A Defective Product Arrives and No One Wants to Take Responsibility
A consumer buys an electronic device through a well-known marketplace platform. The product arrives defective, and the consumer contacts the platform's customer service. The answer: "Contact the seller — we're just the intermediary." The seller, meanwhile, goes silent or stops responding. Who is actually liable to the consumer in this situation, and what happens if there is real damage?
The marketplace model, in which a platform hosts numerous independent sellers and provides payment infrastructure, logistics, and sometimes customer service, has become a central feature of e-commerce in Israel. Major Israeli websites as well as international players operating in the local market have adopted this model. Yet Israel's legal framework was not originally built around a three-party structure of platform, seller, and consumer, and this creates significant gray areas.
Companies operating or considering operating a marketplace in Israel, as well as businesses selling through such platforms, need to understand how liability is allocated before a dispute arises, not after.
Which Laws Apply to Marketplace Transactions in Israel
Several key statutes apply simultaneously to marketplace transactions, and at times create overlapping or even conflicting obligations:
- Consumer Protection Law, 1981 — imposes disclosure obligations, a right of cancellation, and a prohibition on misleading practices. The law applies to a "dealer" (osek) selling to a consumer, a question that becomes more complex once two parties are involved in a single transaction.
- Sale Law, 1968 — sets out the seller's obligations regarding conformity of the goods, liability for latent defects, and remedies for breach of a sale contract.
- Defective Products Liability Law, 1980 — imposes strict liability (without the need to prove negligence) on a "manufacturer" for bodily harm caused by a defective product. In certain circumstances, the statutory definition of "manufacturer" also captures importers and other actors in the supply chain.
- Contracts Law (General Part), 1973 — governs the contractual relationship between the consumer and the seller, and between the seller and the platform.
None of these statutes explicitly addresses the three-party marketplace model, so the legal analysis proceeds on the basis of general principles and judicial interpretation applied to the specific facts of each case.
Platform, Seller, or Both: Who Carries the Dealer's Obligations
The central question in any legal analysis of a marketplace transaction is who qualifies as a "dealer" toward the consumer for purposes of the Consumer Protection Law. As a general rule, when a platform clearly presents itself as a mere intermediary and identifies the actual seller on the product page and in the receipt, courts tend to treat the seller itself as the "dealer" bearing primary responsibility toward the consumer.
However, the more involved a platform is in the actual transaction, the greater the likelihood it will itself be treated as a "dealer" or held independently liable. Indicators that increase a platform's exposure include:
- The platform collects payment and transfers it to the seller after deducting a commission.
- The platform sets sale terms, return policy, or shipping prices uniformly across all sellers.
- The platform itself provides storage, packaging, and shipping (a fulfillment-style model).
- The platform's branding is significantly more prominent than the identity of the actual seller, such that the consumer may reasonably believe they are purchasing from the platform itself.
Israeli courts have not yet developed a comprehensive, settled body of case law on this issue, so companies operating marketplace models rely largely on contractual risk management rather than full legal certainty.
Identification and Disclosure Obligations in the Marketplace Model
The Consumer Protection Law imposes disclosure obligations on a dealer regarding its identity, contact details, and transaction terms. In a marketplace model, this translates into several practical requirements that a platform should ensure its sellers meet:
- Displaying the actual seller's name, not just the platform's name, on the product page and in the order confirmation.
- Clearly disclosing whether the seller is a licensed dealer or a private individual, since this affects the applicability of the Consumer Protection Law and the right of cancellation.
- Setting out that particular seller's specific return and cancellation policy, to the extent it differs from the platform's general policy.
- Disclosing who is responsible for handling complaints and service requests, and what the actual escalation path looks like.
Many platforms choose to impose these disclosure duties on sellers through the marketplace onboarding agreement, but they are still required to verify actual compliance, since the disclosure obligation owed to the consumer is not extinguished merely by an internal agreement between the platform and the seller.
Drafting Liability Allocation Correctly in Terms of Use and the Seller Agreement
From the Platform's Perspective
A marketplace platform needs two separate documents: terms of use toward the consumer, and a seller agreement toward the store owners. The seller agreement should include, at minimum, the following components:
- A representation by the seller that it holds all licenses and approvals required to sell the product in Israel.
- An express indemnification clause in favor of the platform covering consumer claims, bodily injury, or intellectual property infringement arising from the seller's products.
- A commitment by the seller to comply with the disclosure and labeling obligations required under the Consumer Protection Law.
- A mechanism for immediate suspension or removal of a seller in the event of repeated complaints or suspected violations.
From the Seller's Perspective
Sellers operating through a marketplace should carefully review the terms of their agreement with the platform, in particular indemnification clauses that may impose overly broad liability on them, including for actions by the platform itself that are outside their control, such as shipping delays or a malfunction in the payment processing system.
Where International Regulation on Marketplace Liability Is Heading
In recent years there has been a clear international trend toward imposing broader liability on marketplace platforms, particularly in matters of product safety. The European Union's Digital Services Act (DSA) imposes on large online platforms know-your-business-customer due diligence obligations regarding the traders selling through them, along with duties to act swiftly against dangerous or illegal products.
In the United States, case law in various states has, in certain instances, extended product liability doctrine to marketplace operators, departing from the traditional approach that treated them as mere intermediaries. Israel has not yet adopted comparable dedicated regulation, but this international trend may well influence local judicial interpretation and the future direction of regulation. Companies also operating in foreign markets should therefore prepare in line with the highest standard applicable across the markets in which they operate.
What Companies Should Actually Do
Companies operating a marketplace in Israel should consider the following steps:
- Ensure the seller agreement includes clear indemnification, representation, and liability clauses, and that these are actually enforced rather than existing only on paper.
- Build a basic verification mechanism for seller identity and for licenses required to sell certain categories of products (such as electrical goods, cosmetics, or food).
- Make sure the product page and order confirmation clearly identify the actual seller, alongside the relevant return policy.
- Establish an effective, documented complaints channel, even if substantive handling is passed on to the seller, to reduce exposure in the event of a regulatory complaint.
- Consider product liability or professional liability insurance covering scenarios in which the platform itself is sued as a party to the transaction.
Sellers operating on a marketplace, for their part, should carefully read the seller agreement before joining, ensure they independently comply with the disclosure obligations under the Consumer Protection Law, and keep independent records of customer communications, since in the event of a dispute the burden of proving compliance with disclosure obligations typically falls on the seller itself.
Liability allocation in the marketplace model is not fixed by default — it results from how each party actually manages the relationship in practice. Precise contract drafting, consistent enforcement of disclosure obligations, and early preparation for potential claims are the key tools for reducing legal exposure, for both platforms and the sellers operating through them.
The information contained in this article is general in nature and does not constitute legal advice. For advice tailored to the specific circumstances of your company, we invite you to contact our firm.
