As discussed in this Alert, the INFORM Consumers Act will impose new requirements on online retail marketplaces and many companies that sell products on them in order to combat the online sale of counterfeit goods.
On December 29, 2022, President Joe Biden signed into law the Consolidated Appropriations Act, 2023, which included the Integrity, Notification and Fairness in Online Retail Marketplaces for Consumers Act (INFORM Consumers Act). As discussed in this Alert, the INFORM Consumers Act will impose new requirements on online retail marketplaces and many companies that sell products on them in order to combat the online sale of counterfeit goods.
The INFORM Consumers Act’s Legislative History
In keeping with findings and recommendations made by the U.S. Department of Homeland Security in its report on “Combating Trafficking in Counterfeit and Pirated Goods,” issued in January 2020, Illinois Democratic Senator Dick Durbin and Louisiana Republican Senator Bill Cassidy introduced an initial version of the INFORM Consumers Act in the Senate on March 10, 2020. Illinois Democratic Representative Jan Schakowsky subsequently introduced a companion bill in the House of Representatives on July 23, 2020. Notwithstanding the fact that the proposed legislation had support from a number of organizations―including the Household & Commercial Products Association, the Retail Industry Leaders Association and the U.S. Public Interest Research Group―neither bill was passed before the conclusion of the 116th Congress.
On March 23, 2021, Senators Durbin and Cassidy introduced a new version of the INFORM Consumers Act in the Senate. However, numerous online platforms, including Amazon and eBay, expressed considerable opposition to this bill for various reasons, including their belief that it would be too onerous to require platforms to obtain driver's license information from sellers and that the bill would expose too much sensitive data about sellers, as eBay noted in a May 2021 press release.
Following this, in October 2021, Representative Schakowsky and Florida Republican Representative Gus Bilirakis introduced a different version of the INFORM Consumers Act in the House. At that time, the two co-sponsors issued a joint press release stating that the bill would seek to combat the online sale of stolen, counterfeit and dangerous consumer products by requiring online marketplaces to verify the identity of high-volume sellers, which would add a layer of enhanced protections for consumers without adding undue burdens on small, mom-and-pop businesses. With the removal of what they perceived to be onerous and burdensome requirements on individual and small-business sellers, numerous online marketplaces expressed support for the House version of the bill, as Amazon did in an October 2021 press release.
As discussed in our previous Alert, support for the House bill quickly grew, and in December 2021, 20 CEOs from the apparel, electronics, health and beauty, and home improvement industry sectors submitted a letter to congressional leadership urging the passage of the INFORM Consumers Act. Ultimately, it was included in the Consolidated Appropriations Act that Congress passed in late December 2022 and that President Biden signed into law on December 29, 2022.
The New Law’s Scope and Key Definitions
The INFORM Consumers Act, which enters into effect 180 days after the enactment of the Consolidated Appropriations Act (i.e., by June 27, 2023), applies to “online marketplaces” where third parties sell “consumer products” and imposes requirements on online marketplaces and “high-volume third party sellers.” In order to grasp the scope of the new law, it is critical to understand how these key terms are defined.
Under the new law, an “online marketplace” is defined to mean:
[A]ny person or entity that operates a consumer-directed electronically based or accessed platform that: (A) includes features that allow for, facilitate, or enable third party sellers to engage in the sale, purchase, payment, storage, shipping, or delivery of a consumer product in the United States; (B) is used by one or more third party sellers for such purposes; and (C) has a contractual or similar relationship with consumers governing their use of the platform to purchase consumer products.
For purposes of the INFORM Consumers Act, the term “consumer product” has the meaning given to that term in Section 101 of the Magnuson–Moss Warranty Act. Under this act, a “consumer product” is defined as:
[A]ny tangible personal property which is distributed in commerce and which is normally used for personal, family, or household purposes (including any such property intended to be attached to or installed in any real property without regard to whether it is so attached or installed).
Under the INFORM Consumers Act, a “third party seller” is defined as “any seller, independent of an online marketplace, who sells, offers to sell, or contracts to sell a consumer product in the United States through such online marketplace’s platform.” A “high-volume third party seller” is defined as:
[A] participant on an online marketplace’s platform who is a third party seller, and in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete sales or transactions of new or unused consumer products and an aggregate total of $5,000 or more in gross revenues.
New Requirements Imposed by the INFORM Consumers Act
The INFORM Consumers Act requires online marketplaces to:
- Collect and verify bank account and identification information for high-volume third-party sellers and obtain periodic certifications from those sellers regarding the accuracy of the information;
- Ensure the disclosure of certain seller information to buyers;
- Provide clear and conspicuous reporting mechanisms on product listing pages for high-volume third-party sellers; and
- Comply with data privacy and security requirements for information received pursuant to the act.
The information that online marketplaces must collect includes the high-volume third-party seller’s name, working email address, working phone number, tax identification number and bank account information. For entity sellers, online marketplaces must also obtain either a copy of a valid government-issued ID for an individual acting on the seller’s behalf or a copy of a government-issued record or tax document that includes the business name and physical address of the seller.
In addition to collecting this information, online marketplaces must also “verify” the information collected within 10 days of receipt. The INFORM Consumers Act defines “verify” as:
[T]o confirm information provided to an online marketplace pursuant to [the Act], which may include the use of one or more methods that enable the online marketplace to reliably determine that any information and documents provided are valid, corresponding to the seller or an individual acting on the seller’s behalf, not misappropriated, and not falsified.
However, there is a presumption of verification for information contained in a “copy of a valid government-issued tax document.”
Per the act’s disclosure requirements, online marketplaces must require that sellers with $20,000 or more in annual gross revenue disclose the following information to consumers either on the seller’s product listing pages or in order confirmations and the consumer’s transaction history:
- Seller’s name;
- Seller’s physical address;
- Contact information for the seller, including a working phone number and email address or other means of direct electronic messaging; and
- Whether a different seller was used to supply the product purchased, and if so, upon purchaser request, all of the information listed above for that subseller. There are limited exceptions to these disclosure requirements where a seller certifies that it has only a personal address and/or phone number.
Finally, online marketplaces are further required to suspend sales activity for sellers that do not provide the required information, certifications, or disclosures within 10 days of qualifying as a high-volume third-party seller.
Enforcement
The U.S. Federal Trade Commission (FTC) will have authority to enforce the INFORM Consumers Act. Violations will be treated “as a violation of a rule defining an unfair or deceptive act or practice prescribed under section 18(a)(1)(B) of the Federal Trade Commission Act (15 U.S.C. 57a(a)(1)(B)),” with the effect that violations will be subject to a statutory civil penalty of $46,517 per violation.
Further, any state attorney general may bring a civil action in district court against any online marketplace where there is reason to believe the marketplace has violated or is violating any of the act’s requirements and the violation affects one or more residents of that state. The FTC may intervene in any action brought by a state, and states may join an action filed by the FTC.
For More Information
If you have any questions or comments about this Alert, please contact Christiane Schuman Campbell, Geoffrey M. Goodale, Brian D. Siff, Lauren E. Wyszomierski, any of the attorneys in our Fashion, Retail and Consumer Branded Products Industry Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.