Ruling Against Amazon May Prove Broader Blow to Its Business Model

A federal court ruling that Amazon.com Inc. can be held liable for a dog collar sold on its website that partly blinded a woman could complicate the online merchant’s business if it is applied broadly.

The Third Circuit Court of Appeals, in Philadelphia, overturned a judge’s decision that Amazon was shielded under the Communications Decency Act, which protects online businesses from lawsuits over the postings of their users.

It’s the first federal appeals court to hold that Amazon is a product “seller” that can be held liable under state law for sales on its marketplace.

That is so, the court said in a divided ruling on Wednesday, “even though the products are sourced and shipped by third-party vendors.” It found that “Amazon’s involvement in transactions extends beyond a mere editorial function; it plays a large role in the actual sales process.”

If the ruling is applied more broadly, it could significantly affect Amazon. More than half the items sold on the popular site come from independent merchants. Amazon takes a commission on sales and charges additional fees for storing products in its warehouses, packaging them and delivering them. But it technically doesn’t own the inventory, a fact it has used to protect itself from product liability cases.

Pennsylvania uses guidelines employed by other states, so the Third Circuit’s reasoning could be applied more widely. That could impose on Amazon greater responsibility over the goods posted on its site, possibly adding new costs and complexities to a business model designed around efficiency.

How broad the impact of Wednesday’s ruling will be remains to be seen. Three other federal appeals courts have ruled recently in product cases brought against Amazon. Two ruled in the company’s favor on the “seller” issue. The third didn’t address the issue directly.

Representatives of Amazon didn’t immediately respond to a request for comment on the ruling.

The lawsuit was brought by a woman, Heather Oberdorf, who had bought a dog collar with a retractable leash sold by the Furry Gang through Amazon. When she took her dog for a walk, the pet lunged, breaking a ring on the collar, she claimed. That caused the leash to recoil and hit her face and eyeglasses, permanently blinding her in the left eye, she alleged.

The Communications Decency Act protects Amazon from Oberdorf’s failure-to-warn claims, the appeals court said in an opinion by Judge Jane R. Roth. But the Act’s immunity provision for online-platform providers doesn’t protect the company from her claims that Amazon is liable for “selling, inspecting, marketing, distributing, failing to test, or designing” the collar, the court said.

Judge Anthony J. Scirica dissented, saying he wouldn’t have found Amazon a seller under legal guidelines on product liability claims in Pennsylvania.

Neither the woman nor Amazon was able to locate the Furry Gang after she was injured, according to the ruling.

The case is Oberdorf v. Amazon.com Inc., Third Circuit Court of Appeals., No. 18-1041, 7/3/19.