Delivering for Best-in-Class Wholesaler-Distributors
July 2019

UPDATED JULY 21, 2019

It is well settled law that wholesaler-distributors and other resellers in the supply chain face potential strict product liability for injuries cause by defective products they sell, due to their legal status as a “seller” of that product.

A recent U.S. appeals court decision (2-1 vote) reversed a lower court ruling and held that under Pennsylvania law Amazon was liable as a “seller” of an allegedly defective product sold by a third-party vendor on the Amazon site, even though Amazon did not take title to, or possession of, the product. (Oberdorf v. Amazon.com Inc., 3rd Cir., No. 18-1041). Amazon derives over 50% of its revenue from sales of products sold by over one million third-party vendors.

In the ruling the court focused on Amazon’s extensive contractual authority in controlling the sales of products offered by third-party vendors on the Amazon marketplace.  Click here to view the current Amazon Services Business Solutions Agreement.

On July 17, 2019, Amazon agreed to make changes to this agreement by mid-August 2019 that are intended to benefit US vendors and others worldwide, in order to close an investigation by Germany’s antitrust enforcers.   Unfortunately for vendors, the revised agreement will give Amazon the right to terminate the agreement at any time “for convenience” (i.e., without cause for any reason or no reason) by giving 30 days advance notice with Amazon retaining ownership of, and unlimited rights to use, all the vendor’s customer information and sales data.

However, within hours of the German settlement, the European Union opened a broader antitrust investigation to assess whether Amazon’s use of sensitive customer data gathered from third-party vendors selling on the Amazon site violates EU competition laws.  The probe will focus on Amazon’s dual role as an online seller of its own products and as a sales channel for independent sellers, and whether Amazon misuses the customer data it gathers (and owns exclusively) to harm those independent sellers and competition generally.  The contractual restrictions listed below are certain to receive EU scrutiny.

The contractual restrictions include:

  • The identity of, and all information provided by, the “customer” making a purchase from the Vendor on the Amazon site is deemed Amazon confidential information, owned exclusively by Amazon. The Vendor may not disclose this Amazon transactional information to any person. Further, the Vendor is prohibited from using this information for “any marketing or promotional purposes whatsoever.”
  • The Vendor can only communicate with customers regarding their Amazon orders through the Amazon platform.
  • All information the Vendor provides to Amazon may be exploited by Amazon in any manner and for any commercial or non-commercial purpose. This includes any Vendor information reasonably requested by Amazon.
  • The price charged by the Vendor on Amazon cannot be higher than the price charged by the Vendor in other sales channels other than physical stores.
  • All customer payments are received by Amazon as the Vendor’s agent and periodically remitted to the Vendor, minus Amazon’s commissions.
  • Amazon retains the right to stop or cancel orders, or to suspend providing services to the Vendor, or to terminate the agreement in its sole discretion, without any prior notice.

This case involved a dog collar that failed and injured the plaintiff. Significantly, the third party-vendor (The Furry Collar) could not be located by the plaintiff or Amazon following the injury, leaving Amazon, according to the court, “as the only member of the marketing chain available to the injured plaintiff for redress.”

In the dissenting opinion, the judge reasoned that several non-Pennsylvania court decisions had excused Amazon from strict product liability as a seller because Amazon did not take and transfer legal title to products sold by third-party vendors, nor did Amazon ever take possession of the vendor’s product.

The case, filed in June 2016, now returns to the federal district court for trial.

While this decision is limited to an interpretation of Pennsylvania law, it could be persuasive authority in other states where claims are made against online marketplaces that play a critical role as the compensated intermediary for the sale of products to consumers and others.

Click here to view the opinion.

 

 

 

 

 

ajax-loader