So much for a summertime lull in Washington, DC.
A congressional hearing last week reflects that the crusade to weaponize antitrust law takes no vacations. While “tech companies” may be Hipster Antitrust’s current target, the policy revolution its acolytes seek would lay waste to a broad set of legal principles that benefit consumers and provide a reliable roadmap for free-enterprise conduct.
For the last several years, a select few legal scholars and special-interest organizations have been complaining that antitrust law predicated on consumer welfare cannot prevent or remedy the many supposed societal harms caused by big businesses. Ideas that were once considered mere curiosities now appear in presidential candidates’ platforms, inspire state regulators and private plaintiffs, and offer comfort to competition regulators overseas who have long argued their antitrust approach is superior.
The Hipster Antitrust movement would replace 50 years of antitrust enforcement based on rigorous analysis of price and other static economic factors with an amorphous, pliable public-interest standard. That standard would allow competition regulators to consider and address such social-policy concerns as income inequality, job loss, worker displacement, and financial harm to competitors and suppliers. Under this approach, the appearance of monopoly due merely to a business’s size or an industry’s concentration—one Cato Institute scholar termed it “psychological monopoly”—would justify severe financial or conduct remedies, or even government-ordered breakups.
As elected officials and other policymakers contemplate this newfangled approach to antitrust, including at a Senate Judiciary Committee oversight hearing on July 24, they must keep two things in mind. First, there is nothing new about Hipster Antitrust. It is merely the resurrection of an old, discredited enforcement method. Second, instead of advancing the public interest, Hipster Antitrust will facilitate anti-consumer rent seeking and political cronyism by a select few entities, individual, and politicians.
Rather than advance consumer welfare, American antitrust law from the late 19th century and well into the 20th century existed, as the U.S. Supreme Court put it, to protect “small dealers and worthy men.” Regulators and judges empowered inefficient competitors by fixating on market leaders’ size. Judge Learned Hand wrote in 1945 that “great industrial consolidations are inherently undesirable, regardless of their economic results.” Sound familiar?
Examples abound of antitrust enforcement, unmoored from neutral principles and economics, harming consumers. In a 2018 research paper, Former Federal Trade Commission (FTC) Chairman Timothy Muris and Sidley Austin LLP’s Jonathan Nuechterlein point to regulators’ and legislators’ destruction of grocer A&P . Much like the maligned online platforms of today, A&P profoundly disrupted and reshaped the retail sector, lowering prices by, among other strategies, building its own distribution network to bypass middlemen and producing its own food products. A&P was also very adept at using data to increase consumer value.
Unable to keep up or adjust, smaller grocers and wholesalers lobbied Congress, which in 1936 passed the Wholesale Grocers Protection Act, better known as the Robinson-Patman Act. The law prevented A&P and other similar chain retailers from purchasing goods at lower wholesale prices, increasing costs that consumers ultimately bore through higher prices.
In 1944, the Justice Department successfully prosecuted A&P for Sherman Act violations. Trial and appellate courts upheld the jury’s decision. Those courts’ opinions, “Viewed from the perspective of contemporary antitrust theory,” Muris and Nuechterlein wrote, “are a bracing comedy of economic errors.” The conviction accelerated A&P’s slow decline and sent a chilling message to its retail contemporaries: don’t cut costs or get too big.
A June 17, 2019 Cato Policy Analysis notes other companies that regulators or competitors once decried as unstoppable monopolists in need of regulation. In addition to A&P, the analysis spotlights Kodak, Microsoft’s Internet Explorer, and Myspace. Myspace seemed like such a sure thing that NewsCorp paid $580 million for it in 2005. Calls for antitrust action intensified. By 2009, Facebook had overtaken Myspace.
A June 28, 2019 speech by FTC Commissioner Wilson points to the railroad and airline industries as two additional examples of government intervention gone awry. Ironically, Commissioner Wilson adds, Hipster Antitrust fans frequently mention these industries as government-intervention success stories.
Self Interest, not Public Interest
Not only will Hipster Antitrust fail to improve markets, its preferred approach will increase the authority of the very politicians, individuals, and corporations the movement believes have too much power. In an April 2018 CPI Antitrust Chronicle piece, former FTC Commissioner Joshua Wright and attorneys Elyse Dorsey and Jan Rybnicek explain that vague standards increase government actors’ discretion. Those actors, public choice theory posits, will use that power in a self-interested way. Regulators will pursue whatever action increases their agency’s budget, power, and notoriety. Enforcement action can lead to restrictive, unpredictable rules that regulators, once they leave government for the private sector, are uniquely well equipped to help businesses navigate.
Private actors, such as plaintiffs’ lawyers, activists, or competitors, will play to antitrust regulators’ self-interest by choosing whichever public-interest antitrust factor elicits the most sympathy. Competitors have much to gain from this rent-seeking. By investing in targeted lobbying, competitors can burden market rivals with years of litigation and compliance costs. Competition in turn suffers when businesses don’t compete vigorously, and consumers consequently pay more for fewer choices. Vague standards also empower politicians to lean on antitrust regulators on behalf of constituents or campaign contributors. How are those outcomes in the public interest?
No body of laws or regulatory standards in the U.S. are above intellectual scrutiny and improvement. A small number of Hipster Antitrust proponents have inspired a great deal of antitrust soul-searching, which perhaps could lead to some productive adjustments. But a wholesale replacement of the consumer welfare standard and its neutral principles with an amorphous public-interest standard is a radical, perilous path that our government should not follow.
Also published by Forbes.com on WLF’s contributor page.
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The Committee on Small Business Subcommittee on Economic Growth, Tax, and Capital Access will hold a hearing titled, “How Regulations Stifle Small Business Growth” The hearing is scheduled to begin at 9:00 A.M. (CDT) on Monday, July 22, 2019 at Oklahoma State University – Tulsa, North Hall Conference Center, Room 150, 700 N. Greenwood Ave. Tulsa, OK, 74106.
Despite a growing economy, America’s small businesses continue to face challenges complying with federal regulations. Regulatory burdens constrain small business job creation and business expansion. This hearing aims to highlight how federal rules and regulations are impacting Oklahoma’s small businesses.
*Witness testimony will be posted within 24 hours after the hearing’s occurrence
The Committee on Small Business will hold a hearing titled, “Flooded Out: Vanishing Environmental Reviews and the SBA’s Disaster Loan Program.” The hearing is scheduled to begin at 10:30 A.M. on Friday, July 19, 2019 at Wheeling Village Hall – 2 Community Blvd, Wheeling, IL, 60090.
Environmental reviews protect communities by studying in advance the social, environmental, and economic harms that could result from a construction project. Understanding the potential harms gives the public and government officials the ability to make informed decision-making prior to construction and the opportunity to plan for mitigation. Unfortunately, environmental reviews are skipped for expediency, such as the Foxconn development in Wisconsin which has the potential to exacerbate flooding in the Des Plaines River watershed. After severe flooding in 2017, businesses in Lake County, Illinois utilized SBA’s disaster loans to rebuild and recover. With projections of more severe future flooding, the SBA disaster loan program could face further unnecessary strain. As Congress considers adapting the program to face additional challenges related to increasing disasters, it is important to understand how compliance with required environmental reviews can ensure the longevity of the SBA disaster program.
Mr. Mike Warner
Lake County Stormwater Management Commission
Mr. Howard Learner
The Environmental Law & Policy Center
Mr. John Durning
Mr. Preston D. Cole
Wisconsin Department of Natural Resources
*Witness testimony will be posted within 24 hours after the hearing’s occurrence
Discovery of the federal government has always been important in False Claims Act (FCA) litigation. The government, as the party allegedly injured in transactions with the defendant, is usually in possession of documentation relevant to the allegations that the defendant submitted false claims or otherwise caused them to be submitted. What’s more, federal agency employees are frequently in a position to offer testimony relevant to liability and damages, including testimony potentially helpful to a defendant in these cases. Yet, discovery of the federal government is never a routine matter. Navigating the sea of agency Touhy regulations as well as department privilege claims, to say nothing of the government’s disclaimer of a duty to preserve evidence in declined cases, can delay, even obstruct, a defendant’s effort to obtain evidence relevant to its defense in qui tam litigation.
Given that the FCA imposes treble damages and statutory per-claim penalties that in some instances dwarf damages, as well as attorneys’ fees and costs, and in light of the Supreme Court’s holding that the FCA’s remedial structure is predominately punitive, due process concerns loom large. It is past time for Congress, or the courts in the absence of Congressional action, to impose upon the government a requirement of automatic disclosure of evidence that is likely to be helpful to the defense in a fashion similar to the requirement applicable in criminal cases pursuant to the U.S. Supreme Court’s decision in Brady v. Maryland. Such a requirement would help to ensure that defendants are not erroneously punished for violating the False Claims Act or pressured into an unwarranted settlement.
Liability under the False Claims Act—The Implications for Due Process
Prior to the 1986 FCA amendments, the FCA imposed double damages for violations and capped penalties at $2,000 per false claim. This measure of damages and penalties was seen as necessary to adequately compensate the government: “We cannot say that the remedy now before us requiring payment of a lump sum and double damages will do more than afford the government complete indemnity for the injuries done it.” United States ex rel. Marcus v. Hess, 317 U.S. 537, 549 (1943).1 Hess, 317 U.S. at 551-52. Forty-six years later, however, the Supreme Court acknowledged in its 1989 decision in United States v. Halper that a civil sanction is punitive when it “cannot fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving either a retributive or deterrent purpose.” United States v. Halper, 490 U.S. 435, 448 (1989), abrogated by United States v. Hudson, 522 U.S. 93 (1997). The Supreme Court has also acknowledged that treble damages contain a punitive component. See Cook County, Ill. v. United States ex rel. Chandler, 538 U.S. 119, 130 (2003) (“To begin with it is important to realize that treble damages have a compensatory side, serving remedial purposes in addition to punitive objectives.”).
The notion that remedies under the FCA are purely compensatory or remedial is no longer tenable, if it ever was tenable in the post-double-damages era. Under the prevailing version of the statute, if liability is found, any damages proved are automatically trebled. 31 U.S.C. § 3729(a)(1). Even if double damages were needed to compensate the government, what compensatory effect is derived from awarding the government a third helping of the damages it or a relator has proved? Add a statutory right to recover attorneys’ fees and costs, and the aggregate effect surely extends beyond compensation to deterrence and retribution. And this, of course, says nothing about the effect of statutory per-claim penalties of between $11,463 and $22,927.2 In a given case, statutory penalties can easily dwarf any damages the government might claim.3 Individuals and entities retain a property interest in the money they possess. See, e.g., Mahers v. Halford, 76 F.3d 951, 954 (8th Cir. 1996) (due process required before inmate-plaintiffs can be deprived of their money by administrative procedure aimed at forced restitution). Given that FCA claims affect a defendant’s property interest and extend well beyond compensation to include punishment and deterrence, due process concerns are rightly implicated.4
The FCA raises additional due process concerns beyond property interests, however. The Supreme Court in Santosky v. Kramer, 455 U.S. 745, 754-55 (1982), also noted that due process mandates a clear and convincing proof standard where the “proceedings threaten the individual involved with ‘a significant deprivation of liberty’ or ‘stigma.’” Id. at 757 (emphasis added). Many courts have recognized that allegations of fraud, in general, and FCA claims, in particular, subject a defendant to the stigma of immorality and deceit. See, e.g., United States ex rel. Keeler v. Eisai, Inc., 568 Fed. Appx. 783, 801, n. 23 (11th Cir. 2014) (FCA complaints can damage a defendant’s goodwill and reputation); United States ex rel. Clausen v. Laboratory Corp. of America, 290 F.3d 1301, 1313, n. 24 (11th Cir. 2002). The mere act of filing a FCA complaint can stain a defendant’s reputation sufficiently to impair the defendant’s opportunities for business with the government. A verdict of liability can be devastating for defendants who may depend heavily on those opportunities. Beyond that, a verdict of liability can lead to other severe, even permanent, administrative sanctions such as exclusion or debarment. See 42 U.S.C. § 1320a–7 (“Exclusion of certain individuals and entities from participation in Medicare and State health care programs”); United States ex rel. Harman v. Trinity Ind., Inc., 872 F.3d 645, 651 (5th Cir. 2017) (jury verdict in favor of qui tam relator prompted further agency investigation, further testing of defendant’s product, and suspension of defendant’s business with government). Thus, the fallout from a FCA prosecution can be severe, even affecting a defendant’s livelihood.
Brady v. Maryland—Due Process Requires the Government to Produce Evidence Helpful to the Defense
In Brady v. Maryland, 373 U.S. 83 (1963), the petitioner and a companion were both convicted in separate trials of first-degree murder, having killed a man during a robbery. Prior to trial, the petitioner sought discovery of the companion’s statements to authorities and was given access to all but one, a statement in which the companion admitted to having committed the killing. The petitioner was convicted, sentenced, and the conviction affirmed on appeal before the withheld evidence came to his attention. He sought a new trial based on the newly revealed evidence. The Maryland Court of Appeals held that the prosecution’s suppression of evidence denied the petitioner due process and remanded the matter to the trial court solely on the issue of punishment. He appealed this decision to the Supreme Court.
The Supreme Court ultimately affirmed the judgment of the Court of Appeals, remanding the case for re-trial on the issue of punishment only. But in arriving at that judgment, the High Court agreed that the petitioner was deprived of due process by the prosecution’s withholding of evidence that would have been helpful to petitioner, announcing the following statement of the rule:
Petitioner’s papers . . . do set forth allegations that his imprisonment resulted from perjured testimony, knowingly used by the State authorities to obtain his conviction, and from the deliberate suppression by those same authorities of evidence favorable to him. These allegations sufficiently charge a deprivation of rights guaranteed by the Federal Constitution, and, if proven, would entitle petitioner to release from his present custody.
Id. at 86, quoting Pyle v. Kansas, 317 U.S. 213, 215 (1942). The Supreme Court further noted that other courts have held that due process is denied when the state, without more, withholds evidence helpful to the defendant. Clarifying the rule first articulated in Pyle, the Court held that “the suppression by the prosecution of evidence favorable to an accused upon request violates due process where the evidence is material either to guilt or to punishment, irrespective of the good faith or bad faith of the prosecution.” Brady, 373 U.S. at 87. In a subsequent decision, the Supreme Court held that Brady material includes material that might be used to impeach key government witnesses: “When the ‘reliability of a given witness may well be determinative of guilt or innocence,’ nondisclosure of evidence affecting [the witness’s] credibility falls within th[e] general rule [of Brady].” Giglio v. United States, 405 U.S. 150, 154 (1972).5
Over time courts continued to expand Brady’s application. The constitutional obligation to turn over Brady material falls upon not only prosecutors, but also investigators where the investigators are aware of exculpatory evidence that may not be known to prosecutors. See Kyles v. Whitley, 514 U.S. 419, 437-38 (1995) (due process requires disclosure of any Brady material known to any member of the prosecution team). If such evidence is withheld, the government will be held responsible by, for example, the court’s suppression of evidence, reversal of a conviction, or referral of the prosecutor to disciplinary authorities, depending on the circumstances in a given case. The prosecution team includes, in appropriate circumstances, government employees in addition to law enforcement and prosecutors who were involved in the investigatory proceedings. See, e.g., United States v. Wood, 57 F.3d 733, 737 (9th Cir. 1995) (in a prosecution where the defendant was convicted of obstructing a lawful function of the FDA, the court of appeals stated that “[U]nder Brady the agency charged with administration of the statute, which has consulted with the prosecutor in the steps leading to prosecution, is to be considered as part of the prosecution in determining what information must be made available to the defendant charged with violation of the statute.”)
Due Process Requires Application of Brady to Civil Claims Brought under the False Claims Act
In a broad sense, if a party faces deprivation of life, liberty, or property, due process is required. That is only the beginning of the inquiry, however. One must consider what procedures are fairly required to ensure due process. In Mathews v. Eldridge, 424 U.S. 319 (1976) the Supreme Court identified three determinants of procedural due process: (1) the importance of the interest to the individual (greater importance requires greater procedural protection); (2) whether additional procedures ensure greater accuracy in factfinding; and (3) the government’s interest including the additional fiscal or administrative burdens resulting from additional procedures. Id. at 334.
As the False Claims Act evolves to become more punitive, as damages, penalties, and costs multiply, due process concerns intensify. Beyond this, the stigma associated with liability for committing fraud against the federal government combined with potentially draconian administrative sanctions reflect quasi-criminal consequences in the event of a violation of the Act. Insofar as these developments relate to the first Mathews v. Eldridge factor, protections greater than those afforded a typical civil litigant are necessary. A Brady requirement would surely help to ensure greater accuracy in factfinding, consistent with the second Mathews factor, particularly in cases in which the federal government has not intervened and is not subject to the Federal Rules of Civil Procedure. Even where the government is required to respond to discovery requests of some sort, a Brady requirement would impose an affirmative duty beyond the express requirements of a defendant’s discovery to supply exculpatory evidence and thus help to foster fairer outcomes.
As for the third Mathews factor, the marginal burden imposed on the government by extending Brady beyond criminal cases to civil false-claims cases should be modest. In fiscal year 2017, for example, 67,619 criminal cases against individuals or organizations were pending in United States District Courts at some point during the year.6 In contrast, between FY 2010 and 2018, 7,156 civil False Claims Act cases were brought either by the government or by qui tam relators. During that time, on average, less than 1,000 FCA cases per year were filed.7 The volume of civil FCA litigation, certainly in respect of numbers of cases, is a small fraction of the Justice Department’s criminal docket. While civil fraud cases may be more discovery- and document-intensive than many criminal cases, the numbers do not present a compelling argument against adopting a Brady requirement.
Due process is the touchstone that triggers the government’s obligation under Brady to volunteer exculpatory evidence. That constitutional guarantee of fundamental fairness is eroded when the government pursues a criminal conviction while withholding information, either in the form of direct or impeachment evidence, that could be helpful to the defendant. The very integrity of the criminal justice process, in other words, is undermined when prosecutors and their agents are able to obtain a conviction that rests on a knowingly misleading set of facts.
Although the consequences of a FCA violation do not include deprivation of life or liberty, the sanctions and damages imposed under that law have increased to a degree that process afforded a non-FCA civil litigant is inadequate, and the failure of the government to produce evidence helpful to the defendant in advance of trial similarly threatens the fairness of the process. Defendants face the deprivation of property, well beyond anything necessary to compensate the government for its losses. Too, they confront the stigma and reputational harm resulting from a finding of having engaged in fraud against the federal government, the effects of which can last years if not decades. Administrative sanctions, to include the sanction of debarment, can utterly destroy some defendants who depend heavily on business with the government. Given these interests, that truthfinding will be enhanced, and that the burden on the government from additional procedures is likely modest and manageable, a Brady requirement should be adopted for use in all FCA cases, whether brought by the government or by a qui tam relator.
A select but highly influential group of federal courts have either shirked their expert-evidence oversight responsibility or significantly eased plaintiffs’ burden of proving relevance and reliability, depriving litigants of the uniformity and consistency the Supreme Court intended in its “Daubert trilogy.”
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Digesting an opinion by U.S. Court of Appeals for the Third Circuit Judge Anthony J. Scirica (Judge Scirica had no role in WLF’s selecting or editing this opinion for this publication). Ed. note: The presence of asterisks in this Circulating Opinion reflect our editorial removal of text.
Introduction to the Opinion: In Oberdorf, 2019 WL 2849153 (3d Cir. July 3, 2019), the Third Circuit decided that under Pennsylvania common law, Amazon is the “seller” of products offered by third parties through Amazon Marketplace and, in turn, could be strictly liable for harm caused by a defective dog collar purchased from the marketplace. The court then held that § 230 of the Communications Decency Act (CDA) precluded the plaintiff’s claims over Amazon’s editorial function (i.e., its failure to warn) but not the claims tied to its “direct role in the sales and distribution process.” Judge Scirica concurs with the majority’s CDA holding but dissents from the conclusion that Amazon was a “seller.” His dissent persuasively explains why state law compels a contrary outcome and shows how other jurisdictions’ rulings on this core products-liability question reinforce that view.
SCIRICA, Circuit Judge, concurring in part and dissenting in part.
This case implicates an important yet relatively uncharted area of law. No Pennsylvania court has yet examined the product liability of an online marketplace like Amazon’s for sales made by third parties through its platform. Our task, as a federal court applying state law, is to predict how the Pennsylvania Supreme Court would decide the case. Berrier v. Simplicity Mfg., Inc., 563 F.3d 38, 45 (3d Cir. 2009). We must take special care “to apply state law and not … to participate in an effort to change it.” McKenna v. Ortho Pharm. Corp., 622 F.2d 657, 663 (3d Cir. 1980) (internal citation omitted). In my view, well-settled Pennsylvania products liability law precludes treating Amazon as a “seller” strictly liable for any injuries caused by the defective Furry Gang collar.
The plaintiffs weigh in detail policy reasons for allowing them to sue Amazon. Plaintiffs’ theory would substantially widen what has previously been a narrow exception to the typical rule for identifying products liability defendants sufficiently within the chain of distribution. A “seller” in Pennsylvania is almost always an actor who transfers ownership from itself to the customer, something Amazon does not do for Marketplace sellers like The Furry Gang. For similar reasons, every court to consider the question thus far has found Amazon Marketplace not a “seller” for products liability or other purposes; several of those courts have done so under products liability regimes similar to Pennsylvania’s. For these reasons, I respectfully dissent from the majority’s disposition of the claims not barred by the Communications Decency Act (CDA).
*** Products are offered for sale at Amazon.com in three primary ways. *** [A]t issue here, third-party sellers sell products through Amazon Marketplace without additional “fulfillment” services. These sellers, like The Furry Gang, supply and ship products directly to consumers without ever placing the items in Amazon’s possession. ***
Amazon envisions its Marketplace as an open one. It reserves the right to remove sellers’ listings or terminate Marketplace services for any reason and requires sellers to represent they are in good legal standing, but it does not apply a general vetting process to all sellers to identify those who do not in fact meet that standard. Amazon also does not narrow the Marketplace’s offerings by limiting the number of sellers who may offer each type of product: any number of sellers may register. In displaying products to customers, Amazon distinguishes products sold through the Marketplace from those sold directly by Amazon, identifying the seller responsible for the item in a “sold by” line placed prominently next to the price and shipping information. App. 211. The seller’s name also appears on the order confirmation page, before the customer clicks “place your order” to finalize the purchase. Id. Amazon’s conditions of use for customers affirm the distinction, explaining, in Amazon Marketplace purchases from third-party sellers, “you are purchasing directly from those third parties, not from Amazon. We are not responsible for examining or evaluating, and we do not warrant, the offerings of any of these businesses or individuals.” ***
A customer on Amazon Marketplace buys a product that has been chosen, sourced, and priced by the third-party seller. The seller contractually commits to “ensure that [it is] the seller of each of [its] Products” listed for sale. App. 164. In exchange for Amazon’s services including listing the product and managing payments, the seller is charged a monthly fee, as well as a referral fee of a percentage of each sale made. The relationship reflected in the agreement between Amazon and the seller is one of “independent contractors.” Id. at 270. The agreement specifically disclaims other potential relationships: it does not mean to create relationships of “partnership, joint venture, agency, franchise, sales representative, or employment,” nor does it create an “exclusive relationship” constraining either Amazon or the third-party seller from other sales relationships. Id.
For each new listing a seller creates, the seller identifies the product it plans to sell, designates a price, and writes a product description. Amazon requires the description include certain minimum information about the product, and requires the seller to offer a price as favorable as the one it offers in any other sales channels. Amazon also automatically formats the information provided into a product listing page matching others on the Marketplace, and it sometimes modifies listings to streamline user experience: for example, by grouping together the pages of multiple sellers who offer the identical product sourced in different ways. The seller may choose to offer, or not to offer, a warranty on its product. Regardless, the agreement makes the seller “responsible for any nonconformity or defect in, or any public or private recall of, any of [its] products.” Id. at 173.
When a product is sold on Amazon Marketplace, the third-party seller offering the product for sale, as well as the product’s original manufacturer, may each be sued in product liability if the product is defective. This case raises the question whether Amazon, too, can be liable as a “seller” of such a product, because of the assistance it gives to the third-party seller that provided the product to the customer. Plaintiffs answer this question in part by invoking a set of four policy factors laid out in Francioni v. Gibsonia Truck Corp., 472 Pa. 362, 372 A.2d 736, 739 (1977). For the reasons I discuss in Part III, the Francioni factors should come second to an analysis under Pennsylvania law of the defendant’s role in supplying the product. See Cafazzo v. Cent. Med. Health Servs., 542 Pa. 526, 668 A.2d 521, 523 (1995). I begin, instead, with the definition of “seller” under Pennsylvania law.
A seller under Pennsylvania product liability law is one “engaged in the business of selling … a product.” Id. at 523 (quoting Restatement (Second) of Torts § 402A(1)(a) (Am. Law Inst. 1965)). In nearly all cases, “selling” entails something Amazon does not do for Marketplace products: transferring ownership, or a different kind of legal right to possession, from the seller to the customer. Thus, in Pennsylvania, sellers include traditional wholesalers and retailers, as well as those who supply a product through a transaction other than a sale. See, e.g., Chelton v. Keystone Oilfield Supply Co., 777 F. Supp. 1252, 1256 (W.D. Pa. 1991) (wholesaler); Burch v. Sears, Roebuck & Co., 320 Pa.Super. 444, 467 A.2d 615, 618 (1983) (retailer); Francioni, 372 A.2d at 739–40 (lessor); Villari v. Terminix Int’l, Inc., 663 F. Supp. 727, 730–31 (E.D. Pa. 1987) (pest control company supplying insecticide as part of service). Though varied, each of these cases holds liable a “seller” who transferred the right to possess the product from itself to the customer.
Transfer of a right to possession is so typical to “sellers” that exceptions are rare. There is one primary exception in Pennsylvania caselaw: the “manufacturer’s representative.” See Hoffman v. Loos & Dilworth, Inc., 307 Pa.Super. 131, 452 A.2d 1349, 1351 (1982). *** But in no other scenario has a Pennsylvania court imposed “seller” liability on a defendant whose role in the sale did not include transferring ownership or possession of the product. For example, the Pennsylvania Supreme Court considered and rejected “seller” liability for an auctioneer who “never owned, operated or controlled the equipment which was to be auctioned.” Musser v. Vilsmeier Auction Co., 522 Pa. 367, 562 A.2d 279, 279 (1989). As the court explained, in auctioning off a product owned and controlled by the third-party seller, “[t]he auction company merely provided a market as the agent of the seller. … Selection of the products was accomplished by the bidders, on their own initiative and without warranties by the auction company.” Id. at 282. The auction company’s significant role in assisting the sale was nonetheless “tangential” to the core of the transaction, the exchange between the buyer and third-party seller. Id. ***
Amazon Marketplace, like the auctioneer in Musser, takes an important part in assisting sales, but is “tangential” to the actual exchange between customer and third-party seller. 562 A.2d at 282. Like an auctioneer, Amazon Marketplace provides the “means of marketing” to a third-party seller who accomplished the “fact of marketing” when it “chose the products and exposed them for sale.” Id. (citing Francioni, 372 A.2d at 738). Amazon Marketplace’s services to any individual seller for an individual product are not “undertaken specifically,” but rather, as with the auctioneer, provided on essentially similar terms to a large catalogue of sellers. Id.; see id. at 282 n.3. And like an auctioneer, Amazon Marketplace never owns, operates, or controls the product when it assists in a sale. See id. at 279.
Amazon Marketplace’s similarities to the auctioneer emphasize it has little in common with Hoffman’s manufacturer’s representative, the only kind of “seller” held liable despite not having made a transfer of ownership or possession rights. Hoffman, 452 A.2d at 1354. Amazon Marketplace does not offer the co-strategizing relationship promised by manufacturers’ representatives. Amazon Marketplace is not an outsourced sales force working with individual manufacturers to boost sales: it offers a marketing platform, and it is up to the third-party seller to make best use of the platform to maximize sales.
Under Pennsylvania law, then, Amazon was not the seller of The Furry Gang’s product and therefore is not liable for any product defect. Because established Pennsylvania law precludes holding Amazon strictly liable here, I respectfully dissent.
While Pennsylvania law alone dictates this outcome, it is reinforced by “analogous decisions” and “other reliable data.” McKenna, 622 F.2d at 663. Pennsylvania courts have yet to consider whether Amazon is strictly liable for defective products sold through its Marketplace. So just like a Pennsylvania court would, I consider relevant decisions from other jurisdictions. These sources, including two federal appellate decisions so far, confirm what Pennsylvania law already makes clear. Amazon’s role in assisting a product’s sale does not make it that product’s “seller.”
The Sixth Circuit found Amazon Marketplace was not a “seller” after consulting a variety of sources to clarify the term’s expansive but ambiguous meaning within the Tennessee Products Liability Act. Fox v. Amazon.com, Inc., 926 F.3d 295, –––– – –––– (6th Cir. 2019). The Tennessee statute defines “seller” as “any individual or entity engaged in the business of selling a product,” including a “retailer,” “wholesaler,” “distributor,” “lessor,” or “bailor.” Tenn. Code Ann. § 29-28-102(7) (West 2012). Considering and rejecting a more “limited construction” proposed by Amazon, Fox, 926 F.3d at ––––, the court interpreted this definition to include not only those who transfer title, but “any individual regularly engaged in exercising sufficient control over a product in connection with its sale, lease, or bailment, for livelihood or gain,” id. at ––––. The court nonetheless found Amazon Marketplace did not fall within even this more expansive definition. The court held Amazon did not exercise sufficient control to be the product’s “seller” because Amazon “did not choose to offer the [product] for sale, did not set the price of the [product], and did not make any representations about the safety or specifications of the [product] on its marketplace.” Id. at ––––. It noted that, as in this case, Amazon did not fulfill the product and therefore never possessed it or shipped it to the customer. Id.
Even where Amazon Marketplace did fulfill the product at issue, the Fourth Circuit held Amazon was not the product’s “seller” under Maryland common law. Erie Ins. Co. v. Amazon.com, Inc., 925 F.3d 135, 144 (4th Cir. May 22, 2019). In that case, unlike this one, Amazon “fulfilled” the product by storing it prior to sale then shipping it to the customer. The court held Amazon Marketplace was not a seller because, despite its role in “fulfilling” the sale, it never performed the basic act of sale: it did not “transfer title to purchasers of [the product] for a price.” Id. at 141. The court explained, relying in part on Pennsylvania precedent, those who “own … the products during the chain of distribution are sellers,” while those who “render services to facilitate that distribution or sale[ ] are not sellers.” Id. (citing Musser, 562 A.2d at 283). Amazon, because it only rendered services and did not transfer ownership, was not a seller. Id. at 144. Here, Amazon played an even more limited role: it neither stored nor shipped the product.
Other federal courts have reached the same outcome. Courts have declined to treat Amazon Marketplace as a “sales agent,” as plaintiffs ask us to do. In dismissing a products liability lawsuit against Amazon essentially identical to this one, the District Court for the Southern District of New York considered a New York case that, like Pennsylvania’s Hoffman decision, held a sales agent liable as a “seller.” Eberhart v. Amazon.com, Inc., 325 F. Supp. 3d 393, 398–99 (S.D.N.Y. 2018) (citing Brumbaugh v. CEJJ, Inc., 152 A.D.2d 69, 547 N.Y.S.2d 699, 700–01 (3d Dep’t 1989)); see Hoffman, 452 A.2d at 1354. The court found Brumbaugh exceptional and of no help in establishing liability against Amazon. Eberhart, 325 F. Supp. 3d at 398–99. It reasoned, among New York cases holding defendants liable as sellers, “the vast majority of opinions” involve a defendant who did “at some point, own the defective product.” Id. at 398. And while Brumbaugh’s sales agent, given its exclusive role in connecting the manufacturer with local distributors, was “a mandatory link in [the] distributive chain,” id. at 399 (quoting Brumbaugh, 547 N.Y.S.2d at 701), the court found Amazon Marketplace’s role in merely “facilitating purchases” did not rise to this level. Id. ***
The Third Restatement of Torts’ § 20, defining “seller,” captures state law trends in Pennsylvania, common also to New York, Illinois, and other states, as federal courts considering product liability suits against Amazon Marketplace have noted. See Restatement (Third) of Torts: Prod. Liab. § 20 (Am. Law Inst. 1998); see also, e.g., Eberhart, 325 F. Supp. 3d at 398 & n.4 (finding its conclusion against product liability for Amazon Marketplace “reinforced” by § 20, though New York had not adopted the provision). Although the Supreme Court of Pennsylvania has not yet had occasion to consider § 20, the provision’s incremental clarification of existing law, fully consistent with Pennsylvania case law, is the kind of guidance the Pennsylvania Supreme Court would likely find informative. ***
In Pennsylvania, as in states across the country including New York and Illinois, a business assisting a sale is not a “seller” for products liability purposes unless it takes on the particularly involved retail relationship of sales agent/manufacturer’s representative. The Third Restatement’s § 20 tracks this pattern. Like every federal court to consider this issue so far, I would find Amazon Marketplace not a seller. ***
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“If indirect purchasers could secure antitrust standing merely by alleging that everyone above them in the supply chain is part of a grand conspiracy to ‘restrain trade,’ the direct-purchaser rule would quickly become a dead letter.”
—Cory Andrews, WLF Senior Litigation Counsel
Click here for WLF’s brief.
(Washington, DC)—Washington Legal Foundation (WLF) today asked the U.S. Court of Appeals for the Seventh Circuit to affirm a lower court’s sound dismissal of an antitrust lawsuit under the Supreme Court’s 42-year-old direct-purchaser rule.
The appeal arises from an action by three healthcare providers who purchase medical supplies indirectly (through brokers and distributors) from the defendant manufacturer. The plaintiffs allege that the defendants conspired to charge them inflated prices in violation of the Sherman Act. Yet under the Supreme Court’s landmark ruling in Illinois Brick Co. v. Illinois (1977), only the direct purchaser of a good or service may sue an allegedly abusive monopolist for damages. Applying that bright-line rule, the district court dismissed the suit.
Under the plaintiffs’ theory on appeal, an indirect purchaser can evade Illinois Brick simply by alleging that distributors entered into anticompetitive contracts with manufacturers—regardless whether the distributor had any part in setting the allegedly inflated price or absorbed any of the alleged overcharge. Not only would the plaintiffs’ proposed “exception” swallow the rule, but adopting it would fly in the face of the Supreme Court’s caution that it would be counterproductive to create a “series of exceptions” to Illinois Brick.
In its amicus curiae brief, WLF argues that the plaintiffs’ claim triggers a straightforward application of the direct-purchaser rule; the plaintiffs’ theory of recovery is an indirect one that would require the court to grapple with the very “evidentiary complexities and uncertainties” against which Illinois Brick warns. Such pass-through damages are prohibited in whatever form they take.
Nor, WLF contends, has the passage of time rendered Illinois Brick irrelevant. By concentrating the ability to recover in the hands of the purchaser with the most skin in the game, the rule continues to ensure robust antitrust enforcement. Despite the rise of computer-aided economic models predicting economic behavior, there remains no reliable way to trace overcharges through a distribution chain free from spurious assumptions or guesswork. And the direct-purchaser rule still eliminates the possibility that both direct and indirect purchasers will recover a treble damages windfall for the same alleged antitrust violation.
Celebrating its 42nd year as America’s premier public-interest law firm and policy center, WLF’s mission is to preserve and defend America’s free-enterprise system by litigating, educating, and advocating for free-market principles, a limited and accountable government, individual and business civil liberties, and the rule of law.
Saturday will mark the 50th anniversary of the Apollo-11 mission. The moon landing still unites and inspires Americans like few events in our nation’s history. It is hard to believe that a half-century has passed since the United States won the Space Race.
Although it is fitting to celebrate such past achievements, we are pleased that NASA Administrator Jim Bridenstine is here to discuss the future of American space exploration.
In December of 2017, President Trump outlined a bold vision to reinvigorate America’s space leadership. Space Policy Directive-1 calls for returning humans to the moon for the first time since 1972, but this time it will be for long-term exploration and use and will be followed by manned missions to Mars.
NASA had planned to return to the Moon by 2028, but in a speech to the National Space Council in April Vice President Pence announced a dramatic acceleration of that timeline. Under the Artemis program, the United States will now land the first woman and the next man on the moon by 2024 and establish a sustained presence on the moon or in lunar orbit by 2028.
I share the administration’s sense of urgency. As I told Administrator Bridenstine during his March appearance before this committee, the United States has entered a New Space Race driven primarily by the expansion of China’s space power ambitions and the explosive potential growth for space commerce.
I support setting clear goals on ambitious time lines to achieve mission success. However, in order to reach these goals, NASA and its commercial and international partners will have to accomplish a great deal of work in a short amount of time. The Space Launch System (SLS) rocket and Orion crew capsule need to be tested and certified for human missions as soon as possible. We also need to build multi-component lunar landing systems and the gateway orbiting lunar outpost that docks the Orion crew capsule and lunar landers needs to be assembled in space. I know that as they continue to pursue these ambitious goals NASA will maintain the highest commitment to safety. Part of that commitment to safety, should include the completion of a full Green Run test of the SLS core stage – and there is no better place to do that than at the Stennis Space Center in Mississippi.
The cost is a challenge for NASA. In May, the administration submitted an FY20 budget amendment for $1.6 billion in additional funding related to the accelerated Artemis schedule – an amount that Administrator Bridenstine has called a “down payment”. The Administrator has said the program could cost $20-30 billion over the next five years – by my math, that calls on the Congress to appropriate $4-6 billion in extra funding each year. In turn, Congress needs more details on the funding requirements so we can be good stewards of taxpayer dollars. Concerns have also been raised about NASA moving funding from other important priorities to pay for Artemis. The reprioritization needs to include early and detailed consultation with this committee and with the Congress to ensure critical programs are not undermined.
I look forward to Mr. Bridenstine shedding light on these projected funding needs and what is required to address concerns about different components of Artemis, specifically the gateway orbiter in order to execute the program successfully.
The anniversary of Apollo-11 reminds us all of past progress and untapped potential, but constantly changing mission priorities, unstable funding, and goals set too far in the future have caused the America’s space program to suffer. Congress should and will perform its oversight duties, but we also need to provide NASA with the consistent direction, clarity of purpose, and funding it needs for success.
I want you to succeed, Mr. Bridenstine; I am excited about this. I hope this hearing will help provide insight necessary to make good on the legacy of Apollo.
Today at a Senate Commerce, Science, and Transportation Committee hearing, U.S. Senator Maria Cantwell (D-WA), the Ranking Member of the committee, continued her push to protect U.S. weather forecasting capabilities from serious interference.
In a hearing with NASA Administrator Jim Bridenstine, Cantwell asked about widespread concerns that ongoing Federal Communications Commission (FCC) licensing of certain spectrum bands could interfere with critical weather satellites and set U.S. weather forecasting capabilities back decades.
“When [FCC] Chairman Ajit Pai was here, he said there was ‘absolutely no’ legitimacy to the issues raised by NASA,” Cantwell said. “Could I just get your comments on that so that we can keep making progress on solving this issue, and how important accurate weather forecasting information is – not just for you but for the travelling public?
Bridenstine’s response cited a NASA study and highlighted the risks of the Trump FCC’s moves.
“I can tell you that, depending on the decibel level in that 23.6 gigahertz, we could lose significant data,” Bridenstine said. “We could lose, according to the study, up to 70 percent of that data. And if that were to happen, it would affect our ability to predict weather, without question.”
Returning to Chairman Pai’s earlier dismissal of fears raised by the National Oceanic and Atmospheric Administration (NOAA), NASA, the U.S. Navy, and members of the scientific community, Cantwell said:
“Well, I consider those legitimate concerns.”
“I do too,” agreed Commerce Committee Chairman Roger Wicker (R-MS).
For months, experts inside and outside the Trump administration have raised concerns that the FCC allowing 5G operations in the 24 GHz spectrum frequency will interfere with critical weather data collection, damaging the effectiveness of U.S. weather satellites and harming forecasts and predictions relied on to protect safety, property, and national security.
These concerns are particularly worrisome for many areas of the country that continue to deal with yearly hurricane seasons. At a House Science Subcommittee hearing in May, Acting NOAA Administrator Dr. Neil Jacobs warned that data losses from interference could substantially impair hurricane forecasting:
“This would result in the reduction of hurricane forecasting lead time by roughly 2-3 days,” Dr. Jacobs said.
Senator Cantwell has repeatedly raised concerns and asked the FCC to work with NOAA and NASA to find a solution to protect this critical weather data. In May, Cantwell and Senator Ron Wyden (D-OR) sent a letter to the FCC urging the Trump administration not to allow wireless companies to operate in 24 GHz spectrum until vital weather forecasting operations are protected. And at a Commerce Committee hearing last month, Cantwell raised her concerns again to the FCC commissioners.
WASHINGTON – U.S. Sen. Roger Wicker, R-Miss., chairman of the Committee on Commerce, Science, and Transportation, will convene a nominations hearing at 10:30 a.m. on Wednesday, July 24, 2019 to consider presidential nominations to the National Transportation Safety Board, Federal Maritime Commission, Amtrak Board of Directors, Office of Science and Technology Policy, and Department of Commerce
Click here for additional information on nominees.
- The Honorable Todd Rokita, of Indiana, to be a Director of the Amtrak Board of Directors
- The Honorable Jennifer Homendy, of Virginia, to be a Member of the National Transportation Safety Board
- Mr. Carl Bentzel, of Maryland, to be a Commissioner of the Federal Maritime Commission
- Mr. Michael Graham, of Kansas, to be a Member of the National Transportation Safety Board
- Mr. Michael Kratsios, of South Carolina, to be an Associate Director of the Office of Science and Technology Policy
- Mr. Ian Paul Steff, of Indiana, to be Assistant Secretary of Commerce and Director General of the United States and Foreign Commercial Service
Wednesday, July 24, 2019
Committee on Commerce, Science, and Transportation
This hearing will take place in the Hart Senate Office Building 216. Witness testimony, opening statements, and a live video of the hearing will be available on www.commerce.senate.gov.
Cantwell Questions NASA Administrator on Mission to Moon, Urges Involvement of Women Throughout The Entire “Artemis” Program
Today, NASA Administrator Jim Bridenstine appeared before the Commerce Committee for a hearing on deep space. Administrator Bridenstine touted the progress NASA has been making in the “Artemis” program—the effort to return Americans to the Moon for the first time since the Apollo program which marked its 50th anniversary this week. Ranking Member Cantwell pointed to the need for women to be involved at every level of the Artemis program—not just as astronauts.
“I hope that in this next mission we can use whatever tools we have to call on America’s brightest women engineers to participate in this process, as we’ve all looked at the video of the last launch – we can see one thing is missing. We don’t see a lot of women in those control rooms, we don’t see a lot of women in those pictures,” Senator Cantwell said. “I hope that we’ll do some serious work at trying to use that as a tool. There aren’t a lot of tools where we’re calling on women to help with such a national mission and I hope that we do that.”
The Committee on Small Business will hold a markup of legislation to amend the Small Business Act and the Small Business Investment Act. The markup will be held at 11:30 A.M. on Wednesday, July 17, 2019, in Room 2360 of the Rayburn House Office Building. The items that will be marked up include:
• H.R. 3537, “Veteran Entrepreneurship Training Act of 2019”
• H.R. XXXX, “Successful Entrepreneurship for Reservists and Veterans Act”
• H.R. 1615, “Verification Alignment and Service-disabled Business Adjustment Act”
• H.R. 499, “Service-Disabled Veterans Small Business Continuation Act”
• H.R. 3661, “Patriotic Employer Protection Act”
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