Controversial e-commerce bill criticized by Amazon rivals such as Etsy won't move forward for now

• A California consumer protection bill called AB 3262, which sought to hold "electronic retail marketplaces" to the same liability standards applied to brick-and-mortar retailers, "will not advance in its present form by the legislative deadline," according to the California Assembly member who introduced it. 
• The bill and its amendments had drawn criticism from Etsy, Shopify, eBay's public policy arm, a group of advertising trade organizations and other industry groups that say existing law already protects consumers and that the bill will stifle small businesses that sell products online.
• In a surprising move, Amazon recently said it would support the controversial bill if it were to include "all online marketplaces regardless of their business models."

Josh Silverman, CEO of Etsy.

Adam Jeffery | CNBC

Following a string of criticism from players including eBay and Etsy, the lawmaker who introduced a California consumer protection bill said Friday it will not advance in its present form by the legislative deadline. 

AB 3262, which sought to hold "electronic retail marketplaces" to the same liability standards applied to brick-and-mortar retailers, has drawn opposition from Etsy, Shopify, eBay's public policy arm and industry groups that say existing law already protects consumers and that the bill will stifle small businesses that sell products online.

Last week, a group of advertising trade organizations spoke out against amendments to the bill, saying they could threaten online content and have a chilling effect on commercial speech. In a surprising move, Amazon said it would support the controversial bill if it were to include "all online marketplaces regardless of their business models."

Lawmakers recently amended the bill to include online marketplaces that profit off advertising fees collected by merchants.

"Many industry participants engaged with us early, while others came to the table much more recently," California Assembly member Mark Stone, who introduced the bill, said in a statement Friday. "The conversations were productive as we worked to move beyond the 'Buyer Beware' mentality, and toward an online policy that has been the law for brick and mortar retailers in California for decades. Unfortunately, despite promising ideas and potential paths for moving forward, AB 3262 will not advance in its present form by the legislative deadline." 

Amazon's conditional support of the bill drew ire from Etsy CEO Josh Silverman, who accused Amazon of backing AB 3262 as part of an "abuse of market power play." Silverman said the bill would saddle small businesses with expensive legal fees, effectively wiping out Amazon's competitors. Amazon said the legislation should apply to "all companies who operate online marketplaces," so that there are no loopholes for "some marketplaces to escape accountability."

Amazon was recently dealt a blow after a California appeals court ruled it could be held liable for damages caused by a defective replacement laptop battery that caught fire and gave a woman third-degree burns. Silverman said Amazon's support of AB 3262 is an attempt to "extend that responsibility broadly."

Etsy and Ebay said they should be exempt from AB 3262 because they simply oversee their third-party marketplaces and aren't involved in the vetting, storage, selection or distribution of products. Meanwhile, opponents would argue that online retail marketplaces are already subject to strict liability under existing California law. 

The advertising trade groups argued last week the bill was amended to expand its scope to cover businesses "placing or facilitating the placement of products into the stream of commerce in this state," whereas originally it had only covered businesses engaged in "placing" products into the stream of commerce. They said the term "facilitating" is not defined and could potentially apply to any business that receives any direct or indirect financial benefit from the sale of products deemed to be defective. 

The ad groups also decried the removal of a provision that fees received for advertising don't constitute a "financial benefit from the sale of the defective product." They said this flouts a stated intent of the bill to exempt online ads from its scope. The bill in its amended form, they said, could impair publishers' ability to provide consumers access to informative content. 

"To avoid potential liability, a publisher would either need to test and evaluate each product for defects prior to allowing advertising for the product or significantly limit advertising on its site," Dave Grimaldi, the IAB's executive vice president for public policy said in a statement last week. "This would reduce resources for publishers to provide digital news, content, and online services."

Dan Jaffe, group executive vice president of government relations for the Association of National Advertisers, said Monday the group is pleased the bill was withdrawn. 

"In our view, it would have dramatically increased the risk for many people in the digital world to face strict liability, and that they would not be able to do anything to really protect themselves because they may have nothing to do with the product's actual production," he said.  

He gave the example of a blogger running an ad for a car that he doesn't know may have some sort of potentially dangerous defect, though the blogger may have had a positive experience personally driving that car.

"Under this legislation I might be facilitating people purchasing that product," he said, even if the blogger had nothing to do with the car, its manufacturer, inspection or anything else. "There's no way anybody can be able to go around testing every product in the world to avoid these kinds of risks." 

Representatives from Amazon, Etsy and eBay didn't immediately respond to requests for comment.