New Law Requires Greater Transparency for Online Consumer Marketplaces

On December 29, 2022, President Biden signed into law the INFORM Consumers Act ("the Act") as Title III of the Consolidated Appropriations Act, 2023, which provides federal appropriations for the remainder of the 2023 fiscal year.[1] The Act, which takes effect June 27, 2023, imposes data collection, disclosure, and other requirements on online consumer marketplaces that host "high-volume" third-party sellers in order to "combat the online sale of stolen, counterfeit, and dangerous consumer products."[2] Senators Dick Durbin and Bill Cassidy introduced the legislation to "ensure a baseline level of transparency for online marketplaces, where currently it may be difficult to know who third-party sellers are and how to contact them."[3] Senator Chuck Grassley, a cosponsor, said "all too often, fraudsters and thieves take advantage of unsuspecting consumers .... This bill helps provide better verification and greater transparency of online marketplace practices so consumers can trust the products they purchase are legitimate."[4] Greater transparency should "help deter the online sale of counterfeit goods by anonymous sellers and prevent organized retail crime rings from stealing items from stores to resell those items in bulk online."[5]

Who does the INFORM Consumers Act apply to?

The Act applies to "online marketplaces" that facilitate "high-volume third-party sellers." An "online marketplace" as defined in the Act is a person or entity, regardless of its size or revenue, that operates a "consumer-directed electronically based or accessed platform" that (A) includes features that facilitate or enable third-party sellers to sell, purchase, pay, store, ship or deliver consumer products in the United States; (B) third-party sellers use for such purposes; and (C) has a contractual relationship with consumers governing their use of the platform to purchase consumer products.[6]

In addition to the focus on "consumer-directed" marketplaces, the Act targets sellers offering "consumer products" as defined in the Magnuson-Moss Warranty Act, meaning "any 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)."[7] The Act does not appear to include in its scope marketplaces whose sellers offer exclusively digital goods or services or marketplaces targeted at organizational purchasers and/or whose sellers offer exclusively products not meeting this "consumer products" definition.

"High-volume third-party sellers" are defined in the Act as vendors that are independent of an online marketplace and who have made 200 or more discrete sales amounting to $5,000 or more in a 12-month period during the previous 24 months on the marketplace platform.[8] Online marketplaces must collect data from these sellers as described below and also ensure disclosure of certain of the collected data when the high-volume seller reaches $20,000 in sales.

How must online marketplaces comply?

1. Collect high-volume third-party seller information. Online marketplaces covered by the Act must ensure that their high-volume third-party sellers provide the online marketplace with: (A) bank account information; (B) contact information (for individuals, the individual's name; for all other sellers, their government identification); (C) tax identification number; and (D) contact information, which can be either a seller's working email address or phone number, and must within 10 days of receiving this information, independently verify it.[9] If a seller provides a copy of a valid, government-issued tax document, then any information in such document is presumed to be verified.[10]
2. Keep collected information current and verified. The online marketplace must, at least annually, notify high-volume sellers of their obligation to keep their information current[11] and require them to certify annually as to the current status of all information provided.[12] The Act further requires marketplaces to enforce this updating and certification requirement by suspending notified and non-compliant sellers from future sales until the seller complies.[13] The marketplace operator must also verify all updated information received from this group of sellers.[14]
3. Maintain data security measures. The Act also requires online consumer marketplaces to implement and maintain reasonable security procedures and practices to protect information collected under the Act from unauthorized use, disclosure, access, destruction, or modification. The information collected under the Act may not be used by the online marketplaces for any purpose other than compliance with the Act unless required by law.[15]
4. Make disclosures to consumers. If a high-volume third-party seller has an aggregate total of $20,000 or more in annual gross revenues in sales of consumer products through the online marketplace, then the online marketplace must disclose to consumers in a clear and conspicuous manner either on the product listing page via a hyperlink or in the order confirmation message or other document or communication made to the consumer after the purchase is finalized and in the consumer's account transaction history: (A) the full name of the seller, (B) their physical address, and (C) contact information, such as a phone number, email address, or other means of direct electronic messaging, to allow for the consumer's "direct, unhindered communication" to the seller.[16] In addition, for any high-volume third-party seller, the marketplace operator must display on every product listing page a mechanism for customers to report suspicious activity. The same enforcement and suspension process applies to sellers who do not comply with requests to provide this information to the marketplace operator.[17]

How is the INFORM Consumers Act enforced?

The FTC may investigate violations of and enforce the INFORM Consumers Act by the same means and with the same jurisdiction, powers, and duties as are granted to it through the Federal Trade Commission Act (FTC Act).[18] Violations of the requirements to collect, verify, and disclose information on sellers would be an unfair or deceptive act or practice in violation of section 18(a)(1)(B) of the FTC Act.[19] Unless the FTC has already brought an action, state attorneys general may also bring a civil action in federal court to enjoin further violations, enforce compliance, obtain civil penalties or other remedies permitted under state law, and obtain damages or other compensation on behalf of state residents, with notice to the FTC and an opportunity to intervene.[20]

What are the steps to comply?

To avoid penalties and ensure compliance, online marketplaces serving consumers should consider: (1) tracking sales volume and amount by seller in order to identify high-volume sellers; (2) identifying high-volume sellers that reach $20,000 in annual gross revenues; (3) collecting required data from all high-volume third-party sellers; (4) regularly reviewing and verifying such data, (4) maintaining collected data securely; and (5) disclosing seller data and implementing reporting mechanisms where required. Online consumer marketplaces that do not today have "high-volume third-party sellers" should consider implementing sales amount and volume tracking by seller so they can identify when sellers meet the required thresholds, triggering collection and disclosure obligations.

The INFORM Consumers Act represents a significant step in the increasing U.S. concern over counterfeit and stolen consumer goods sold online, and online consumer marketplaces should be ready to comply with the information collection and disclosure requirements by the June 27, 2023, effective date. Please contact the DWT Technology practice group for additional guidance or to address any questions you might have.

[1] Consolidated Appropriations Act of 2023, H.R. 2617, 117th Cong. Div. BB, Title III, § 301 (2022), https://www.govinfo.gov/content/pkg/BILLS-117hr2617enr/pdf/BILLS-117hr2617enr.pdf ("INFORM Consumers Act").

[2] INFORM Consumers Act at 301(h); https://www.durbin.senate.gov/newsroom/press-releases/durbin-cassidy-inform-consumers-act-included-in-fy23-omnibus-funding-bill

[3] Committee on the Judiciary, Durbin, Cassidy, Grassley, Hirono, Coons, Tillis Introduce Bill to Ensure Greater Transparency for Third-Party Sellers of Consumer Products Online, COMMITTEE ON THE JUDICIARY, January 23, 2023, https://www.judiciary.senate.gov/press/dem/releases/durbin-cassidy-grassley-hirono-coons-tillis-introduce-bill-to-ensure-greater-transparency-for-third-party-sellers-of-consumer-products-online.

[4] Id.

[5] See n. 3, supra.

[6] INFORM Consumers Act at (f)(4).

[7] 15 U.S.C. § 2301(1).

[8] INFORM Consumers Act at (f)(3).

[9] INFORM Consumers Act at (a)(1)(A).

[10] INFORM Consumers Act at (a)(2)(B).

[11] INFORM Consumers Act at (a)(1)(B).

[12] INFORM Consumers Act at (a)(1)(B).

[13] INFORM Consumers Act at (a)(1)(C).

[14] INFORM Consumers Act at (a)(2).

[15] INFORM Consumers Act at (a)(3) and (4).

[16] INFORM Consumers Act at (b)(1).

[17] INFORM Consumers Act at (b)(4).

[18] INFORM Consumers Act at (c)(1), (c)(2).

[19] Id.

[20] INFORM Consumers Act at (d)(1) – (4).