A California appeals court just ruled that Amazon is legally liable for defective products sold on its site by third parties

• An appeals court in California ruled Thursday that Amazon is legally liable for defective products sold on its site by third parties.
• The court said Amazon "was pivotal in bringing the product," a defective replacement laptop battery, to a customer, who alleged she was burned when it exploded.
• The ruling reverses an earlier court's decision in favor of Amazon, and could open up Amazon to huge legal costs or force it to police sellers on its site more strictly.

Amazon was hit with a legal defeat this week after a California appeals court ruled that the company can be held legally liable for defective products sold on its site by third-party sellers.

In a unanimous decision issued Thursday, Judge Patricia Guerrero of the Fourth District Court of Appeals wrote that "under established principles of strict liability, Amazon should be held liable if a product sold through its website turns out to be defective."

The decision overturned an earlier ruling from a trial court in favor of Amazon's motion for a summary judgment, though the company can still appeal to the state's Supreme Court. Amazon did not immediately respond to a request for comment.

The case concerned a replacement laptop battery that Amazon customer Angela Bolger purchased from a Hong Kong-based company called Lenoge Technology, which went by "E-Life" on Amazon's online marketplace. Bolger alleged in her lawsuit that "the battery exploded several months later, and she suffered severe burns as a result," for which she argued Amazon should be held responsible.

Amazon had argued that it wasn't liable because "it did not distribute, manufacture, or sell the product," and that Lenoge was the seller.

But the court disagreed, finding that Amazon played such an outsized role in the transaction that it bore the responsibility for the defective battery.

Guerrero wrote that Amazon "placed itself between Lenoge and Bolger in the chain of distribution... accepted possession of the product... stored it in an Amazon warehouse... attracted Bolger to the site... provided her with a product listing... received her payment... shipped the product in Amazon packaging... controlled the conditions of Lenoge's offer for sale... limited Lenoge's access to Amazon's customer information... forced Lenoge to communicate with customers through Amazon... "and demanded indemnification as well as substantial fees on each purchase."

"Whatever term we use to describe Amazon's role, be it 'retailer,' 'distributor,' or merely 'facilitator,' it was pivotal in bringing the product here to the consumer," she concluded.

The court also didn't buy Amazon's statement that it should be protected under section 230 of the Communications Decency Act of 1996, which shields internet companies from legal repercussions for content published by third parties on their sites.

It determined that section 230 didn't apply because Bolger's claims "depend on Amazon's own activities, not its status as a speaker or publisher of content provided by Lenoge for its product listing."

Pending the results of a possible appeal, Thursday's ruling potentially opens up the online retail giant to significant legal exposure from other customers who could bring similar lawsuits for faulty or damaged products. It could also force Amazon to adjust its policies to more tightly regulate third-party sellers.

The number of third-party sellers on Amazon has grown substantially in the past several years, and they now account for more than half of the products listed on the site. That has also led to a spike in defective, counterfeit, unsafe, expired, and even illegal or prohibited listings.

Amazon listing review site Fakespot found that, over a recent 10-day period, 2,766,693 products on Amazon and 417,616 sellers were "unreliable," concluding from that sample that "15% of Amazon sellers are unreliable and should be avoided."