“The [INFORM Consumers Act] aims to make it more difficult for counterfeit sellers to fly under the radar…. [It] authorizes the FTC to assess penalties of $46,517 per violation…and also permits state attorneys general to bring civil actions for violations of the Act.”
Any brand owner with an anticounterfeiting program will tell you that one of their biggest frustrations with online enforcement is that the information online marketplaces keep on third-party sellers is not always accurate or complete.
Counterfeit sellers will do anything they can to fly under the radar online, often providing false names, addresses, and other contact information in their online marketplace profiles. Accordingly, it is quite common for brand owners to reach a literal dead end in their investigations of third-party sellers.
The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the “INFORM Consumers Act”), recently signed into law as part of the Consolidated Appropriations Act of 2023, aims to make it more difficult for counterfeit sellers to fly under the radar by requiring online marketplaces to collect, verify, and disclose certain information from high-volume third-party sellers to consumers.
The new requirements for online marketplaces go into effect June 27, 2023, and penalties for failure to comply with the Act are steep. The Act authorizes the Federal Trade Commission (FTC) to assess penalties of $46,517 per violation (i.e., for each failure of an online marketplace to collect, verify, or disclose required information) and also permits state attorneys general to bring civil actions for violations of the Act.
With just five months before the implementation date, online marketplaces and brand owners need to understand all of the requirements and nuances of the new law.
What Does the Act Require?
The INFORM Consumers Act includes the following requirements:
- For all third-party sellers with more than 200 transactions and $5,000+ revenue per year (“high-volume third party sellers”), online marketplaces must collect the seller’s name, bank account number, tax identification number, and a working email address and phone number, as well as a government issued ID for the seller’s representative or a government-issued record or tax document that includes the business name and physical address for seller entities.
- Online marketplaces must verify (and confirm on an annual basis) the information and documentation provided by the sellers.
- Online marketplaces must implement data security measures to protect seller information.
- Online marketplaces must disclose certain information (including the seller’s name, physical address, phone number, and email address or other messaging option) on sellers with $20,000+ annual revenue to consumers, either on the seller’s product listing pages or in order confirmations and the consumer’s account transaction history. Online marketplaces must also inform consumers when “commingling” occurs (i.e., when a different seller supplies the product purchased).
- Online marketplaces must suspend sellers who do not provide the required information within 10 days of a marketplace’s request.
- Online marketplaces must provide a reporting mechanism on high-volume seller listing pages permitting consumers to report suspicious activity.
There are several significant carve-outs and exceptions included in the Act, including:
- The requirements do not apply to low-volume sellers, so some brand owners have voiced concerns that sellers will register multiple accounts to operate beneath the thresholds of the Act.
- The Act does not require collection of bank account numbers for sellers who do not have bank accounts.
- The Act does not require disclosure of addresses or phone numbers for sellers who certify that they only have a residential address and personal phone number. This is a significant exception for online marketplaces like Etsy, which primarily consists of home-based sellers.
- The Act does not require disclosure of sellers’ phone numbers and email addresses where the marketplace provides direct messaging capabilities. Because most online marketplaces provide a direct messaging feature, the phone number and email disclosure requirement is all but useless.
How Does the Act Help Brand Owners?
The Act is not intended to assist brand owners in their enforcement against counterfeits. In fact, the Act contains no provision for disclosure of information to brand owners (only disclosure to consumers) and does not create a private right of action for brand owners to sue online marketplaces for noncompliance.
That said, the Act does have some indirect benefits to brand owners.
Under the Act, seller information will likely be more readily available to brand owners. If the seller information is not publicly accessible on the product listing page, brand owners may conduct test buys to collect seller information from order confirmations or account transaction history.
Brand owners may also continue submitting requests to online marketplaces for voluntary disclosure of seller information following brand owner reports of counterfeit listings (although the Act does not require such disclosure), and brand owners may find that the information provided in response to these requests is more reliable following implementation of the Act (given the new requirement that online marketplaces verify such information).
Brand owners may also serve subpoenas on online marketplaces for information on counterfeit sellers kept by the marketplaces.
What Should Online Marketplaces Do Now?
Prior to June 27, online marketplaces should:
- Conduct a thorough review and update of all policies, procedures, and agreements currently in place, including cybersecurity measures, seller agreements, and privacy policies that contain provisions for disclosure.
- Determine mechanisms for tracking seller revenues and urgently applying new requirements as sellers reach the $5,000 and $20,000 thresholds; or, alternatively, consider implementing measures for all sellers (rather than high-volume sellers only).
- Select and implement methods for verification of information.
- For example, will the marketplace outsource verification of identities and documents to a third party?
- Will the marketplace require high-volume sellers to attend video conference meetings, so marketplace staff can compare a seller’s government-issued ID with the seller’s face over real-time video?
- Will the marketplace test emails and phone numbers to ensure that they are working?
- Consider adequacy of current staffing, and determine whether additional staff is needed to collect and verify information from sellers, conduct procedures for annual certifications, and review reports submitted by consumers.
- Add a reporting mechanism on product listing pages of all high-volume sellers (or across all product listing pages).
While some online marketplaces have already implemented certain measures in anticipation of the new law (Amazon in particular began requiring U.S. sellers to list their names and addresses on their public profiles in 2020), the implementation of the new requirements will be a heavy lift for many marketplaces.
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