Back in the dark ages of tort law a person injured by a defective product had no recourse absent privity of contract with the seller. That changed in the 1960s with the development of strict liability laws that allowed a plaintiff to bring suit against any party responsible for placing a product into the stream of commerce. As with almost everything though, technology, notably the rise of e-commerce, seemed to disrupt what had been a settled principle. In a series of decisions over the past five years online marketplace retailers led by the king of them all, Amazon, won a spate of rulings seemingly insulating them from tort liability for products sold on their websites. Now, with the U.S. Court of Appeals for the Third Circuit's recent panel decision in Oberdorf v. Amazon, the pendulum may have started to swing the other way.

In January 2015, Heather Oberdorf returned home from work, put a retractable dog collar and leash on her dog, and took the dog for a walk. Unexpectedly, the dog lunged, causing the D-ring on the collar to break and the leash to recoil and hit Oberdorf's face and eyeglasses. As a result, Oberdorf is permanently blind in her left eye.

Oberdorf bought the dog collar on Amazon.com. While the entire transaction took place through the Amazon website, the product was sold there by a third-party vendor, The Furry Gang. When Oberdorf attempted to sue The Furry Gang she discovered that they were no longer doing business on Amazon Marketplace—and that Amazon did not have sufficient information about their identity to allow a suit against them. With no other recourse she proceeded against Amazon including with claims for strict products liability and negligence.

Let's stop here for a little background. Amazon, along with many other online sellers, operates, at least in part, as a marketplace where third-party vendors can market their products to consumers. Products are sold three ways: the direct sale of Amazon-branded products to consumers, the sale of a product directly from a vendor to a consumer, with Amazon merely allowing the vendor to advertise the product and the consumer to order it, and the sale of a product from a vendor to a consumer, with Amazon fulfilling the transaction by holding the product in its inventory and shipping it to the consumer. As to the first way, Amazon seems a clear target for a product liability claim under the Restatement (Second) Torts 402A. The other two are less clear. Oberdorf deals with the third.

According to Amazon, sales by third-party vendors make up as much as 58% of its business and Amazon's business is big. According to a recent survey by researcher e-marketer Amazon accounts for more than a third of all online retail sales. Online retailing is growing at a rate of nearly three times that of traditional brick and mortar sales. And Amazon isn't the only player in this space. Think of Wayfair, Etsy, eBay and Craigslist just to name a few. All this is to say, case law that affects Amazon applies to millions of transactions by millions of consumers every year. Beyond the marketplaces themselves the law affects insurers, online vendors and consumers. This is a big deal.

A review of the opinion in Oberdorf and other cases provides some background as to how third-party vendor sales on Amazon work. First, every vendor selling on the site signs Amazon's services business solutions agreement (ASBSA). The ASBSA governs every aspect of the sales process. The vendor chooses which products to sell and provides Amazon with a description of the product, in-stock status and other information. Amazon then creates the listing on its website. The vendor chooses its price although it may not charge more on Amazon than in other sales channels. The vendor must comply with Amazon's shipping rules. Amazon is compensated with a percentage of sales or a per-item fee. Amazon allows shoppers to publicly rate vendors on the site. Returns and exchanges are processed through Amazon.com. Amazon also retains the right to suspend, prohibit or cancel any listing. The ASBSA requires vendors to indemnify Amazon. For a consumer buying from a vendor, the entire transaction takes place on Amazon.com. While the name of the vendor is displayed during the purchasing process the customer's only route to this third-party vendor is through the Amazon website.

This brings us back to the core principle of products liability law, that any party responsible for placing a product in the stream of commerce is a viable defendant for an injured plaintiff. In recent years Amazon had been successful in arguing that it is a mere marketplace where vendors can offer their wares and not a "seller" that can be subject to state products liability laws. See Allstate Insurance v. Amazon, Civ. A. No. 17-2738 (D. N.J. 2017 unpub.) (Amazon is not a seller under New Jersey Product Liability Act); Fox v. Amazon, 930 F.3d 415 (6^th Cir. 2019) (finding Amazon not to be a "seller" under the Tennessee Products Liability Act);  Erie Insurance v. Amazon, 925 F.3d 135 (4th Cir. 2019) (not a "seller" under Maryland law). Amazon has also argued successfully that it is immune from suit under Section 230 of the Communications Decency Act of 1996 that insulates internet platforms from liability for user content.

For Oberdorf, at first luck was not on her side. The trial judge in the Middle District of Pennsylvania granted Amazon's summary judgment motion, ruling that Pennsylvania law would not treat Amazon as a "seller" liable under 402A and that beyond that Oberdorf's claims were barred by the Communications Decency Act. The trial court, in holding that Amazon was not a "seller" accepted Amazon's description of itself as a marketplace, in the court's words, "a sort of newspaper classified ad section, connecting potential consumers with eager sellers in an efficient, modern, streamlined manner," see Oberdorf v. Amazon, 295 F. Supp. 3d 496 (M.D. Pa. 2017).

Oberdorf appealed and on July 3, the Third Circuit vacated the district court's opinion and, in a 2-1 panel decision Judges Jane R. Roth and Patty Shwartz predicted that Pennsylvania courts would consider Amazon a seller for purposes of Section 402A of the Second Restatement of Torts. The court also rejected the Communications Decency Act defense insofar as it related to claims arising out of the actual sale of the alleged defective product (as opposed to warning claims), see Oberdorf v. Amazon, 930 F.3d 136  (3d Cir.), reh'g en banc granted, opinion vacated, 936 F.3d 182 (3d Cir. 2019)

In holding Amazon to be a "seller" for purposes of 402A, the Third Circuit relied in part on the Pennsylvania Supreme Court's decision in Musser v. Vilsmeier, 522 Pa. 367, 562 A.2d 279 (1989) where a boy was injured by a tractor his father bought at an auction house. Ultimately, the Musser court found that holding the auction house liable would not further the purpose of strict liability law, but it set out a four-part test to apply in getting there. The Third Circuit applied this same test in finding Amazon subject to Pennsylvania products liability law.

The Third Circuit walked through each part of the Musser test: was Amazon the only member of the marketing chain available? In Oberdorf's case, they were; The Furry Gang was no longer in existence, having closed its Amazon account in May 2016. Would the imposition of strict liability be an incentive to safety? The court determined that—even though Amazon did not design or manufacture the products—it would. The court reasoned that Amazon had substantial control over third-party vendors and would be able to remove unsafe products from its website. Was Amazon in a better position than the consumer to prevent the circulation of defective products? Naturally the court found Amazon to be in a superior position than the average consumer. In fact, the court stated that Amazon was "uniquely positioned to receive reports of defective products" which could be quickly removed from Amazon's website. And, the court considered whether Amazon could distribute the cost of compensating for injuries resulting from defects. Once again, the court concluded that Amazon could distribute that cost by simply adjusting the fees that it charges to vendors and by enforcing the indemnity provision in its ASBSA.

The majority opinion also rejected the concept that because Amazon never takes title to a product it cannot be a seller. Citing to a number of cases the majority reasons that Pennsylvania law does not limit strict liability to those who, at some point, hold title to a product and that here Amazon's acceptance of orders and shipping arrangements together with its substantial control over pricing, customer service and communications with customers are more than enough to impose liability.

There is another side to this story as set out in the extensive dissent of Judge Anthony J. Scirica. For him, because Amazon, at least in this scenario, never takes title to the product it cannot be a "seller" for purposes of 402A. He views the majority opinion as based in policy arguments and argues that under Musser, Amazon does not meet the definition of seller. He also cites to the various decisions around the country that follow this logic. The majority, in footnotes, rejoins each of these arguments including with the statement, "We do not believe that Pennsylvania law shields a company from strict liability simply because it adheres to a business model that fails to prioritize consumer safety."

In the months following the panel decision in Oberdorf, other courts have followed suit in holding that Amazon can be liable for products sold by third-party vendors on Amazon.com. For instance, in July, Judge James Peterson of the U.S. District Court for the Western District of Wisconsin held that Amazon could be the "seller" of a defective product under Wisconsin's statutory products liability scheme in State Farm v. Amazon, 390 F. Supp 3d. 964 (W.D.W. 2019). In so holding Peterson noted that "Amazon does not merely provide a marketplace where third-parties sell to Amazon customers. Amazon was so deeply involved in the transaction … that Wisconsin law would treat Amazon as an entity that would be strictly liable for the [product's] defects." In August, a federal judge in New Jersey followed the Oberdorf decision and found that Amazon could be sued for a defective scooter bought on the site under the NJPLA in Papataros v. Amazon, (D.N.J. 2019).

Oberdorf's victory, such as it was, is not on hold. In August the Third Circuit, at Amazon's request, agreed to rehear the case en banc. So what's next? The full court could do a number of things. It could certify questions for the Pennsylvania Supreme Court to answer about how Pennsylvania law would treat Amazon. It could, as the courts before it have, simply predict which way it thinks a Pennsylvania court would go. It could limit its ruling to the particulars of Pennsylvania products liability law, which, unlike many jurisdictions still relies on the Restatement (Second) of Torts 402A and has no statutory products liability scheme, or it could make a broad pronouncement. Last, whichever way the entire Third Circuit rules, the case may not end there. Given the division in results among the circuits and the current political and cultural focus on big tech, this is one that could go "all the way."

If we take a 10,000-foot view this case is a marquee example of the tension between laws from the pre-internet era and an economy that is conducted more and more online. In a time where tech behemoths have taken on roles in the U.S. economy that were traditionally filled by brick and mortar businesses these online companies have sought to avoid some of the risks and liabilities imposed on their predecessors. The question is how the law will evolve in response. Even if Amazon is successful in the Third Circuit and beyond, state courts or the legislatures may step in to confront the ways in which Amazon's business model has disrupted the traditional supply chain and to open new avenues of recourse for injured consumers. In short, stay tuned.

Jacob Lehman and Mike Dolan are partners at the Philadelphia law firm German, Gallagher & Murtagh. Lehman is a trial lawyer who focuses his practice on the defense of products liability, professional liability and complex casualty claims. Dolan regularly litigates and tries all manner of personal injury claims while also maintaining an active mass tort practice. They can be reached at [email protected] and [email protected].