A new federal law requires increased transparency in online sales transactions with the aim of protecting consumers against fraudsters and counterfeiters that historically have been able to hide anonymously behind unverified seller profiles.
The Integrity, Notification, and Fairness in Online Retail Marketplaces (“INFORM”) Consumers Act, signed into law by President Biden on December 29, 2022 as part of the Consolidated Appropriations Act of 2023, puts the onus on sales platforms to collect documentation from high-volume sellers. Specifically, the Act requires platforms to verify bank account numbers, business tax identification numbers, and contact information for sellers making 200 or more discrete transactions totaling at least $5,000 during a continuous 12-month period. Platforms must remind sellers to update this information on an annual basis. If the seller does not provide the requested information within 10 days, the platform must suspend sales activity by the seller until the information is received.
The Act also requires disclosure directly to consumers. After a consumer completes a purchase from a seller with at least $20,000 in annual gross revenues, that consumer is entitled to basic identification and contact information for the seller. If the seller is not responsive to the consumer, or makes false or partial disclosures to the platform, the platform can suspend all future sales activity by the seller.
Consumers are further empowered to report “suspicious marketplace activity” through the “clear and conspicuous” reporting mechanisms that platforms must now provide on high-volume seller profiles.
While the Act creates additional burdens on e-commerce sites, it does not go so far as to establish contributory liability under the federal Lanham Act for sites selling counterfeit merchandise. Such a measure was proposed in the companion to the INFORM Consumers Act known as the SHOP SAFE Act, but that measure was excluded from the final omnibus legislation.
Even so, the INFORM Consumers Act is a promising new tool to combat counterfeiting and infringement by anonymous parties, which has increased drastically since the COVID-19 pandemic forced a majority of commercial activity online. Both individual consumers and brand owners have faced obstacles due to the lack of accountability by sellers hiding behind legitimate online storefronts to peddle infringing, counterfeit, and even stolen goods.
The ability to obtain contact information for questionable sellers—and block those who will not provide current contact information from selling altogether—should reduce the chances that consumers will unwittingly purchase a counterfeit product. It should also allow brand owners better access to infringers and counterfeiters so that they can take legal action as required to protect their rights, though it remains to be seen how potential conflicts with the EU’s General Data Protection Regulation (“GDPR”) will be resolved.
As it stands, the Federal Trade Commission (“FTC”) is tasked with enforcing the new law, which goes into effect on June 27, 2023. State attorneys general are also empowered to bring civil actions against online marketplaces where noncompliance affects state residents.
Between now and June, the FTC is likely to engage in rulemaking to better define data reporting, collection, verification, and disclosure requirements under the Act. While state laws that conflict with the INFORM Consumers Act are expressly preempted, we may also see complementary laws enacted and enforced in various jurisdictions across the country. Meanwhile, we are likely to see major online sales platforms begin putting new policies, procedures, and controls in place to ensure compliance with the new law.