Over the past decade, counterfeit goods have become a persistent issue with respect to those involved in the e-commerce business. Counterfeit products, which can be sold as an identical copy or a cheap imitation that looks and feels similar to the original product can hurt many businesses and consumers alike. Businesses can suffer dramatic financial losses when a counterfeit good hurts the company’s brand reputation, and consumers can waste their money on substandard products that potentially pose serious health risks such as allergies, skin rashes, etc.
Counterfeiters are continually finding new ways to evade detection and continue to sell their fake products, often at lower prices than legitimate products. Online marketplaces and social media platforms have become a hotbed for counterfeiters to sell their fake goods, and these platforms can be difficult to regulate effectively.
To combat counterfeiting, and to thwart online retail crime, the U.S. government recently enacted the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the “INFORM Consumers Act”) on June 27. The INFORM Consumers Act aims to prevent the sale of counterfeit products, promote accurate product information, enhance consumer trust in e-commerce transactions, and protect consumer rights. Additionally, INFORM was designed to help prevent organized crime groups from using online retail sites as an easy avenue to resell stolen goods. While costs for these retail sites will increase as new measures are implemented, accountability of online marketplaces may serve as the first line of defense in reducing online retail crime.
Some of the key requirements of the INFORM Consumers Act include:
- 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 all third-party sellers with more than 200 transactions and $5,000+ revenue per year (“high-volume third-party sellers”).
- Online marketplaces must disclose to consumers the seller’s name, physical address, phone number, and email address or other messaging option on sellers with $20,000+ annual revenue on the seller’s product listing pages or in order confirmations and the consumer’s account transaction history.
- Online marketplaces must inform consumers when a different seller than the one listed supplies the product purchased.
- 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 provide a reporting mechanism on high-volume third-party sellers listing pages permitting consumers to report suspicious activity.
- Online marketplaces must suspend sellers who do not provide the required information within 10 days of a marketplace’s request.
Certain carve-outs and exceptions to these rules do exist. For example, the rules do not apply to low-volume sellers, bank account numbers do not need to be collected for sellers who do not have bank accounts and it is not required to disclose addresses or phone numbers for sellers who certify that they only have a residential address and personal phone number (i.e. at home Etsy sellers).
Penalties for failure to comply with the INFORM Consumers Act are significant. Per the Act, the Federal Trade Commission is permitted to assess penalties of $46,517 for each failure of an online marketplace to collect, verify, or disclose required information. The Act also permits States to bring civil actions.
Although a few online marketplaces took preemptive steps to prepare for the new law (Amazon began installing such measures as early as 2020), fully adapting to these new regulations will pose significant challenges for many online marketplaces.
Moving forward, e-commerce companies must be sure to take their obligations under the INFORM Consumers Act seriously and take meaningful steps to comply. By doing so, they will meaningfully assist in combatting future counterfeiting and potentially thwarting organized crime.
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