Are marketplaces liable for third-party app or API integration failures affecting transactions?

Online marketplaces rely heavily on third-party applications and APIs (Application Programming Interfaces) to facilitate various functions like payment processing, order management, inventory tracking, and customer support. While these integrations are essential for the smooth operation of e-commerce platforms, failures in these third-party services can cause disruptions in transactions. These disruptions could involve payment errors, order cancellations, or delayed shipments, all of which can negatively impact the consumer experience. In such cases, marketplaces may face questions about their liability for the failure of third-party apps or services.

Key Points on Marketplace Liability for Third-Party App or API Failures

Marketplace Responsibility in Third-Party Failures

While third-party apps and API integrations are outside the direct control of marketplaces, the platforms still have a responsibility to ensure that the services they provide are reliable and functional for consumers. In general, marketplaces could be held responsible in the following situations:

• Contractual Responsibility: Marketplaces typically sign contracts or service agreements with third-party providers, and they are required to ensure that these services function properly. If the third-party service fails to meet the agreed-upon service levels (e.g., payment gateways or inventory tracking APIs), the marketplace may be held accountable for the service disruption.
• Consumer Protection: From a consumer protection standpoint, online platforms are expected to offer reliable and efficient services to their users. If a third-party service causes transaction errors or delays, and the platform does not resolve the issue quickly or properly, the marketplace could be seen as failing to uphold consumer rights.

Third-Party API Failures and Legal Liabilities

Third-party APIs or apps may fail due to a variety of reasons, such as technical glitches, downtime, or malfunctions. The key issue here is whether the marketplace can be held legally responsible for the consequences of those failures:

• Payment Gateways: If a third-party payment processor fails to complete a transaction or processes incorrect amounts, the marketplace could be legally responsible for either failing to resolve the issue or for not ensuring proper payment security.
• Shipping and Logistics: If a third-party logistics service fails to fulfill orders on time or causes shipping errors, the marketplace could be accountable for delays, especially if the marketplace does not take corrective actions to address the problem or communicate effectively with consumers.
• Service Level Agreements (SLA): Most third-party services come with a Service Level Agreement (SLA) that outlines the expected performance levels. If these SLAs are not met, the marketplace may have to compensate consumers or face penalties from the service provider for breach of contract. Non-performance of third-party services could also result in compensation claims against the marketplace.

Consumer Claims and Dispute Resolution

In cases where transaction errors or service disruptions occur due to third-party app failures, consumers may file complaints or take legal action against the marketplace for failure to resolve their issues. The platform’s liability will depend on the situation:

• Refunds and Compensation: If a consumer's payment is not processed correctly due to a third-party app failure, the marketplace could be required to refund the consumer or resolve the dispute, even though the failure is not directly their fault.
• Responsibility to Rectify Errors: If an order is delayed due to a logistics provider's failure, the marketplace may need to step in and resolve the issue, either by compensating the consumer or by taking corrective actions with the third-party provider.

Legal Action Against Marketplaces

If a marketplace fails to resolve issues caused by third-party failures or does not offer sufficient compensation or refunds to affected consumers, they could face several legal consequences:

• Consumer Protection Lawsuits: Consumers may file lawsuits under consumer protection laws, especially if they can prove that the marketplace failed to provide the expected level of service or resolve issues in a timely manner. This could lead to compensation claims and reputational damage.
• Regulatory Penalties: In some jurisdictions, regulatory authorities may impose penalties on marketplaces that fail to comply with consumer rights or service standards. This is especially true if the failure of a third-party service affects the marketplace’s obligations to consumers.
• Breach of Contract Claims: If a marketplace has contracts or agreements with third-party providers that include performance benchmarks (such as uptime, response time, etc.), and these benchmarks are not met, the platform could be liable for breach of contract. This could result in legal disputes with third-party providers and potential fines.

Marketplace’s Duty to Monitor Third-Party Services

While the marketplace may not directly control third-party apps or APIs, it does have a duty of care to ensure that the services it integrates into its platform are reliable and effective. Some best practices include:

• Regular Monitoring of APIs: Marketplaces should regularly monitor the performance of third-party apps and APIs to ensure they meet reliable service standards and take action when issues arise.
• Transparency with Consumers: If a third-party service is experiencing issues, marketplaces should be transparent with consumers and notify them of potential delays or disruptions. Offering timely updates can help manage consumer expectations.
• Backup Solutions: To mitigate risks, marketplaces can work with multiple third-party providers or have backup systems in place in case one service fails. This can ensure that transaction processing, payment systems, and logistics continue without major disruptions.

Prevention and Mitigation

To reduce liability risks, marketplaces can implement the following strategies:

• Clear Contracts with Third-Party Providers: Marketplaces should have clear contracts with third-party service providers that include detailed service level agreements (SLAs), penalty clauses, and dispute resolution mechanisms.
• Alternative Solutions: Marketplaces can implement alternative payment gateways, logistics providers, or other third-party services so that if one fails, there are backups in place to maintain business continuity.
• Consumer Support: Ensure that there is a robust customer service team to handle issues promptly and offer solutions or compensation when third-party failures occur.

Example

Sara buys a smartphone from an online marketplace GizmoShop. The payment fails during checkout due to a glitch in the third-party payment gateway’s API integration. The transaction is not processed, and Sara’s order is not completed.

Steps Sara Could Take:

• Contact Customer Support: Sara can contact GizmoShop’s customer service to inquire about the payment failure and request a resolution or refund.
• File a Complaint: If GizmoShop does not resolve the issue in a timely manner, Sara can file a complaint with consumer protection authorities or take legal action against the marketplace for failing to ensure proper payment processing.

Steps GizmoShop Should Take:

• Investigate the Payment Failure: GizmoShop should immediately investigate the issue with the payment processor and ensure that Sara’s payment is successfully processed.
• Refund or Compensation: If the payment is not processed, GizmoShop should refund Sara or provide an alternative solution.
• Resolve with Third-Party Provider: If the failure is caused by the third-party provider, GizmoShop should hold the provider accountable for the API failure and seek remedies as per the contractual agreement.