Introduction

When a defective popcorn machine catches on fire and burns down a house, the homeowner’s first call will be to their lawyer, asking who is liable for the damages. But even if they can demonstrate the harm and prove what caused the fire, the homeowner might be left out in the cold, depending on how they purchased their popcorn machine. State product liability laws traditionally hold manufacturers, distributors, and sellers strictly liable for defective products they bring to market. As consumers increasingly make purchases from online marketplaces—platforms that aggregate products from multiple third-party sellers—new questions arise about how to best protect them from defective products that pose a risk to health and safety. State product liability laws generally do not hold online marketplaces liable for defective products that cause harm, because the marketplace is only an intermediary that connects buyers and sellers. Moreover, third-party sellers on online marketplaces may not respond to a consumer’s complaints, disappear after selling a defective product, or ignore any legal action taken against them if they are outside the authority of U.S. courts.

Some policymakers want to make online marketplaces legally liable for harmful products sold on their platforms. Under existing law, several factors may determine whether an online marketplace is liable for defective products, such as how a platform fulfills a product, if it ever takes possession of the product, and its role in facilitating the sale. Future court cases may also change if and how an online marketplace bears liability under state law.

As policymakers debate the future of product liability laws and their applicability to online marketplaces, they should consider how existing efforts by online marketplaces already address consumer risks and harms. A number of online marketplaces have created their own policies and practices that exceed their legal obligations to address potential consumer harm. Indeed, one way that online marketplaces compete against one another is by offering additional levels of protection for buyers and sellers.
This report compares these efforts across popular online marketplaces in the United States. It finds that most marketplaces maintain consumer-centric policies to remedy typical issues on behalf of the buyer, including specific policies for damaged and defective goods. These policies allow consumers to navigate refunds and return unsafe products quickly and easily.

While maintaining these policies is important, it is necessary to understand how effective policies are in practice. Anecdotal data from the Better Business Bureau (BBB) indicates that consumers are significantly more satisfied with issue resolution when purchasing from U.S.-based marketplaces. These companies see fewer complaints and secure higher ratings, whereas China-based marketplaces have significantly worse ratings, indicating they fail to meet consumer expectations. Low ratings are a sign that that consumers frequently experience similar issues, leading to a pattern, and a company does not provide a satisfying resolution, including failing to adhere to policies.

• To ensure consumers buying from online marketplaces receive sufficient protection, policymakers should do the following:
• Congress should craft a national strict liability standard, based on the American Legislative Exchange Council’s model product liability act.
• State lawmakers and judicial actors should apply different liability enforcements for distinct types of online marketplaces. The enforcement of the standardized product liability standard should consider how a marketplace engages with a defective product, including if they store or ship a product directly to the consumer, before establishing potential liability.
• The Federal Trade Commission (FTC) should craft voluntary best practices for buyer protection policies on online marketplaces, with input from industry experts and consumer advocates. These best practices should include reasonable protections, such as refunds for defective goods, damaged goods, and products that do not arrive, and outline how to notify consumers of recalls on purchased products.
• Expand data-sharing practices between retailers and government consumer protection agencies by expanding the Retailer Reporting Program. By doing so, both retailers and the Consumer Product Safety Commission would gain real-time insight into dangerous products and product recalls.

Read the full report. (PDF)