Liability of Online Marketplaces for Defective

Products Sold by Third-Party Sellers

LAW OF TORTS – RESEARCH PAPER

SUBMITTED BY: SUBMITTED TO:

NAME- UJJWAL SABOO MS. SONI BHOLA
ROLL NO. – 1384 ASSISTANT PROFESSOR, LAW
SEM- III NUSRL, RANCHI
SECTION- A

NATIONAL UNIVERSITY OF STUDY AND RESEARCH IN LAW

RANCHI
 ACKNOWLEDGEMENT
I am over helmed in all humbleness and gratefulness to acknowledge my depth
to all those who have helped me to put these ideas, well above the level of
simplicity and into something concrete.

I would like to express my special thanks of gratitude to my teacher Ms. Soni

Bhola, Assistant Professor, Law who gave me the golden opportunity to do
this wonderful project on the topic “Liability of Online Marketplaces for
Defective Products Sold by Third-Party Sellers,” which also helped me in doing
a lot of Research. I am really thankful to them. Any attempt at any level can't be
satisfactorily completed without the support and guidance of my parents and
friends. I would like to thank my parents who helped me a lot in gathering
different information, collecting data and guiding me from time to time in
making this project, despite of their busy schedules, they gave me different
ideas in making this project unique.

Thank You!

Ujjwal Saboo
 ABSTRACT:

The rapid growth of e-commerce has transformed traditional retail landscapes, with online
marketplaces becoming ubiquitous platforms connecting consumers with a myriad of
products. This paradigm shift, however, brings forth complex legal questions regarding the
liability of online marketplaces for defective products sold by third-party sellers. This
research paper delves into the evolving legal landscape surrounding the responsibility of
online marketplaces in ensuring product safety and protecting consumers.
The first section of this paper provides a comprehensive overview of the rise of e-commerce
and the pivotal role played by online marketplaces in facilitating transactions between buyers
and third-party sellers. As these platforms have become essential conduits for commerce,
questions about their accountability for defective products have surfaced, challenging
traditional notions of liability.
The second section explores existing legal frameworks governing product liability, online
marketplace and the third section analyses landmark legal cases and precedents that have
shaped the liability landscape for online marketplaces. Recent court decisions and legislative
initiatives are scrutinized to discern emerging trends and the direction in which legal
frameworks are evolving. This section also considers the role of contractual agreements
between online marketplaces and third-party sellers in defining liability boundaries.
The fourth section of the paper critically evaluates the arguments for and against holding
online marketplaces accountable for defective products. It considers the practical implications
of imposing liability on these platforms, weighing the potential benefits for consumer
protection against the concerns of stifling innovation and hindering the growth of e-
commerce.
In the final section, the research paper proposes a set of recommendations and potential legal
reforms to address the complex issue of liability in the context of online marketplaces. These
recommendations aim to strike a balance between ensuring consumer safety and fostering a
thriving digital marketplace. The paper concludes by emphasizing the need for a nuanced and
adaptive legal framework that recognizes the distinctive features of online commerce while
upholding fundamental principles of consumer protection and fairness.
This research contributes to the ongoing discourse surrounding the legal responsibilities of
online marketplaces in the realm of product liability, providing insights that can inform
policymakers, legal practitioners, and stakeholders in shaping the future regulatory landscape
of e-commerce.
 INTRODUCTION:
In recent years, the landscape of commerce has undergone a transformative shift with the
rapid growth of e-commerce and the emergence of online marketplaces as a platform
connecting buyers and sellers. This evolution, while fostering convenience and accessibility,
has brought to the forefront a complex and pressing issue: the liability of online marketplaces
for defective products sold by third-party sellers.
Due to the ease of online buying and the globalization of markets, e-commerce has increased
dramatically, and as a result, online marketplaces have become vital hubs for business
transactions. These platforms, which range from small businesses to industry titans, have
evolved into virtual bazaars where buyers have access to a wide range of goods supplied by a
similarly varied range of vendors. While increasing customer choice, the rise of third-party
merchants on these platforms has sparked serious concerns about the responsibility of online
marketplaces in the event that defective products are discovered after being purchased
through them.
The crux of the matter lies in the intricate web of relationships within the e-commerce
ecosystem. Traditional retail models typically involve a direct transaction between a
consumer and a retailer, with the latter assuming responsibility for the quality and safety of
the products they sell. However, the rise of online marketplaces has introduced an addiional
layer: the third-party seller. These sellers, often independent entities, leverage the reach and
infrastructure of online platforms to connect with a global audience. As a consequence, the
lines of responsibility and liability have become blurred, prompting legal scholars,
policymakers, and the courts to grapple with defining the boundaries of accountability in this
digital marketplace paradigm.
The existing legal frameworks, designed for a pre-digital era, have struggled to adapt to the
nuances of online marketplaces. Product liability laws, which traditionally held
manufacturers and sellers responsible for defective products, face challenges in attributing
liability when the seller is an independent third party operating on an online platform.
As the e-commerce landscape continues to evolve, it is imperative to critically examine the
existing legal frameworks, analyze the outcomes of prominent court cases, and assess the
feasibility and impact of proposed regulations. This research paper aims to contribute to the
ongoing discourse surrounding the liability of online marketplaces for defective products sold
by third-party sellers by providing a comprehensive overview of the current state of affairs,
identifying challenges and inconsistencies, and offering insights into potential pathways for
legal evolution in this dynamic and fast-paced digital era.
 LEGAL FRAMEWORKS:

1. Consumer Protection Act 2019: Section 2(17) defines electronic service

provider as a person who provides technologies or processes to enable a product seller
to engage in advertising or selling goods or services to a consumer and includes any
online market place or online auction sites.
Chapter VI of The Consumer Protection Act 2019 contains Section 82 to 87 which
deals with product liability. Product liability is defined under Section 2(34) of CPA
2019. Product liability means “the responsibility of a product manufacturer or product
seller, of any product or service, to compensate for any harm caused to a consumer by
such defective product manufactured or sold or by deficiency in services relating
thereto.” Section 82 of CPA act states where this chapter will be applicable and
Section 84, 85 and 86 states the liability of product manufacturer, product service
provider, product seller respectively.

2. Consumer Protection (E-Commerce) Rules, 2020. This new rule

empowers the central government to act against unfair trade practices in e-commerce,
direct selling. They require e-tailers to facilitate easy returns, address customer
grievances and prevent discriminating against merchants on their platforms. The rules
will apply to all goods and services bought or sold over any digital platform; all
models of e-commerce including marketplace and inventory models of e-commerce;
all e-commerce retail, including multi-channel single brand retailers and single brand
retailers in single or multiple formats; all forms of unfair trade practices across all
models of e-commerce

3. E-Commerce Regulations: Online marketplaces often operate within a

regulatory framework that governs electronic commerce. Understanding the relevant
e-commerce regulations in the jurisdiction is crucial. This may include laws related to
online transactions, consumer protection, and electronic contracts.

4. Contractual Relationships: Examining the contractual relationships between

the online marketplace and third-party sellers is crucial. The terms and conditions,
seller agreements, and contractual provisions related to product quality and liability
play a significant role in determining the legal responsibilities of each party.
CONSUMER PROTECTION (E-COMMERCE) RULES 2020:
These rules state the duties of e-commerce entities, duties of sellers listed in e-commerce
entities and liability of e-commerce.
1(g) of the Rule 3 of Consumer Protection (e-commerce) rules states the meaning of
marketplace e-commerce entity as an e-commerce entity which provides an information
technology platform on a digital or electronic network to facilitate transactions between
buyers and sellers and e-commerce entity is defined under 1(b) of Rule 3 as any person who
owns, operates or manages digital or electronic facility or platform for electronic commerce,
but does not include a seller offering his goods or services for sale on a marketplace e-
commerce entity. According to the above definition, we can say that various websites like
Amazon, Flipkart, Myntra, etc are marketplace e-commerce entity as these works as an
intermediary between buyers and sellers and facilitate transcations between buyers and
sellers.