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Legal developments in data, privacy, cybersecurity, and other emerging technology issues

Safeguarding Your Online Marketplace Against Bad Actors

According to a study conducted by the Federal Research Division of the Library of Congress as of 2018, counterfeiting was identified as the largest criminal enterprise in the world, with domestic and international sales of counterfeit and pirated goods totaling between an estimated $1.7 trillion and $4.5 trillion a year.

On June 27, 2023, the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (INFORM Consumers Act) went into effect. The INFORM Consumers Act is intended to bring transparency to e-commerce transactions and deter sales of stolen and counterfeit goods online. The law has three mechanisms to achieve these goals:

  1. E-commerce sites falling under the purview of the law must gather more information about who is selling on their platforms.
  2. Sellers on these platforms must comply with information requests or risk suspension from selling.
  3. Consumers buying from such sellers on these sites must have a place to report suspicious activity.

Affected Retailers

The act applies to “online marketplaces” and ‘‘high-volume third-party sellers”:

Online marketplaces are generally people or businesses that operate a consumer-directed platform that allow third-party sellers to engage in the “sale, purchase, payment, storage, shipping, or delivery of a consumer product in the United States.”

High-volume third-party sellers are generally sellers in an online marketplace that, in any continuous 12-month period during the past 24 months, have had on a platform 200 or more separate sales or transactions of new or unused consumer products, and $5,000 or more in gross revenues. 

New Requirements

With some exceptions, online marketplaces must:                                                                                           

  • Collect.  Collect bank account information, contact information, and a Tax ID number from high-volume third-party sellers.
  • Verify.  Verify the information they get from high-volume third-party sellers and require the high-volume third party sellers certify it as accurate at least once a year.
  • Suspend. Suspend high-volume third-party sellers that do not provide required information.
  • Report.   Provide a clear way for consumers to report suspicious conduct.
  • Disclose.   Disclose in the high-volume third party sellers’ product listings or order confirmations specific information about the seller.

Enhanced Privacy Safeguards

Online marketplaces must implement administrative, physical, and technical safeguards appropriate to the nature of the data they collect from sellers. Data collected solely to comply with the INFORM Consumers Act cannot be used for any other purpose unless otherwise required by law.

Enforcement Risks

Sellers may already be receiving disclosure requests from online marketplaces and should be prepared to submit the required information.

The FTC may impose civil penalties of up to $50,120 against online marketplaces per violation of the act for non-compliance. The INFORM Consumers Act also gives states enforcement authority to seek injunctions, civil penalties, damages and other remedies.

Given the recent news from the Census Bureau of the Department of Commerce estimating that U.S. retail e-commerce sales for the first quarter of 2023 were $272.6 billion, online marketplaces will need to maintain and increase vigilance on its platforms.

Honigman, LLP has extensive experience advising online marketplaces and e-commerce platforms on data privacy and intellectual property-related regulatory, product, and commercial counseling and enforcement matters. Contact Rachel Hofstatter or Owen Agho for more information.

  • Owen  Agho, CIPP/US

    Owen Agho practices law in the Technology Transactions and Data, Privacy, and Cybersecurity practices, where he focuses on the intersection of law and technology and their combined impact on society at large. In his practice, Owen ...

  • Rachel M. Hofstatter

    Rachel Hofstatter helps clients acquire, protect and enforce intellectual property rights. She prosecutes and manages trademark portfolios worldwide, designs and implements filing and enforcement strategies, counsels ...

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