its favor. These decisions mostly flew under the product liability radar, especially the subrogation cases.

But then things started to change. The first blow was a panel opinion from the 3rd Circuit in Oberdorf v. Amazon, 930 F.3d 136 (2019). Oberdorf was a personal injury case involving a defective dog collar that partially blinded the plaintiff. The 3rd Circuit found that under Pennsylvania law, Amazon could be potentially strictly liable for the plaintiff's injuries.

Amazon successfully petitioned for rehearing en banc in Oberdorf, so the panel opinion has since been vacated and is no longer good law. And following certification of the question to the Pennsylvania Supreme Court by the en banc court, the parties resolved the case and the appeal was abandoned. Thus, Amazon avoided having any final published disposition of that case.

Nevertheless, Oberdorf signaled a willingness of courts to potentially hold Amazon liable for products sold on its marketplace. In the months following, a few district courts found in favor of plaintiffs pursuing these types of cases, including in State Farm v. Amazon, 18-261 (W.D. Wis. 2019), from Wisconsin, and McMillan v, Amazon, 18-2242 (S.D. Texas 2020), from Texas. Still, Amazon was winning more cases than it was losing, and the district court opinions going the other way carried little precedential weight.

In the midst of all this, the California Legislature began considering Assembly Bill 3262, a bill aimed at holding online marketplaces, including Amazon, potentially liable for products sold on those marketplaces, provided the transaction or marketplace met certain criteria. Initially, Amazon took no stance on AB 3262, and it passed the House easily.

But then, the 4th District Court of Appeal issued a published decision in Bolger v. Amazon, 2020 DJDAR 8836 (Cal. App. 4th Dist., Aug. 13, 2020). In that case, the court reversed summary judgment for Amazon, and held under California law it could be held strictly liable for an exploding laptop battery sold on its marketplace. Bolger marked the first time a state appellate court anywhere ruled against Amazon on this issue and currently is the only published appellate opinion in the nation finding Amazon liable.

Following the Bolger decision, Amazon announced publicly that it was supporting AB 3262. In a posting on its website, Amazon proclaimed: "We share the California Legislature's goal of keeping consumers safe. To further that goal, this legislation aimed at protecting consumers should apply equally to all stores, including all online marketplaces. Injured consumers should be able to seek compensation regardless of how a particular online marketplace makes money."

This was a bold and unexpected move from Amazon. Once word got out about this, several other online marketplace providers accused Amazon of trying to leverage its market might and drive other providers out of business. The basic argument was that Amazon was urging the adoption of a liability model that Amazon could easily contend with but that smaller competitors might struggle with. The truth of these accusations is debatable, but they did kick up a lot of dust around AB 3262. Ultimately, time ran out and AB 3262 did not make it out of the Senate. But, expect to see another bill on the topic this coming legislative session.

Having voiced support for AB 3262, Amazon now faces a dilemma. There are still several appeals pending against Amazon over product liability claims, including the McMillan case in the 5th Circuit, the Stiner case in the Ohio Supreme Court, a case in the 9th Circuit called Carpenter v. Amazon, 17-03221 (N.D. Cal., Nov. 20, 2018), and another case in the California Court of Appeal, Loomis v. Amazon, B297995. And doubtless there are more cases being filed or already in litigation at the trial court level.

How does Amazon respond? It can continue to fight liability in court, but that fight is made harder by the fact that it agreed to support legislation that would hold it liable for exactly the same conduct. Or it could accept liability as a general proposition, while obviously retaining all of the defenses available to any other defendant in a product liability case.

How that plays out remains to be seen. But we got a preview in Amazon's petition for review in the Bolger case. In the petition, Amazon argued, as expected, the Court of Appeal overstepped its bounds and improperly expanded product liability. But, interestingly, Amazon also specifically mentioned AB 3262 and argued the court should have deferred to the Legislature to decide these kinds of questions.

This perfectly exemplifies Amazon's problem. Amazon says the Bolger court should have left the liability calculus to the Legislature while that Legislature was considering a bill, supported by Amazon, that would hold Amazon liable under the exact same circumstances. If this seems contradictory to you, you are not alone.

At a minimum, this seems to lend some credence to the argument that Amazon is trying to wield product liability as a competitive advantage. Amazon wants online marketplace liability to be all or nothing and isn't willing to lose the liability battle unless it can lose on its own terms. 