Sunday August 30, 2020 |Notes

Amazon is working to leverage liability ruling

Amazon has leverage it's third-party marketplace to account for over half of all sales. Those third-party sales are made by millions of sellers from locations around the world, all utilizing Amazon Seller Central to log products on the marketplace. With the vast size of the marketplace, it's inescapable that there will be faulty products and unsatisfactory sellers. For the first time, a California court has ruled Amazon can be held liable for faulty products.

This ruling came in a lawsuit by a woman who had a laptop battery literally blow up in her face:

Angela Bolger says she bought a replacement laptop battery on Amazon from E-Life, a fictitious company name for Lenoge Technology Ltd., which shipped the battery to her in Amazon-branded packaging. Several months later, Bolger claims, the battery exploded. She says she was never notified of safety concerns that led to E-Life being banned from Amazon’s platform.

Soon after the ruling, Amazon issued a statement disagreeing with the court's decision:

“The court’s decision was wrongly decided and is contrary to well-established law in California and around the country that service providers are not liable for third party products they do not make or sell,” the spokesperson said.

Since then, Amazon has changed tune and published a post in favor of legislation. They now support applying "strict liability to anyone remotely connected to selling things online", as Matt Stoller wrote in a post examining how Amazon has deftly used legislation to its advantage. Stoller brings up the idea that new requirements would be too costly, or at least more detrimental, for competitors such as Etsy, eBay, and even Shopify.

Shopify is moving into logistics and warehousing, meaning that it is setting up to be the alternative to Amazon. And it has a real advantage over Amazon in some ways, because it doesn’t actually compete with its customers. Placing strict liability obligations onto Shopify for whatever its customers sell would be quite a coup for Amazon, and make it much harder for smaller competitors to sell online.

The shift isn't entirely surprising and has echoes of Amazon's past support of a $15 minimum wage and applying state sales' taxes to online sales. However, it's a swift change from their long-held stance, whereby marketplaces should be absolved of liability.

But Amazon might start lobbying for standards it can meet but that others cannot, which would be a strategic shift. And if it is such a shift, it would very similar to what Amazon did with sales taxes. From its founding in 1994, Amazon exploited a legal loophole allowing mail order companies to collect sales taxes only in states in which they had physical facilities (which is why Bezos located the company in Washington instead of the much larger end-market of California). Amazon thus could sell at a competitive advantage by locating facilities in as few states as possible, letting customers avoid sales taxes. When Amazon’s growth of warehousing facilities made such a strategy impractical, the company flipped (though not for its third party merchants), and argued for closing that loophole, so upstarts couldn’t use it against Amazon. It also started extracting tax concessions for locating warehousing facilities in a state, giving it a different powerful competitive advantage.

When Amazon shifted from lobbying against paying state sales tax, change was enacted quickly. The marketplace liability issues will likely follow suit given Amazon's market share in digital commerce. There's a strong likelihood new legislation will end up help to strengthen Amazon's position further, as the consumer is put first. Ideally, new legislation will further enable competition to the benefit of customers, rather than look for short-term fixes.

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