The Responsibility of e-Platforms for 3rd Party Sellers – a Case in the USA

There has always been a global discussion on the responsibility of e-platforms for the goods sold by 3^rd parties. This is true in Africa, Europe and North America. Now the US trade group Cashmere and Camel Hair Manufacturers Institute (CCMI) has filed a lawsuit against the global online marketplace, Etsy Inc. in the USA for allegedly advertising and marketing 3rd-party counterfeit cashmere products through its platform. CCMI claims Etsy violated the Lanham Act; Massachusetts’ false advertising law; common law prohibitions on unfair competition; and Massachusetts’ Anti-Dilution Statute. CCMI also claims that Etsy conspired with the fake cashmere suppliers, and alleges that Etsy’s website, adverts, and automated consumer marketing emails sometimes feature shops selling counterfeit cashmere products, implicating the website in the scheme.  Etsy provides a 3rd-party global marketplace for an enormous number of products and is estimated to have approximately 96m active buyers, 7.5m sellers, over 100 million listings, and to have had a turnover of $2.32 bn in 2021.

In its case, CCMI seeks to protect the market interest and reputation of its membership against products falsely advertised and marketed as “100% Cashmere” or “Cashmere” when they are made from “cheaper synthetic or man-made materials.” CCMI also argued that Etsy failed to regulate these false claims, and instead profited from the counterfeit products via fees charged to sellers. In order to succeed, CCMI must overcome considerable precedent favoring Etsy under the US Communications Decency Act Section 230 — relied on by US courts  — which does not consider an “interactive computer service” like Etsy as the publisher or responsible for 3rd-party information on its platform. Not surprisingly, Etsy relied on Section 230 when answering CCMI’s motion for a temporary restraining order and preliminary injunction, contending it is not responsible nor liable for its sellers’ postings, and its terms of use do not guarentee the products offered by 3rd-party sellers. Instead, Etsy maintained that its platform merely provides a forum for sellers to operate their own shops, and it cannot “pre-screen” the 100+ million platform listings. Etsy also argued that it neither took possession of any sales items nor materially contributed to the product listings, further insulating it from liability.

This case represents a growing trend to hold online marketplaces liable for 3rd-party conduct. For instance in the USA, courts recently held against online marketplaces if they stored, packed, and/or shipped these products to customers, and a 2021 California bill proposed imposing strict liability on online marketplaces for defective goods, even if the marketplace provider never took possession of the goods. Now with CCMI v. Etsy, Inc., the Massachusetts court can either decide to reject the claim since Etsy cannot be held responsible for its 3rd-party sellers, or the court could rule that the marketplace plays a meaningful role in distributing these allegedly counterfeit products.