Stay on Top of Enterprise Technology Trends Get updates impacting your industry from our GigaOm Research Community

Apparently, Amazon (s amzn) CEO Jeff Bezos’ abject apology for remotely nuking copies of “1984” and “Animal Farm” from hundreds of unsuspecting Kindle devices was not enough for one Michigan teenager. Seventeen-year-old Justin Gawronski filed suit against the company in federal court in Seattle last week, charging the Kindle maker with violating its own terms of service, breach of contract and illegal hacking, among other things. The plaintiff claims the unilateral removal of “1984” from his Kindle wrecked his work on a summer reading assignment because the notes he took accompanying the e-book now referred to paragraphs and electronic pages that are no longer there. His lawyer is seeking class action certification for the case.

If I were in Bezos’ shoes I’d settle this one quickly, because the issues raised in the Gawronski suit are likely to be the least of Amazon’s Kindle problems going forward, legally and otherwise. The biggest legal problem Amazon created for itself with the sneak attack on “1984” was revealing that it has the capability to remotely delete Kindle books in the first place.

Even if Amazon were to promise not to do it again (as part of a settlement with Gawronski, say) it won’t be possible to un-ring that bell. Amazon now will undoubtedly face demands (and perhaps court orders) in future copyright disputes to use its powers to zap the offending files en masse, thus turning unwitting Kindle users into legal cannon fodder. The capability could also land Amazon in the middle of the brewing controversy over software “kill switches,” which may soon come complete with subpoenas from the Federal Trade Commission and “invitations” to testify before Congress.

The non-legal problems stemming from the episode, however, could prove an even bigger headache for Amazon, and the lawsuit can only draw more attention to the e-tailer. Though some consumer rights groups have waved the episode like the bloody shirt of excessive DRM, what Amazon did wasn’t really a case of digital rights management run amok. The problem was that the company didn’t really have the rights it thought it had.

What Amazon did have was liability, for distributing infringing works. And in an effort to manage its liability it threw its customers under the bus. Call it: Digital Liability Management. That’s hardly the image Amazon wants to be projecting right now, as consumers are just starting to pay attention to e-books and e-book devices in significant numbers. According to a new report from Forrester Research, the percentage of American consumers who had never heard about e-book readers fell by more than half between the first quarter of 2008 and the second quarter of 2009, to 17 percent from 37 percent. Meanwhile, the percentage who had seen (but not yet used) a device jumped to 36 percent from 21 percent in the same period.

At the same time, Amazon is facing its first serious competition in the e-book market, as described in a new GigaOM Pro report (subscription required). Last month, for instance, Barnes & Noble (s bks) announced the launch of a full-scale assault on the e-book market, rolling out the multiplatform Barnes & Noble eBookstore and releasing an updated version of its eReader application for reading e-books on a wide range of portable and desktop devices. B&N also said it will become the exclusive e-book store provider for Plastic Logic’s planned Kindle-killer when it’s released early next year.

Google, meanwhile, recently announced plans to make an e-commerce platform available to publishers to sell e-books directly to consumers starting later this year. Sony is also expected to release an updated version of its pioneering e-book reader, perhaps as soon as this week, and has partnered with Google to make thousands of public domain titles available on the devices.

The “1984” and “Animal Farm” kerfuffle, in other words, could not have come at a worse time, strategically, for Amazon, and could ultimately prove more costly than settling the Gawronski case.

Paul Sweeting writes The Media Wonk blog and is the author of “The Evolution of the E-book Market” released today by GigaOM Pro (subscription required).

This article also appeared on BusinessWeek.com.