The Third Circuit Joins The Ninth In Excluding E-Commerce Platforms From Section 230's Protection

Legal Issues

from the selling-out-the-Internet dept

Remember when there was a terrible decision in the 5Pointz VARA case and I wrote 3000 words to explain just how terrible it was? Well, buckle-up, because here’s another awful decision, this time in the Section 230 realm. In fact, this one may even be worse, because it was a decision at the federal appellate level, and thus we are more likely to feel the impact of its terribleness. What follows is an explanation of how it so badly missed the mark.

Not long ago we warned that the Ninth Circuit’s decision in HomeAway v. City of Santa Monica, if allowed to stand, threatened Internet commerce. This new decision from the Third Circuit in Oberdorf v. Amazon heightens that alarm. As with the Ninth Circuit, it reflects undue focus on the commercial transaction it facilitated instead of on the underlying expression the transaction was connected to. Worse, it did so in a way that gave short shrift to the policy interests behind why Section 230 exists in the first place.

As is typical in cases with terrible Section 230 rulings, the underlying facts in this case are terrible too. One of the plaintiffs had bought a retractable dog leash via Amazon. The leash was defective, and when it broke it recoiled in a way that blinded her in one eye. She and her husband then sued Amazon over the injury. The district court dismissed their claims, partially for Section 230 reasons, and also because it could not find a way to deem Amazon a “seller” for purposes of the Pennsylvania consumer protection law the plaintiffs were trying to base their claim upon. But the Third Circuit, looking at the decision afresh, substantially rejected the district court’s analysis and largely reversed its holding. It’s this decision that joins the Ninth Circuit HomeAway decision in now seriously threatening Internet commerce.

It is worth noting that this was a 2-1 decision, with a majority opinion providing the controlling analysis and a dissent. Much of the majority decision involves pages and pages of discussion about what counts as a “seller” under that Pennsylvania law. While on the surface this discussion may seem at first seem tangential to our larger Section 230 concerns, in this case it ends up being fairly relevant. For one thing, it’s part of the decision, and it shouldn’t be. Section 230 includes a pre-emption provision because state and local laws are often messy and, worse, contradictory. An Internet platform’s protection from liability should not be contingent on how any given state a platform’s services may reach has opted to write its local law. So the mere fact that the decision starts out by reviewing how Pennsylvania’s state law might affect the liability of an Internet platform like Amazon is the first sign that the decision is trouble.

Also, the “seller” analysis is itself revealing about how the court got the analysis denying Amazon Section 230 protection so very wrong. Not only does it read like a pre-ordained result ? the court seems to really want Amazon to lose this case and stretches its reasoning to make sure this consumer protection law can reach them (in ways the dissent takes significant issue with) ? but what’s most telling is that the ways that the court decides that Amazon flunks the four-factor test it used to use to decide whether Amazon was a “seller” show why Section 230 should have applied and foreclosed this entire “are they a seller” analytical exercise in the first place.

Things start off poorly. The first factor is whether Amazon ?may be the only member of the marketing chain available to the injured plaintiff for redress.? The majority complains:

[?]Amazon fails to account for the fact that under the Agreement, third-party vendors can communicate with the customer only through Amazon. This enables third-party vendors to conceal themselves from the customer, leaving customers injured by defective products with no direct recourse to the third-party vendor. [p. 14]

It is a legitimate policy problem that it can be challenging, if not sometimes impossible, to find the person who used the Internet to cause harm and then hold them responsible. But that difficulty doesn’t mean that Section 230 is to blame, nor does it follow that Section 230 should be curtailed, which would only end up inviting all the other significant harms that Section 230 exists to prevent. Courts have been clear on this point for over twenty years: Section 230 applies even if the party behind the content at issue cannot be found.

Furthermore, even if there were some reason why that rule should be different here, the majority presented no meaningful justification for why, even though Section 230 would insulate a platform in cases where, say, a user might have said something defamatory, it would not similarly protect the platform if the user’s expression instead had offered the sale of a defective good. In all these situations the problem with the expression originated with the user, not the platform, yet the majority treats these situations as if they were somehow different, when they are not. Section 230 should therefore still apply.

Meanwhile, the dissent points out that the majority’s decision would effectively punish marketplace platforms for not having vetted all of their users. To which the majority unconvincingly dismisses this reality by declaring, without support, that if the Internet user cannot be found the platform must absorb the liability.

The first factor weighs in favor of strict liability not because The Furry Gang cannot be located and/or may be insolvent, but rather because Amazon enables third-party vendors such as The Furry Gang to structure and/or conceal themselves from liability altogether. As a result, Amazon remains ?the only member of the marketing chain available to the injured plaintiff for redress.? [p. 15].

In other words, like the Wisconsin Court of Appeals in Armslist had tried to do (before the Wisconsin Supreme Court corrected it), the Third Circuit is seeking to allow for the punishment of a platform for being a platform that people could use in bad ways. But it is because we knew that people would use the Internet in bad ways that Congress passed Section 230 in the first place. It’s the very reason why we insulated platforms from liability. It is not a reason to now take away that protection.

Section 230 was also passed so that platforms would not be crippled with the burden of having to vet all their users or all the expression their users used their services to facilitate. The dissent is right that the majority decision creates that obligation, and thus threatens to chill future online commercial activity, not just by Amazon, but by anyone, including any smaller platforms and anyone who might want to compete with Amazon.

Worse, the majority holds against Amazon that Amazon had tried to police the commercial user expression appearing on its platform anyway, even though it didn’t have to. It deems the volitional acts Amazon performed as evidence of sufficient “control” over the contents appearing on its platform to justify holding Amazon liable for anything wrong with that user speech.

Although Amazon does not have direct influence over the design and manufacture of third-party products, Amazon exerts substantial control over third-party vendors. Third party vendors have signed on to Amazon?s Agreement, which grants Amazon ?the right in [its] sole discretion to . . . suspend[], prohibit[], or remov[e] any listing,? ?withhold any payments? to third-party vendors, ?impose transaction limits,? and ?terminate or suspend . . . any Service [to a third-party-vendor] for any reason at any time.? Therefore, Amazon is fully capable, in its sole discretion, of removing unsafe products from its website. Imposing strict liability upon Amazon would be an incentive to do so. [p. 16]

First, given the sheer volume of content that Amazon intermediates, it is not at all certain that it is correct to say that “Amazon is fully capable of removing unsafe products from its website.” It requires a giant, unsupported logical leap to read the language in Amazon’s vendor agreement reserving its rights solely with respect to its vendor-users as any sort of declaration that it has the practical ability necessary to do the sort of moderation the majority declares it now must do.

The dissent recognizes this problem. As the majority cites in footnote 28:

The dissent contends that holding Amazon strictly liable for defective products will require them to ?enter a fundamentally new business model? because ?the company does not undertake to curate its selection of products, nor generally to police them for dangerousness.?

But then the majority dismisses this concern in the same footnote:

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. The dissent?s reasoning would give an incentive to companies to design business models, like that of Amazon, that do nothing to protect consumers from defective products.

Not only does this language return us to the discussion as to why Section 230 includes a pre-emption provision in order to protect it reliably from the vagaries of state law, but it also fails to account for the market pressures that will demand marketplace platforms act in ways that best protect consumers. The majority seems to take the view that “but for” its ruling no one would be looking out for consumers, but it provided no basis to believe that this assumption is true.

Worse, the decision ends up making it all that much harder, if not impossible, for platforms to look out for consumers as the Third Circuit would want them to. By taking issue with all the things Amazon says it may do to police their platform in the language of its vendor agreement, it’s made it impossible for Amazon, or any other marketplace vendor, to actually pursue any of them since the attempt just risks liability for itself. Yet these things are exactly the sorts of moderation activities that Section 230 expressly protects in order to encourage platforms to do. Section 230 sets up a situation where platforms can feel able to take what steps they can to police the user content they facilitate because it removes the risk of liability if they do. But here is the Third Circuit now chilling that moderation activity by instead using it as a basis for imposing liability.

The reasoning for the third and fourth factors isn’t much better. The third factor involves considering whether Amazon is ?in a better position than the consumer to prevent the circulation of defective products.? [p. 17]. In an earlier Pennsylvania case an auction house had been found not to have been liable for a defective product it sold as a “seller,” for several reasons, including that it didn’t have sufficient ability to prevent the distribution of defective problems. With little more than supposition, however, the majority decided that Amazon, somehow, did.

Moreover, Amazon is uniquely positioned to receive reports of defective products, which in turn can lead to such products being removed from circulation. Amazon?s website, which Amazon in its sole discretion has the right to manage, serves as the public-facing forum for products listed by third party vendors. In its contract with third-party vendors, Amazon already retains the ability to collect customer feedback: ?We may use mechanisms that rate, or allow shoppers to rate, Your Products and your performance as a seller and Amazon may make these ratings and feedback publicly available.? Third-party vendors, on the other hand, are ill-equipped to fulfill this function, because Amazon specifically curtails the channels that third-party vendors may use to communicate with customers: ?[Y]ou may only use tools and methods that we designate to communicate with Amazon site users regarding Your Transactions . . ..? [p. 18]

The majority never explains why third-party vendors can’t also read the public reviews, or why the Amazon-provided communications mechanisms might not be adequate. And the dissent questions the entire conclusion that Amazon is somehow better situated to take defective items out of circulation.

The dissent contends that Amazon is no better-positioned than the consumer to encourage the safety of products sold in the Amazon Marketplace. However, the dissent openly acknowledges at least one aspect of Amazon?s relationship with third-party sellers that demonstrates Amazon?s powerful position relative to the consumer: Amazon ?reserves the right to eject sellers.? Imposing strict liability on Amazon will ensure that the company uses this relative position of power to eject sellers who have been determined to be selling defective goods. [fn 35]

It is hardly revelatory that platforms have the power to terminate users. It’s no secret that they can. Pretty much all platforms can, but per the majority’s reasoning, none of them should ever be able to avail themselves of Section 230 protection as a result, if they do. Also, using the threat of liability to mandate censorship of any kind ? even censorship that might be valid or beneficial ? is also what Section 230 was intended to prevent, since the censorship that results from liability pressures so often isn’t valid or beneficial. Yet here is the majority doing just that, using the threat of liability to cause vendor expression to be removed, even though it will inevitably cause the same unwarranted censorship, for fear of liability, that Section 230 was designed to forestall for all types of user expression.

Then the fourth factor considers who can best pay to redress the harm. The majority effectively finds that Amazon has the deepest and most locatable pockets, so therefore it decides that it should pay. If this be the rule, other large platforms have deep pockets as well, but not so smaller ones generally, yet eroding Section 230 protection for the big players erodes it for them as well. And even large pockets are not infinitely deep. The majority dismisses this concern by reasoning that Amazon can simply raise its prices:

Moreover, Amazon can adjust the commission-based fees that it charges to third-party vendors based on the risk that the third-party vendor presents. [p. 20]

Of course, those price increases will ultimately be passed onto consumers. Also, if the solution to platform liability is that platforms should just charge more for their services, it bodes poorly for all the free services Internet users have been able to benefit from to date and threatens to lock out those users who won’t be able to afford to continue.

Ultimately, if there is a bright spot in this decision it is that the majority still found that Section 230 knocked out a few of the plaintiffs’ claims, claims where the court was able to identify how they involved expressive activity by the platform.

to the extent that Oberdorf is alleging that Amazon failed to provide or to edit adequate warnings regarding the use of the dog collar, we conclude that that activity falls within the publisher?s editorial function. That is, Amazon failed to add necessary information to content of the website. For that reason, these failure to warn claims are barred by the CDA. [p. 32-33]

But in failing to recognize the expressive activity involved with “Amazon?s role as an actor in the sales process” the Third Circuit has doubled-down on the false dichotomy the Ninth Circuit’s earlier HomeAway decision had created by deeming the brokering of the financial transaction connected with the facilitation of expression as something somehow separate from that expression. This bifurcation threatens to put all commercial activity beyond the reach of Section 230 and create an exception to its protection that simply is not in the statute, for good reason.

Filed Under: 3rd circuit, cda 230, e-commerce, intermediary liability, section 230, transactions
Companies: amazon