CPSC Concludes Amazon Is a CPSA “Distributor” of Products Sold as Part of Its Fulfilled by Amazon Program

On July 29, 2024, the U.S. Consumer Product Safety Commission (CPSC or the Commission) issued a unanimous Decision and Order finding Amazon legally responsible for the recall of certain products that were listed for sale by third-party sellers on Amazon.com through Amazon’s Fulfilled by Amazon (FBA) program. The Commission found that each of the products posed a “substantial product hazard” under the Consumer Product Safety Act (CPSA), 15 U.S.C. § 2054, and that Amazon acted as a “distributor” within the meaning of the CPSA, 15 U.S.C., § 2052(a)(8), and thus was subject to the CPSA’s requirements when it received, stored, and delivered the products through the FBA program. (As discussed in a companion post, the Commission further determined that limited, unilateral remedial actions by Amazon with respect to the hazardous products did not satisfy CPSA’s recall requirements to notify and protect the public and ordered Amazon to undertake additional corrective actions.)

As discussed further below, sales of hazardous products on e-commerce platforms is a priority issue for some commissioners, who have voiced frustration about what they see as the lack of accountability for sellers on these platforms, often citing foreign manufacturers who easily elude regulation by simply removing or changing a product listing. This decision, if it withstands expected judicial review, will clarify CPSC’s authority to impose greater product safety obligations on Amazon and similarly situated platforms, at least in cases where the company has sufficient control of the goods and their transfer to consumers.

Background

This decision arose out of an administrative complaint filed by CPSC attorneys (Complaint Counsel) in July 2021, which alleged that Amazon “acts as a distributor” of products sold through the FBA program. The complaint argued that as a distributor, Amazon is legally responsible for the recall of certain products that the complaint alleged are defective and pose a risk of serious injury or death to consumers.¹ At issue in the case are more than 418,000 units of certain children’s sleepwear garments, carbon monoxide detectors, and hair dryers that were sold to consumers on Amazon.com through the FBA program between approximately 2018 and 2021.² For the purposes of this proceeding, the parties stipulated that the products posed a substantial product hazard under CPSA Sections (a) and (j), after CPSC testing found that:

• The children’s sleepwear garments did not meet the requirements for children’s sleepwear as required by the Flammable Fabrics Act.
• The carbon monoxide detectors failed to detect CO2 gas and failed to alarm in its presence.
• The hair dryers lacked required immersion protection required by applicable commission rules.³

In its response to Complaint Counsel’s allegations, Amazon argued that the company, under its FBA program, is not a “distributor” of the products at issue but rather a “third-party logistics provider,” as defined by the CPSA, 15 U.S.C. §§ 2052(a)(8) and (16), and as such is not responsible for the recall of products sold by third-party sellers.⁴

In administrative proceedings, an administrative law judge (ALJ) agreed with Complaint Counsel, finding that Amazon is a “distributor” of products sold through Amazon’s FBA program, that the products at issue present a substantial product hazard, and that Amazon must take specific actions, including: stopping sale; issuing notifications of the products’ alleged hazards pursuant to the CPSA and CPSC’s interpretive regulations; instructing consumers to verify destruction of the products in order to receive a refund; and submitting monthly progress reports to CPSC.⁵

Both parties appealed aspects of the decision to the Commission. Among other issues, Amazon appealed the ALJ’s ruling that Amazon is a distributor of products sold through the FBA program and the requirements to notify and provide refunds to consumers.

Defining “Distributor”

The CPSA defines a “distributor” as a “person to whom a consumer product is delivered or sold for purposes of distribution in commerce, except that such term does not include a manufacturer or retailer of such products.”⁶ In turn, the CPSA defines “distribute in commerce” as “to sell in commerce, to introduce or deliver for introduction into commerce, or to hold for sale or distribution after introduction into commerce.”⁷

The Commission found that Amazon “fit squarely within” this definition with respect to the products at issue because FBA participants delivered their products to Amazon for the purposes of distribution to customers who ordered through Amazon.com.⁸ Amazon received, stored, and delivered the products sold through the FBA program.⁹ Further, the Commission emphasized the “far-reaching control Amazon exercises in its Fulfilled by Amazon program,” including:

• Screening products for eligibility in the FBA program
• Communicating directly with customers and providing live customer support for FBA purchases
• Determining whether products may be returned or exchanged by customers and the disposition of returned merchandise
• Controlling communications between FBA participants and customers, requiring sellers to communicate exclusively through Amazon’s online platform
• Exercising control over pricing and payments by enforcing pricing rules, processing customer payments, and authorizing refunds and exchanges¹⁰

The Commission rejected arguments that Amazon does not fall within the CPSA’s definition of “distributor.” Amazon argued that the fact that the company does not take title for products in its possession under the FBA program means it does not hold products “for distribution.” Amazon argued that it is properly categorized as a “third-party logistics provider,” a term defined by the CPSA as an entity that “solely receives, holds, or otherwise transports a consumer product in the ordinary course of business but who does not take title to the product.”

The Commission concluded that “the plain language of the statute” precludes this argument, noting that the statutory definitions of “distributor,” “distribute in commerce,” and “distribution in commerce” do not include any reference to a title requirement.¹¹ Although Amazon advanced a common-law “understanding” that distributors take ownership of products before selling them to the next recipient in the supply chain, the Commission rejected Amazon’s argument for “filling a statutory gap with common law principles” because “there is no gap to fill. Section 3 of the CPSA specifically states what Congress intended those terms to mean.”¹² Similarly, the Commission rejected Amazon’s argument that FBA products are not delivered to it “for purposes of distribution in commerce” because the third-party sellers — not Amazon — are the parties who actually sell the products to consumers. Again, the Commission rejected Amazon’s argument based on “plain statutory meaning”: “Amazon holds products in its distribution centers so that they can be sold by [FBA] program participants. … Nowhere in the relevant statutory language is there a requirement that the same entity both hold and sell products.”¹³

Further, the Commission rejected the third party logistics provider characterization, identifying multiple “Fulfilled by Amazon activities that go beyond receiving and transporting” product.[[N: Id., p. 33-39 (citing testimony indicating that Amazon, among other activities, “communicates directly with its customers regarding their [FBA] purchases, including sending a ‘Dear Amazon Customer’ message when Amazon learns of a ‘potential safety issue’ involving a product, and it provides live customer support.”]]

Based on its findings that “Amazon controls the entire sale process, from the initial listing on Amazon.com, through ordering and delivery, to product returns, disposition or returned products and the processing of refunds or Amazon credits,” the Commission held that “[u]nder any plausible view of the facts and the statutory language, Amazon does considerably more than is allowed by the definition of ‘third-party logistics provider …’” and that it “cannot sidestep its obligations under the CPSA simply because some portion of its extensive services involves logistics.”¹⁴

On August 1, 2024, Amazon requested that the Commission stay enforcement of the July 29, 2024 Decision and Order pending judicial review in federal court. On August 9, 2024, Complaint Counsel filed its opposition to that request.

Impact

Commissioners frequently identify online marketplaces as among the agency’s most significant challenges, asserting a lack of accountability of foreign manufacturers for hazardous products sold on large e-commerce platforms, difficulty removing dangerous products from the market, and lack of recourse for consumers. For example, Chair Alexander Hoehn-Saric told attendees of the 2024 Annual Symposium of the International Consumer Product Health and Safety Organization (ICPHSO) that “one of [his] priorities is to change the paradigm of online shopping by encouraging companies to focus on promoting a culture of safety at their organizations, holding third party sellers accountable for the products they sell, and empowering consumers with safety tools and information while they’re adding to cart.” At the 2023 Annual Symposium of the same group, Hoehn-Saric said, “Online marketplaces and platforms that did not exist a decade ago are now driving the market [but u]nfortunately, the big platforms do not take enough responsibility for all of the products sold on their sites at times leaving consumers unprotected.”

Through this Decision and Order, the Commission has asserted that the CPSA empowers the agency to hold Amazon legally responsible for the recall of at least some products sold by third-party sellers on its marketplace — in this case, over 400,000 allegedly hazardous products sold through Amazon’s FBA program.

Under the CPSA and the Administrative Procedure Act, Amazon has a right to judicial review of the Commission’s Decision and Order.¹⁵ In requesting that the Commission stay enforcement of its Order, Amazon requested that stay “pending judicial review,” clearly signaling that Amazon intends to avail itself of that right. Accordingly, while the Commission’s Decision and Order emphatically states that Amazon’s FBA program is within the CPSA’s scope, it appears that the federal courts will have the last say on the matter.

Presumably, other online marketplaces will be closely following as Amazon appeals the decision through the federal courts, although how that decision applies to a specific platform’s operations may vary, given the Commission’s heavy focus on Amazon’s significant control over the FBA goods. Services that do not control physical products or fulfillment processes, or that provide no more than a connection point between third-party sellers and purchasers, may be treated differently. By contrast, marketplaces that operate similarly to Fulfilled by Amazon may find themselves subject to the same requirements Amazon faces.

How the e-commerce dust ultimately settles may not be known for some time — the last CPSC administrative recall matter to be fully litigated spanned almost a decade, from an August 5, 2012, Complaint through ALJ, Commission, district court, and circuit court proceedings, before CPSC finally announced the mandatory recall on August 17, 2021. Thus, stakeholders should not consider this matter over just yet.

For questions about CPSC policy or about compliance with the Consumer Product Safety Act, including timely reporting and recalls under Section 15(b) of the CPSA, or with other product safety matters, please reach out to the authors of this blog post or any of their colleagues on Arnold & Porter’s Consumer Product Safety team.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.