Congress sometimes passes legislation in a quite dramatic manner, with countless hearings, headlines, statements, and discourse. Other times, things happen just a bit more quietly, with language appearing in an omnibus appropriations bill, for example. The Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the INFORM Act or the Act) is a prime example of the latter. The Act is quite significant for platforms that host third-party online marketplaces, requiring the collection and disclosure of important seller information to ensure transparency. At its core, the Act is the result of broad concerns about the sale of stolen or counterfeit goods online.
The INFORM Act was part of the 2023 omnibus appropriations bill that was passed in late December 2022, and it requires online marketplaces to collect, verify and make available to buyers information about “high-volume third party sellers” operating on their platform. There are a number of defined terms there that are worth describing. An “online marketplace” is broadly defined as an “electronically-based or accessed platform that includes features that allow for, facilitate, or enable third party sellers to engage in the sale, purchase, payment, storage, shipping, or delivery of a consumer product in the United States; and is used by one or more third party sellers for such purposes.” And the statute also defines a high-volume seller as a third party with more than 200 transactions and $5,000 or more in gross revenue on the online marketplace in any continuous 12-month period during the prior 24 months.
Once a seller passes the threshold and becomes a high-volume seller, the online marketplace has 10 days to collect and verify certain information from this now high-volume seller. This includes (1) banking information, which can be either a bank account number or, if the seller does not have that, the name of the payee for payments issued by the online marketplace to the seller; (2) contact information as detailed in the Act; (3) tax information, which must be in the form of a business tax identification number, or, if such seller does not have a business tax identification number, a taxpayer identification number; and (4) a working email and phone number for the high-volume seller. Annually, the online marketplace must notify all high-volume sellers that they are required to keep all information current, and if the high-volume seller fails to certify its information within 10 days of this notification, then the online marketplace must suspend the seller. Marketplaces must also suspend a seller that does not respond to requests for information within 10 days of becoming a high-volume seller.
In addition to setting forth the above information collection requirements, the Act also requires the disclosure of information to consumers. If a high-volume seller has $20,000 or more in annual gross revenue, the online marketplace must clearly and conspicuously disclose to consumers on the product listing page: (1) the full name of the seller, which may include the seller name or seller’s company name, or the name by which the seller or company operates on the online marketplace; (2) the physical address of the seller; and (3) contact information for the seller, to allow for “direct, unhindered communication” between the high-volume seller and consumers on the online marketplace. This direct, unhindered communication can be accomplished through (A) a working phone number, (B) a working email address or (C) any other means of direct electronic messaging, which can be provided to the seller by the online marketplace. And finally, a high-volume seller with revenue of $20,000 or higher must also disclose to consumers on the product page if the seller used a different seller to supply the consumer product to the consumer. There are some exceptions allowed for third-party sellers that certify that they either don’t have a business address or only have a combined business and residential address.
Online marketplaces must also provide a “reporting mechanism” clearly and conspicuously on the product listing of any high-volume seller to allow for reporting of suspicious marketplace activity.
The Act becomes effective on June 23, 2023, and the Federal Trade Commission (FTC) and the state attorneys general have enforcement authority under the Act. And with the enforcement authority comes the authority to seek civil penalties, which are currently set at up to $50,000 per violation. The FTC was also given some discretionary rulemaking authority under the Act to further detail what is required for the collection, verification and disclosure. But so far, there has been radio silence from the agency on either initiating any rulemaking or on more general compliance guidance, which is a bit unusual given the imminent effective date. That said, we would certainly not interpret this silence as suggesting any hesitancy on future enforcement.
It remains to be seen how the FTC will enforce the new Act, but in general, when Congress gives a federal agency authority, it expects the agency to use the authority to the full extent. We will keep you informed as more develops.