INFORM Consumers Act aims to curb online sales of counterfeit goods
By Mike R. Turner, Esq. and Lee Barrington Stark, Esq., Neal Gerber EisenbergMAY 3, 2023
Retailers know all too well the headache and loss of profit caused by the online sale of counterfeit and stolen goods. Such sales are essentially theft from legitimate businesses, weaken brand value, and put consumers at risk of fraud and poor quality products. When a marketplace is alerted that such products are being offered through its online platform, the law provides immunity to the marketplace so long as it removes the products and provides contact information for the seller. But often the contact information is as fake as the products, which pop back up under a new false name the next day. This counterfeit “whack-a-mole” game is expensive, frustrating, and often ineffective.
(2) tax ID number (corporate sellers) or social security number (individual sellers)
(3) working phone number
(4) working email address
(5) (for business sellers) copy of a government-issued record or tax document that includes the business name and physical address
In addition, for sellers with annual revenue through a given marketplace of $20,000 or more, marketplaces must collect, verify, and display the seller’s name and physical address on a product page, in purchase confirmations, or in order details.
The Act also requires marketplaces to obtain certifications from high-volume sellers that the information provided is accurate and up-to-date, at least annually. Online marketplaces are required to suspend any high-volume seller who fails to comply with the Act’s requirements.
After considerable lobbying, Congress has taken action directed at combating the online market for counterfeit and stolen goods by recently passing the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the INFORM Consumers Act). The Act places new disclosure obligations on high-volume sellers of consumer goods through online marketplaces aimed at bringing unscrupulous sellers out of the shadows and into the enforcement power of the Federal Trade Commission and states’ attorneys general.
While traditional intellectual property protection through patents, trademarks and copyright remains crucial, the new statutory requirements of the Act should help legitimate businesses with their enforcement efforts and deter high volume counterfeiting.
The INFORM Consumers Act requires online marketplaces to collect and verify certain identification and bank account information for high-volume sellers, defined as those who have sold 200 or more items as “new” through that marketplace, totaling over $5,000 in revenue during any 12-consecutive-month period within the past two years. This includes the following information:
(1) bank account number
Marketplaces may be fined for non-compliance and the monetary penalties can be substantial. The FTC is charged with enforcement of the Act, which subjects marketplaces to a civil penalty of $46,517 per violation, as well as a potential injunction that could affect the marketplace’s operation. In addition, a state’s attorney general may bring a federal civil action against a marketplace where there is a suspected violation affecting residents of that state, and may pursue injunctions, enforce compliance, level penalties, and seek civil damages.
Though damages may be more severe for repeat or willful offenses, it appears non-compliance will be a strict liability offense. In other words, there will be no exceptions for accidental failures to comply. The Act does not provide for a private right of enforcement against marketplaces but does ensure that consumers or brand owners will have accurate information to pursue sellers directly.
Some aspects of the INFORM Consumers Act will need to be clarified through application. For example, marketplaces must
The INFORM Consumers Act requires online marketplaces to collect and verify certain identification and bank account information for high-volume sellers.
Both the FTC and individual states may develop additional rules and requirements under the Act.
develop “reasonable” data security provisions and safeguards for the collected seller information, but no specific requirements are enumerated. The Act also requires that marketplaces collect “working” phone numbers and email addresses but does not specify what steps must be taken to confirm the veracity of the information sellers provide. Both the FTC and individual states may develop additional rules and requirements under the Act.
About the authors
The requirements of the INFORM Consumers Act go into effect June 27, 2023, and online marketplaces must implement the required policies and procedures by that date. Sellers should be prepared to submit the required information and, indeed, may already be seeing disclosure requests from marketplaces. While it will take time to assess the effects of the Act, and adjustments may prove necessary, this is an encouraging attempt by the federal government to stem the tide of counterfeit online goods, and is a clear acknowledgement of the ongoing problem.
Mike R. Turner (L) is a partner in Neal Gerber Eisenberg’s intellectual property practice and co-chair of the firm’s industrial and manufacturing group. He represents clients across the full spectrum of IP matters, including the procurement, analysis and enforcement of utility and design patents, trademarks, and copyrights. He can be reached at mturner@nge.com.
Lee Barrington Stark (R) is an associate in the firm’s IP practice. She focuses on assisting clients with trademark, copyright, trade secret and patent matters including litigation, enforcement, prosecution and agreements. She can be reached at lstark@nge.com. Both authors are based in Chicago.
