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Law Targeting Online Marketplaces Requires More Transparency From Internet Sellers

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Internet sales represent an increasingly important revenue channel for alcoholic-beverage businesses. The more commonplace Internet sales become, however, the more they become subject to platform-specific regulation. A federal law recently enacted to promote transparency in online transactions and deter illicit commercial activity specifically targets online marketplaces and impacts those who sell alcoholic beverages online.

On June 27, 2023, Congress enacted the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act, also known as the INFORM Consumers Act.  The Federal Trade Commission, or FTC, is empowered to enforce the new law. The FTC is authorized to impose a civil penalty of up to $50,120 per violation on an Online Retail Marketplace that fails to comply with the Act. 

Who Is Covered by the INFORM Consumers Act?

So, what is an “Online Marketplace”? The Act defines it broadly to mean “any person or entity that operates a consumer-directed electronically based or accessed platform that (A) 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; (B) is used by one or more third party sellers for such purposes; and (C) has a contractual or similar relationship with consumers governing their use of the platform to purchase consumer products.”

As this definition makes clear, the Act requires the engagement of and use by third party sellers. This can include a retailer or supplier of alcoholic beverages who sells directly to consumers. The term “third party seller” means “any seller, independent of an online marketplace, who sells, offers to sell, or contracts to sell a consumer product in the United States through such online marketplace’s platform.”

Importantly, a “third party seller” does not include a seller who operates the Online Marketplace’s platform or a business entity with an ongoing relationship with the Online Marketplace that has made available to the general public the entity’s name, business address, and working contact information, which information has been verified by the marketplace platform.

The Act also applies to the sale of a “consumer product.” This can include alcoholic beverages. The term means “any tangible personal  property which is distributed in commerce and which is normally used for personal, family, or household purposes.”

Based on the above, Online Marketplaces that allow retailers or manufacturers to sell alcoholic beverages directly to consumers may be covered by the INFORM Consumers Act.

What Does the INFORM Consumers Act Require?

The law requires the operator of an Online Marketplace to identify and collect information about each third-party seller who participates in the Online Marketplace’s platform and who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete sales or transactions of new or unused consumer products and an aggregate total of $5,000 or more in gross revenues. These sellers are dubbed, “High Volume Third Party Sellers.”

Once identified, the Online Marketplace operator must:

  • Collect bank account information, contact information, and a Tax ID number from High-Volume Third Party Sellers.
  • Verify the information it gets from High-Volume Third Party Sellers and require these sellers to keep their information current and to certify it as accurate at least once a year.
  • Disclose in the sellers’ product listings or order confirmations specific information about the seller (e.g., contact information, physical location, etc.).
  • Suspend High-Volume Third Party Sellers who don’t provide information the law requires.
  • Publish on High-Volume Third Party Sellers’ product listings a clear way for consumers to report suspicious conduct.

In addition, the Act requires that Online Marketplaces “implement and maintain reasonable security procedures and practices.” This means the Online Marketplace must put administrative, physical, and technical safeguards in place that are appropriate to the nature of the data and the purposes for which the data is used. Data collected solely to comply with the INFORM Consumers Act “may not be used for any other purpose unless required by law.”

A retailer’s or supplier’s failure to comply with an Online Marketplace’s request for information or documents in connection with the INFORM Consumers Act could result in an indefinite ban from the platform. More information about the new law can be found at the FTC’s website, and a copy of the Act can be found at 15 U.S.C. § 45f.

This article is not intended to give specific legal advice.  Before taking any action, the reader should consult with an attorney familiar with the relevant facts and circumstances.

Written by

Keven Danow

Founding and Senior Partner
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