A new bill that could require online marketplaces to verify and disclose third-party seller information to consumers has been reintroduced to the Senate. Following a similar attempt in the House of Representatives and before that, an earlier bid in the Senate, the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (the “INFORM Consumers Act”) was reintroduced on March 23 by Senators Dick Durbin (D-IL) and Bill Cassidy (R-LA) in an effort to “combat the online sale of stolen, counterfeit, and dangerous consumer products by ensuring transparency of high-volume third-party sellers in online retail marketplaces.”
Specifically, the INFORM Act would require online retail marketplaces in the U.S., such as Amazon, to authenticate the identity of “high-volume third-party sellers,” i.e., sellers that have entered into 200 or more discrete transactions in a 12-month period amounting to an aggregate total of $5,000 or more. To confirm the identity of these third-party sellers, the bill requires online marketplaces to acquire sellers’ government-issued photo identification, tax identification number, bank account information, and contact information on an annual basis.
Beyond that, the bill would also require online retail marketplaces to disclose to consumers the seller’s name, business address, phone number, email address, and whether the seller engages in the manufacturing, importing, retail, or reselling of consumer products. The legislation presents an exception, however, for individual high-volume third-party sellers that allows them not to disclose their personal street address or personal phone number as long as the sellers respond to consumer inquiries submitted via email within a reasonable time. Furthermore, if the bill is passed, it will mandate that online marketplaces provide contact information for customers to report potential issues, “such as the posting of suspected stolen, counterfeit, or dangerous products.”
According to a release from Senator Durbin on Tuesday, the bill’s requirements, if enacted, would be implemented by the Federal Trade Commission, and violations would be subject to civil penalties. Sen. Durbin claims that the reintroduced legislation “ensures a baseline level of transparency for online marketplaces, where currently it may be difficult to know who third-party sellers are and how to contact them.” In a similarly-timed statement, co-sponsoring senator Thom Tillis noted the rise in e-commerce use and online marketplaces, in particular, in light of the COIVD-19 pandemic, and asserted that “criminal actors, often from China, are taking advantage of this pandemic to sell dangerous counterfeit goods to unsuspecting Americans.”
The Transnational Alliance to Combat Illicit Trade echoed this concern in its support for the bill, stating that throughout the pandemic, U.S. e-commerce sales grew by 44 percent, and that such growth has coincided with the widespread “sale of stolen, counterfeit, expired, dangerous and defective products” on e-commerce marketplaces. The trade organization went on to declare that “it is time to move beyond relying solely on differing and voluntary approaches toward a more comprehensive means to assuring a safe environment for e-commerce,” and that “businesses and consumers need harmonized rules that assure the same safe and accountable shopping experience online as they enjoy in the brick-and-mortar world.”
The bill – which has received support from 3M, the American Apparel & Footwear Association, CVS, Levi Strauss & Co., the Retail Industry Leaders Association, the Fashion Jewelry & Accessories Trade Association, and Ulta Beauty, among others – is one of several marketplace-focused efforts aimed at achieving this.
In terms of the names that are presumably not on the list of INFORM Consumers Act backers: the e-commerce marketplaces, themselves, which have long argued – from the Tiffany v. eBay case to more recent challenges waged against Amazon – that they should not be held liable for offerings of third-party sellers that are counterfeit or otherwise infringing. With that in mind, the increasing push to hold marketplace operators accountable for the products sold by third-parties via these often-sweeping marketplace sites will almost certainly be an unwelcome one.
Can Marketplaces be Liable?
As marketplaces models have grown in popularity in recent decades, accountability and liability have been a recurring challenge in courts in the U.S. and beyond, with the U.S. Court of Appeals for the Sixth Circuit, for instance, recently taking on the issue in the case that The Ohio State University (“OSU”) filed against Redbubble. Melbourne, Australia-headquartered Redbubble operates a global marketplace in connection with which independent artists can list their works and consumers can place custom orders, at which point Redbubble contacts the artist, arranges the manufacturing and shipping of the product, and then sends the consumer his/her order in Redbubble packaging with Redbubble tags.
OSU filed suit against Redbubble in December 2017 for allegedly offering up third-party-created apparel bearing its trademark-protected graphics, and was handed an unfavorable hand by the U.S. District Court for the Southern District of Ohio, which granted summary judgment for Redbubble on the basis that “Redbubble did not ‘use’ OSU’s trademarked images in operating its business model under the Lanham Act because it only acted as a ‘transactional intermediary’ between buyers, sellers, manufacturers, and shippers.” The school fared better on appeal. In an opinion dated February 25, the Sixth Circuit reversed the lower court’s summary judgment decision after grappling with what Dorset & Whitney’s Kaleb McNeely calls an “increasingly relevant issue in the digital age: whether e-commerce companies are liable for trademark infringement arising from products they sell in the online marketplace.”
In determining that Redbubble “used” OSU’s trademarks in furtherance of its marketplace business, the court distinguished between various “level[s] of involvement and control” that a defendant “must exercise over the creation, manufacture, or sale of offending goods to be considered akin to a ‘seller’ or ‘manufacturer’ to whom Lanham Act liability applies.” McNeely notes that “in this case, the evidence suggested that ‘products ordered on Redbubble’s website do not yet exist, come into being only when ordered through Redbubble, and are delivered in Redbubble packaging with Redbubble tags.’” As such, “Redbubble is more than just a ‘passive facilitator’” in that it “brings trademark-infringing products into being by working with third-party seller to create new Redbubble products, not to sell the artists’ products.”
The Sixth Circuit found that “that ‘use’ of OSU’s trademark [by Redbubble] was sufficient to preclude summary judgment in Redbubble’s favor.”
Hardly the only instance in which a court has examined – and in some cases, assigned – liability to online platform operators, Debevoise & Plimpton’s David Bernstein, Megan Bannigan and Marissa MacAneney recently pointed to a March 2020 opinion and order from the U.S. Southern District of New York in the Chanel Inc. v. TheRealReal Inc. case, in which Judge Vernon Broderick “indicated that [the court] would be willing to consider whether new types of online marketplaces that play a role beyond being a mere intermediary should be held liable for direct infringement.”
Bernstein, Bannigan and MacAneney assert that “Chanel alleged that TheRealReal, a marketplace for secondhand sales of third-party luxury goods, was directly liable for the sale of counterfeit Chanel bags on its website.” Despite pushback from The RealReal, “the Court refused to dismiss the claims because Chanel had alleged plausible facts that TheRealReal, unlike an intermediary marketplace like eBay, takes a more active role in the sales of the luxury goods, such as through approving products before they are listed, setting prices, marketing the goods, and taking physical possession of the goods before they are sold.”
That case is still currently underway, with Chanel recently filing a motion to dismiss The RealReal’s newly-filed anticompetition counterclaims.