Proposed New York Law Seeks Stricter Electronic Marketplace Liability

Bill S6437, a bill making its way through the New York State Senate, would purport to place electronic marketplace providers on the same footing as retailers for purposes of New York’s strict liability law. While the law would likely be subject to legal challenges, it could be used by plaintiffs’ lawyers attempting to open marketplaces to liability for damages caused by defective products to the same extent as any retailer of such defective products.

New York State Senate Bill S6437 (Bill S6437), introduced in April 2023, seeks to amend the general obligations law regarding the liability of electronic marketplaces for defective goods.

The proposed law broadly defines “electronic marketplace provider” as “a person who, pursuant to an agreement with a marketplace seller, sells or facilitates sales of tangible personal property by such marketplace seller or sellers via an internet website, online catalog, mobile application, or similar forum,” and “includes any subsidiaries or related party companies.” 

For purposes of the law, a person “facilitates sales” when such person (i) provides the forum in which the sale takes place or the offer of sale is accepted, including an internet shop, store, booth, application, website, catalog, or similar forum; and (ii) collects the receipts paid by a customer to a marketplace seller for the sale or contracts with a third party to collect such receipts.

Under the proposed law, “[t]he liability of an electronic marketplace provider shall be equal to, but not greater than, the liability of a retailer.”

The proposed law could have an expansive reach and be subject to legal challenge not only because of how “electronic marketplace provider” is broadly defined, but also because the law would apply regardless of whether an electronic marketplace provider (i) has a physical presence in the state or (ii) ever took physical possession of, or title to, the product.

The proposed law has certain limited exceptions, including for products that are preowned, used, handmade, or custom-made, except where “the applicability of strict liability to the electronic marketplace provider is consistent with the policy considerations underlying strict product liability.”

Driving this law is the New York State Senate’s belief that existing laws are “profoundly misaligned with the reality in which e-commerce platforms play a critical role in selling and facilitating the sale of products.” 

Under current laws, as the legislature recognizes, online marketplaces are not properly considered sellers of products because they do not hold legal title and are “provider(s) of services” rather than participants in the sales/distribution chain.

INFORM Act

The New York State Senate’s attempt to pass Bill S6437 is not an isolated effort in focusing on marketplaces. Enacted into federal law on December 29, 2022, the Integrity, Notification, and Fairness in Online Market Retail Marketplaces for Consumers Act (INFORM Act) imposes new due diligence and disclosure requirements on all online marketplaces.

Under the INFORM Act, high-volume third-party sellers (defined as vendors with more than 20 transactions and $5,000 in sales revenue within a 12-month period) are required to provide verifiable authenticating information to eliminate the anonymity they have occasionally enjoyed. The marketplaces will be responsible for collecting and verifying that information.

In addition to the collection and verification requirements, there is an additional disclosure requirement for sellers with more than $20,000 in sales—with limited exceptions, the marketplaces must disclose the name, address, and direct contact information for those sellers.

Next Steps

If passed, Bill S6437 would purport to take effect immediately. While it would likely be subject to legal challenge, it is important for companies that would qualify as an “electronic marketplace provider” under the law to evaluate the law’s potential impact on their operations and take proactive steps in anticipation of its passage. This could include strengthening indemnification and insurance requirements for online sellers and otherwise preparing to face product liability litigation.