Just before the 4th of July holiday weekend, Amazon got some really bad news from a federal appeals court in Pennsylvania. Any time "bad news" is followed by "from a federal appeals court," you know it's probably a big deal. 

That court overturned a district court ruling that said that Amazon couldn't be held liable as a "seller" when you purchase third-party items on its site. The case resulted from a woman who bought a dog leash that broke, causing it to recoil and fly up and blind her. She sued Amazon, claiming the site was negligent.

The United States Court of Appeals for the Third Circuit agreed.

You can imagine why that's bad news for Amazon, but very good news if you use the site to buy, well, anything. 

Amazon and third-party sellers.

Amazon sells a lot of stuff. Often, when you make a purchase, it turns out that it's not actually Amazon that sells it to you, even though they facilitate the sale. In those cases, third-party sellers use the company's marketplace platform to sell their products and Amazon simply takes a cut.

In the past, courts had bought Amazon's claim that it was protected as a platform under section 230 of the Communications Decency Act--the same law that protects companies like Facebook or Twitter from being sued over what users post or share on those sites.

There's a difference between speech and sales.

But now, a federal court has said that there's a difference between third-party "speech" on the site--say a product review--and the sale of that product, since Amazon has a role in facilitating that transaction.

The court did rule in Amazon's favor that the company has immunity for that third-party "speech" shared on the site, but not when things go bad after you buy something from its marketplace.

This matters for consumers because often you have no idea who the seller is, and it isn't even always automatically clear that the gadget you just bought came from somewhere other than Amazon.

In fact, Amazon only allows buyers and sellers to communicate through its messaging tools, meaning that purchasers have no real way to track down a buyer that chooses not to respond. That's exactly what happened in this case--neither the plaintiff nor Amazon has been able to even find the seller.

Here's what it means for Amazon and customers.

This ruling would mean that Amazon is at least partially liable when it facilitates a transaction that goes bad, which at least gives you somewhere to go to make things right.

And surprisingly, these types of sales now make up more than half the company's revenue, which is why it could be really bad news for Amazon. Or, as Jeff  Bezos put it in the company's most recent shareholder letter, "Third-party sellers are kicking our first-party butt. Badly."

This ruling could mean the company is on the hook in a big way for defective or counterfeit products sold through its marketplace, even though it didn't sell them. That would dramatically change the relationship between Amazon and its third-party sellers, which could also be a good thing.

Currently, since the company only acts in these transactions as a platform for other merchants to sell their products, Amazon doesn't have much motivation to vet those sellers or their goods. If Amazon is now on the hook, you can expect some dramatic changes to the terms of the seller's agreement.

If you are Amazon, you're likely to take a hard look at who is selling in the marketplace, and what exactly it is that they're offering to your customers. If you're a third-party seller, it's probably time to make sure that your customer service policies are tightened up, since Amazon is likely to be paying a lot more attention to how well you take care of buyers.

Finally, if you're a consumer, you now have an avenue to get your problem resolved when the product you bought on Amazon's site isn't what you expected, doesn't work, or even worse, blinds you or  burns down your home.

Published on: Jul 8, 2019
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