The exponential growth of online marketplaces and internet retail sales has created great benefits for consumers, and connected many legitimate small businesses with new customers. However, major retailers have been very vocal to Congress and state legislatures, directly and through various lobbying efforts, that more oversight is needed to protect their brands from exploitative sellers of stolen and counterfeit goods.
Legislators introduced drafts of the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers (referred to as “INFORM”) Act to Congress in 2020 to primarily address these concerns, remove the anonymity of online sellers and create more accountability within online marketplaces. Specific provisions included in the INFORM Act include verification of bank accounts, tax IDs, and contact information for high-volume sellers (200 or more transactions per year totaling at least $5,000). Reporting mechanisms are outlined by the INFORM Act, and seller disclosures to consumers are required for sellers with at least $20,000 in annual gross revenues.
While the INFORM Act stalled in Congress, state legislatures took action. In 2022, at least 13 states passed their own versions of the INFORM Act, many which became effective as of January 1, 2023. Alabama, Arkansas, Colorado, Georgia, Illinois, Iowa, Louisiana, Michigan, North Carolina, Ohio, Oklahoma, California, and Pennsylvania have each enacted legislation similar to the INFORM Act.
Finally, on December 29, 2022, as part of Congress’ appropriations package, the INFORM Act was formally signed into law, and will go into effect June 27, 2023. Duringthe interim, the Federal Trade Commission will focus its attention on better defining the INFORM Act’s implementation and enforcement. The recently passed state laws are expressly preempted by the INFORM Act; however, State attorneys general are empowered to bring civil actions against online marketplaces when state residents are adversely affected regardless of where the online retailer is located. Further, State legislatures may choose to enact complimentary laws or laws with lower thresholds and/or higher penalties.
Online marketplaces and third-party sellers are encouraged to begin updating polices and controls to ensure compliance with the new state and federal laws. Michael Best attorneys can assist with compliance issues and legal concerns, while our Strategies team continues to monitor ongoing legislation, both at the State and Federal level.