Middleman: The Impact of Products Liability Law on Internet Distributors

November 12, 2020 / Writing and Speaking

Where there’s a will, there’s a way.  If nothing else, the marketplace is resilient.  A few months ago, usually-filled shopping centers were ghost towns.   Heavily dependent on walk-in traffic, many businesses failed.  Despite an improving business climate, COVID still confounds the efforts of owners to draw pre-virus customers through store doors.  But some have found a way to adapt.  The difference between failing and surviving businesses often is the latter’s ability to work the Internet into their operations.

For those businesses that already used the Internet, sales have boomed.  It’s easy to understand why.  Every purchase comes with perks—no driving, no lines, and no COVID.  Think Amazon.com.  Projections for Amazon’s net-operating income in 2020 range up to $5 billion, easily surpassing the enormous $3.2 billion figure for 2019.

It’s a gross understatement that Amazon.com sells lots of products.  Amazon reportedly catalogues 12 million.  Combined with products sold through Amazon Marketplace, the number jumps to 350 million.  Of course, Amazon doesn’t manufacture the products it sells.  It facilitates sales, essentially acting as a middleman.  So the question arises: when Amazon sells a product, is it a distributor subject to state product liability laws?  The answer?  It depends.  Stiner v. Amazon.com, Inc., 2020 Ohio LEXIS 2205.

FACTS

A friend gave Logan Stiner, age 18, caffeine powder she bought off Amazon’s website.  That day, Logan was found dead from cardiac arrhythmia due to acute caffeine toxicity.  In response to an FDA warning, Amazon removed caffeine-powder listings from its website two months later.  Logan’s father sued Amazon.com under the Ohio Products Liability Act, claiming that Amazon supplied a defective product.

A third-party vendor had listed the product on Amazon.com Marketplace under a virtual storefront trade name. Vendor agreements with Amazon required vendors to “source, sell, fulfill, ship, and deliver” their products, including proper packaging, marking, and labeling.  Vendors needed to provide accurate and updated information for Amazon’s website.  Vendors set prices, subject to certain restrictions, and could warrant their products.  They were responsible for product defects.  The powder vendor declined the option to store it at an Amazon facility (for a fee).  Amazon never possessed or had contact with the powder.  The purchase order for the powder directed the purchaser to contact the storefront with questions or concerns.

Amazon moved for summary judgment on the ground that it was not a “supplier” under the statute.  The Ohio Supreme Court agreed.

ANALYSIS

Under the statute, a supplier may be treated as a manufacturer if the latter is unreachable or insolvent.  The statute defines a “supplier” as one who “sells, distributes, leases, prepares, blends, packages, labels, or otherwise participates in the placing of a product in the stream of commerce.”  A supplier does not include (1) a financier in a product sale, or (2) a financial lessor not involved in product selection, possession, maintenance, or operation.  The key distinction is that unlike a financier or a financial lessor, a supplier must exert some control over the product or its preparation for use or consumption.

Amazon lacked the necessary product control to be a supplier.  Amazon’s contractual relationship with vendors distanced Amazon from control.  Amazon did prevent vendors from contacting customers, retained website control, reserved the right to alter product descriptions, and imposed pricing restrictions.  But those were controls over the Amazon/vendor relationships, not controls over the products.  The Supreme Court gained support for the control requirement in decisions from courts considering New Jersey, Tennessee, and California statutory or common laws.

The Court ruled that its decision squared with the policy objectives behind the Ohio statute.  It found nothing in the statute imposing strict liability on a distributor lacking control over a product and product safety.  Though noting Amazon’s market dominance and ability to compensate victims, the Court left those considerations to the legislature.

Learning Point:

Actually, there are two—one almost too obvious to mention.  An Internet distributor of third-party products must have a level of control over the product itself.  Product control allows a distributor to have an impact on safety.  The element of product control must be the starting point in analyzing a distributor’s potential liability.

The second point comes from the “reluctant” concurrence of a justice.  Ohio’s statute was a product of the 1980s, when stores were made of bricks and e-commerce through virtual sellers was not even on the horizon.  Back then, mail-order retailers were more closely involved with filling product orders.  But the more recent marketing model allows Internet distributors to be involved in a transaction without being involved with the product or the transfer of ownership.  It renders the statute obsolete, unable to incentivize all players in today’s supply chain to take an active interest in the quality of products sold.

In the end, the concurring justice was advocating the modernization of product statutes to reflect the realities of the virtual marketplace.  How the legislature in Ohio—and possibly other states—react to his call will be interesting to watch.

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