With the school year coming to an end, many parents are stocking up on electronics to keep their children busy and entertained since lots of summer camps remain closed. But what happens if disaster strikes and that new charger you bought online is defective and catches on fire moments after you plug it in?
In most cases, state product liability laws come to the rescue. These laws allow injured parties to sue those responsible for bringing a defective product to market for the harms they suffer. Typically, this means that manufacturers, distributers, and retailers are on the hook for defective products.
But some lawmakers in California want to also start holding online marketplaces—websites like Amazon, eBay, and Etsy that aggregate products from multiple third-party sellers—liable for defective products sold on their platforms. If they get their way, this will likely shut down the ability of many small retailers to easily offer their products to a global market and cut off a world of options for the average consumer.
To be clear, some sites, like Amazon and Walmart, are both online retailers and online marketplace—they both sell their own products from their own warehouses to consumers and provide a platform for third parties to sell to consumers. These companies are already liable for defective products they sell themselves. But why should they be liable for products sold by others?
Historically, states have wisely excluded many types of businesses from product liability laws, even if they have some involvement in the transaction. For example, credit card companies are not liable for facilitating payments for defective products, delivery companies are not liable for shipping defective products, and shopping mall landlords are not liable for the products their tenants sell.
In the case of online marketplaces, most never even take possession of products as retailers ship directly to their customers. As a result, there is little online marketplaces can do to prevent defective products from entering the market. Making them liable will have little to no deterrent effect.
The growth of online marketplaces has been a boon for buyers and sellers, giving both access to more options and opportunities. Buyers like online marketplaces, because they can easily compare prices and products across multiple sellers and sellers, have flocked to these platforms because it provides them new opportunities to connect with many more buyers.
The numbers confirm this growing trend. For example, of the $475 billion worth of merchandise sold on Amazon last year worldwide, third-party sellers were responsible for $295 billion in sales—up 47 percent from 2019 compared to 35 percent growth in first-party sales.
Increasing liability for online marketplaces would hamper this growth, as online marketplaces would likely limit the sellers and products on their platform to minimize their risk, cutting off consumers from many legitimate options in the process.
Buyers should be aware of the risk of buying defective products, especially from foreign sellers who may fall outside their states’ jurisdiction. But this is a risk all buyers face when purchasing from overseas merchants. Better consumer education and more transparency about sellers would go a long way to ensure that “buyer beware” remains a guiding principle for online shopping just as it has in the offline world.
Policymakers should also stick to the principle of “don’t shoot the messenger” and avoid imposing product liability on online marketplaces that do nothing more than connect buyers and sellers. By allowing online marketplaces to flourish, policymakers can promote continued innovation and growth in online commerce, leading to more choice and competition for consumers.