Amazon may be held liable for defective products sold through its marketplace, according to a federal regulator.

• The U.S. Consumer Product Safety Commission has ruled that Amazon qualifies as a distributor of goods and is responsible for recalling faulty products.
• Amazon has long grappled with a contentious issue, with the company maintaining that it is merely a facilitator between third-party sellers and customers.
• The judge stated that Amazon's fulfillment program for sellers grants it extensive control over the products sold on its platform.

Federal regulators have decided that Amazon can be held liable for defective goods sold by third-party merchants on its online marketplace, despite the company's argument that it is merely an intermediary between consumers and sellers.

The U.S. Consumer Product Safety Commission declared in a landmark order on Tuesday that Amazon qualifies as a distributor of goods and thus holds legal responsibility for recalling them.

The agency has mandated that Amazon create a plan to inform customers and the public of product hazards, and provide refunds or replacements for affected items.

Amazon's marketplace, which hosts millions of third-party sellers, accounts for approximately 60% of the company's e-commerce sales. Despite bringing in record revenue, the marketplace has been found to host counterfeit, unsafe, and expired goods. Amazon has previously stated that it invests hundreds of millions of dollars per year to ensure the safety and compliance of products sold on its platform.

The issue of Amazon's liability in lawsuits involving third-party sellers on its marketplace has been a contentious topic for years. While Amazon has argued that it is only a conduit between buyers and sellers and not involved in the sourcing or distribution of products sold by third-party sellers, this defense has been successful in the past, including in a 2018 case involving a faulty hoverboard that caused a house fire in Tennessee. However, federal courts and legislators have also argued that Amazon should be held liable for the actions of third-party sellers.

In 2021, the CPSC sued Amazon to recall hundreds of thousands of hazardous products it had sold, including faulty carbon monoxide detectors, hairdryers without electrocution protection, and children's sleepwear that posed a burn risk.

In its response to the agency complaint, Amazon maintained that it should be classified as a third-party logistics provider because it merely receives and transports the products sold through its website.

Amazon removed all the products flagged by the CPSC and prohibited merchants from selling them on its marketplace. The company informed shoppers who purchased the items of potential safety issues and instructed them to destroy the items, while also offering them a credit.

The CPSC deemed the company's actions "inadequate" and advised that they should have provided refunds to motivate consumers to destroy or return the product.

An administrative law judge rejected Amazon's claim to be classified as a third-party logistics provider in Tuesday's ruling. The judge emphasized that Amazon's Fulfilled by Amazon service, where sellers ship inventory to the company's warehouses and those products are stored until they're purchased, contradicts Amazon's argument.

The judge stated that this program grants Amazon extensive control over the products sold on its platform.

"The decision states that Amazon cannot evade its responsibilities under the Consumer Product Safety Act by focusing solely on logistics services. As a result, Amazon must adhere to the CPSA to safeguard consumers from harm."

Representatives from Amazon didn't immediately respond to a request for comment.

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