Online Marketplace Isn’t Liable for Bad Conduct by Merchants It Certifies–Englert v. Alibaba

August 6, 2012 · by Venkat Balasubramani · in Derivative Liability, E-Commerce, Licensing/Contracts, Marketing

Englert v. Alibaba, 11CV1560 RWS (E.D. Miss.; Apr. 27, 2012)

Englert and other plaintiffs purchased products found on alibaba.com. The products included “ExtenZe male enhancement, Vimax,VigRX Plus, Energy Wristband (Power Balance), and Razor Blades Fusion Power.” Plaintiffs alleged that the products were counterfeit, or tampered with (some were seized by customs officials prior to delivery). The products were sold by third parties but displayed in a location on alibaba.com that allows third party merchants to display their products or services. Sounds like an easy Section 230 case for Alibaba, so where does it fit in? Alibaba, for a fee, allowed third party suppliers to list themselves as “Gold Suppliers”. As explained by its website:

A Gold Supplier is a paid membership for suppliers on the Alibaba website who have a serious interest in doing business with buyers worldwide . . . Gold Suppliers must complete an authentication and verification process by a third-party security service provider.

Alibaba’s website, however, stated that Alibaba:

disclaimed any warranty, express or implied, and liability whatsoever for any loss howsoever arising from or in reliance upon any information, action, or omission of any of its members on its websites.

Alibaba also had (an apparently leakproof) terms of service which explained that Alibaba is an intermediary, that it’s not responsible for the quality of any products or services, or any information provided by sellers.

The court dismisses plaintiffs’ claims for fraud, negligent misrepresentation, and breach of contract (plaintiffs didn’t contest Alibaba’s request to dismiss the breach of contract claims). The court says that plaintiffs’ claims do not allege any false statements on the part of Alibaba based on conferral of “Gold Supplier” status. The statements only refer to the sellers themselves (e.g., that they have a serious interest in doing business). Plaintiffs argued that this amounted to an implied representation that the products or services offered by “Gold Supplier” sellers are authentic, but the court doesn’t buy this argument. Moreover, the court looks to the terms of service and says that any understanding on the plaintiffs’ part that “Gold Supplier” status means that the underlying products or services would be of a particular quality is undermined by the unequivocal disclaimer of warranties and release of liability in the terms. Plaintiffs thus cannot allege that they relied on any statements from Alibaba, even to the extent the statements are false.

Alibaba kept its endorsement of third party sellers relatively narrow, and included robust disclaimers or warranties in its terms of use, thus nullifying the legal effect of its endorsement. It’s a case worth noting from this standpoint, particularly for anyone who operates a marketplace or another ecosystem where an endorsement or rating system becomes important. Not particularly the best result for customers, who may or may not have thought that there was something special about “Gold Suppliers” vs. ordinary suppliers, but the court says in any event that a disclaimer in a leakproof terms of service trumps.

eBay Gets 47 USC 230 Dismissal of Products Liability Claim–Inman v. Technicolor

eBay Denied 230(c)(2) Defense Over Counterfeit Coin Policing

eBay Denied 230 Defense for Its Marketing Representations–Mazur v. eBay

Related:

Jeff Dotty, Choose Your Words Wisely: Affirmative Representations as a Limit on Section 230 Immunity, 6 Wash J.L. Tech. & Arts 259 (2011)