Amazon.com 2011 Annual Report Download - page 22

We May Be Subject to Product Liability Claims if People or Property Are Harmed by the Products We Sell
Some of the products we sell or manufacture may expose us to product liability claims relating to personal
injury, death, or environmental or property damage, and may require product recalls or other actions. Certain
third parties also sell products using our e-commerce platform that may increase our exposure to product liability
claims, such as if these sellers do not have sufficient protection from such claims. Although we maintain liability
insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that
insurance will continue to be available to us on economically reasonable terms, or at all. In addition, some of our
agreements with our vendors and sellers do not indemnify us from product liability.
We Are Subject to Payments-Related Risks
We accept payments using a variety of methods, including credit card, debit card, credit accounts (including
promotional financing), gift certificates, direct debit from a customer’s bank account, consumer invoicing,
physical bank check and payment upon delivery. As we offer new payment options to our customers, we may be
subject to additional regulations, compliance requirements, and fraud. For certain payment methods, including
credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating
costs and lower profitability. We rely on third parties to provide payment processing services, including the
processing of credit cards, debit cards, electronic checks, and promotional financing, and it could disrupt our
business if these companies become unwilling or unable to provide these services to us. We are also subject to
payment card association operating rules, including data security rules, certification requirements and rules
governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for
us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached
or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees and
lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers,
or facilitate other types of online payments, and our business and operating results could be adversely affected.
We also offer co-branded credit card programs that represent a significant component of our services revenue. If
one or more of these agreements are terminated and we are unable to replace them on similar terms, or at all, it
could adversely affect our operating results.
In addition, we qualify as a money services business in certain jurisdictions because we enable customers to
keep account balances with us and transfer money to third parties, and because we provide services to third
parties to facilitate payments on their behalf. In these jurisdictions, we may be subject to requirements for
licensing, regulatory inspection, bonding, the handling of transferred funds and consumer disclosures. We are
also subject to or voluntarily comply with a number of other laws and regulations relating to money laundering,
international money transfers, privacy and information security and electronic fund transfers. If we were found to
be in violation of applicable laws or regulations, we could be subject to civil and criminal penalties or forced to
cease our payments services business.
We Could Be Liable for Fraudulent or Unlawful Activities of Sellers
The law relating to the liability of providers of online payment services is currently unsettled. In addition,
governmental agencies could require changes in the way this business is conducted. Under our seller programs,
we may be unable to prevent sellers from collecting payments, fraudulently or otherwise, when buyers never
receive the products they ordered or when the products received are materially different from the sellers’
descriptions. Under our A2Z Guarantee, we reimburse buyers for payments up to certain limits in these
situations, and as our marketplace seller sales grow, the cost of this program will increase and could negatively
affect our operating results. We also may be unable to prevent sellers on our sites or through other seller sites
from selling unlawful goods, from selling goods in an unlawful manner, or violating the proprietary rights of
others, and could face civil or criminal liability for unlawful activities by our sellers.
Item 1B. Unresolved Staff Comments
None.
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