Overview
In Issue #34 of The Newtonian, we wrote about recent trends in the social media marketplace involving the promotion of counterfeit goods and related best practices for brands and content creators. While enforcement mechanisms for counterfeit goods promoted and sold via the social media marketplace still lag, brands are not without recourse.
On June 27, 2023, the INFORM Consumers Act (the “INFORM Act” or the “Act”) (15 U.S.C. § 45f), a bipartisan bill aimed to enhance “transparency [in] online transactions and to deter criminals from acquiring stolen, counterfeit, or unsafe items and selling them through [online] marketplaces” became effective. Notably, the Act allows online marketplace users to report suspicious activity regarding high-volume third-party sellers. Id. Relevant online marketplaces include, among others, Amazon.com and Etsy. The Act imposes certain requirements on online marketplaces, such as collecting, verifying, and disclosing the contact information of their online sellers.
These due diligence measures help with validating that (1) the sellers are legitimate and (2) the products listed by the sellers are authentic goods. The Act intends to dissuade bad actors from engaging in illegitimate business practices because their identity will be readily verifiable. High-volume selling bad actors can no longer hide behind anonymous businesses and accounts to escape liability for selling stolen and counterfeit goods on online marketplaces. Online marketplaces not complying with the INFORM Act can face civil penalties (implemented by the Federal Trade Commission (“FTC”)) of $50,120 per violation.
Why was the INFORM Act enacted?
The INFORM Act targets specific problems: bad actors who sell stolen or counterfeit goods online, all to the detriment of legitimate brands and unsuspecting consumers. Before Congress passed the INFORM Act, it was nearly impossible for brands to identify the bad-acting sellers on online marketplaces. A brand may notice or be informed of stolen and counterfeit goods posted on an online marketplace, yet, in most instances, it could not determine the identity of the seller of the stolen and counterfeit goods. Without identifying the seller, brands were left with incomplete enforcement remedies — primarily the online marketplace’s takedown procedure. Now, under the INFORM Act, brands will be able to obtain the name, email address, phone number, tax identification number, and bank account information of the bad actor and can take more direct action with that information.
To whom does the INFORM Act apply?
The INFORM Act provides that “an online marketplace shall require any high-volume party seller on such online marketplace’s platform to provide, no later than ten days after qualifying as a high-volume third-party seller on the platform,” certain identifying information.
- Online marketplaces. “Online marketplace” includes any person or entity that operates a consumer-directed electronically based or accessed platform that enables third-party sellers to engage in the sale, purchase, payment, storage, shipping, or delivery of a consumer product in the United States. See 15 U.S.C. § 45f(f)(4). Examples include Amazon, eBay, and Etsy.
- High-volume third-party sellers. A “third-party seller” is 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 a platform. A “high-volume third-party seller” is a third-party seller that, “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 has “an aggregate total of $5,000 or more in gross revenues.” See 15 U.S.C. § 45f(f)(3).
What are the obligations of online marketplaces and high-volume third-party sellers under the INFORM Act?
There are several key obligations, including:
- Ten days to disclose information. Online marketplaces must require sellers to, within 10 days of qualifying as a high-volume third-party seller, provide the online marketplace with their banking information, tax identification information, and contact information, which includes a name, phone number, and a copy of a government-issued ID (for individuals) or business record (for businesses).
- Verify and disclose information. The online marketplace must then verify the seller’s information within 10 days of receipt and disclose the seller’s identity to consumers in a “clear and conspicuous manner,” namely, by including the seller’s name, address, telephone number and email or messaging address either in the product listing or the order confirmation message to the consumer after a purchase is completed.
- Provide a reporting mechanism. Online marketplaces are also required to provide consumers with a mechanism that allows them to report any suspicious seller activity.
- Monitor accuracy. Online marketplaces must notify sellers at least annually to certify their information is current within 10 days of notice and monitor the accuracy of the information provided. If any high-volume third-party seller neglects to provide the required information, the online marketplace must suspend the seller from the market until they comply.
Notable exceptions to the information disclosure requirements
- Partial Disclosure When No Business Address. Upon request and certification by a high-volume third-party seller, an online marketplace may disclose only a partial address for the seller to consumers if the seller does not have a business address (i.e., the seller conducts its business from a residential address). Note, however, that this exception only provides that the online marketplace “may provide partial disclosure.” This means a high-volume third party cannot escape identification by operating its business from a residential address.
- Substitute Disclosure for Physical Address for Product Returns. Upon certification, a high-volume seller can submit a physical address for product returns as its address for the online marketplace to disclose.
- Partial Disclosure When No Phone Number. Upon certification, if a high-volume seller has no phone number besides a personal phone number, the online marketplace may disclose that the seller has no phone number, and inquiries should be directed to the seller’s email address or other means of electronic messaging provided to the seller by the online marketplace.
If an online marketplace becomes aware that a high-volume third-party seller has been afforded the benefit of one of the Act’s exceptions by making false statements to the online market or is unresponsive to communications, the online marketplace, after ten days of written or electronic notice, may suspend the seller’s sales activities. The seller may remedy this by consenting to full disclosure of the required identifying information.
What is the impact of the INFORM Act on consumers?
The INFORM Act benefits more than just brands. It also enables consumers to report stolen or counterfeit goods and provides enhanced security in the legitimacy of the purchase of goods sold on online marketplaces.
The INFORM Act demonstrates an adherence to the current legal framework (discussed in our last article) in Tiffany (NJ) Inc. v. eBay, Inc., Civ. No. 08-3947 (2d Cir. 2010), which established the principle that while platforms bear some responsibility for selling counterfeit goods, trademark owners bear the ultimate burden of protecting their goodwill by policing counterfeit items sold in online marketplaces. However, the INFORM Act does shift additional diligence responsibilities to the online marketplaces.
Professionals
Sara Gruber
Associate
Emily Rice
Associate
