On June 27, 2023, the Integrity, Notice, and Fairness in Consumer Online Retail Marketplaces Act (INFORM Act) went into effect. As we’ve written before, the INFORM Act aims to stop criminals from selling counterfeit, stolen, defective, and dangerous products through online marketplaces. The law requires online marketplaces to (1) collect and verify seller information; (2) disclose certain information about wholesalers to buyers; (3) provide a reporting mechanism on each wholesaler’s product listing page so consumers can report suspicious activity; (4) suspend non-compliant sellers; and (5) protect the data they collect.
Several states have passed their own version of the INFORM Act. Because these INFORM Acts threaten the ability of criminals to profit from stolen goods when they attempt to sell them through online marketplaces, many retailers have observed a change in behavior among sellers, who are now conducting transactions offline or finding other ways to avoid the obligations of these laws. Recently, the Georgia and California state legislatures introduced (and later passed) bills to close these perceived loopholes.
Georgia
On May 6, 2024, Georgia Governor Brian Kemp signed Senate Bill 472 (Bill 564), which“Organized Retail Crime Control Act.” Act 564 aims to close certain loopholes in the Georgia Inform Consumers Act.
- Act 564 removes the requirement that high-volume third-party sellers be paid electronically, and instead also addresses cases where the seller is paid by other, non-electronic means, such as cash or checks.
- Bill 564 addresses cases where a wholesaler conducts a transaction outside of an online marketplace platform. This effectively changes the obligations of online marketplaces and now requires them to monitor significantly more transactions, including those that take place outside of the platform.
Netchoice, LLC v. Carr
On June 6, 2024, NetChoice, LLC (NetChoice) sued the Attorney General of Georgia (GA AG), attempting to stop Attorney General Christopher Carr from enforcing Act 564. NetChoice argued that Act 564 effectively““Radical” expands the obligations of online marketplaces under the Georgia Inform Consumers Act.
Netchoice argued, among other things, that Act 564 was overridden by the federal INFORM Act, which prohibits a state from““Impose or maintain any law, regulation, rule, requirement, or standard inconsistent with (its) requirements.” 15 USC §45f(g).
On June 30, 2024, the District Court granted a motion for preliminary injunction, enjoining the GA Attorney General from enforcing Act 564. The Court concluded that Act 564, by imposing requirements for transactions outside of the online marketplace, conflicts with the federal INFORM Act, which““Only” applies to transactions made via the online marketplace.
On July 15, 2024, GA AG Carr appealed the district court’s decision to the Eleventh Circuit.
California
On August 16, 2024, California Senate Bill 1144 (“SB 1144”) was signed by California Governor Gavin Newsom and will take effect on July 1, 2025. SB 1144 amends Section 1749.8 and Section 1749.8.4 of the California Civil Code and adds Section 1749.8.9 to also close perceived loopholes in California’s INFORM Act. Notable changes include:
Section 1749.8:
- This section makes the law applicable to cases where the high-volume third-party seller processes a transaction from an online marketplace platform, similar to Georgia Act 564.
- This section also clarifies the requirement that sales must be made to buyers in California.
Section 1749.8.4:
- This amendment allows enforcement by a district attorney, city attorney, or circuit attorney, thereby expanding the authority to include more than just the California Attorney General.
Section 1749.8.9:
- This section directs online marketplaces to notify California law enforcement authorities if they have knowledge that a third-party seller is selling or attempting to sell stolen goods to a California resident.
- This section also instructs online marketplaces to:
- Create and maintain a policy prohibiting the sale of stolen goods.
- Provide a mechanism that allows individuals to notify the online marketplace that a seller is selling or may sell stolen goods.
- Provides a mechanism within the online marketplace that enables the online marketplace and law enforcement authorities to communicate in a timely and confidential manner.
- Maintain internal written policies to monitor listings to prevent organized retail crime.
Given the similarities between CA SB 1144 and GA Act 564, a challenge to SB 1144 is likely. Nevertheless, we expect states to continue to look for ways to expand or enhance existing laws to combat organized retail crime.
Kelley Drye continues to monitor enforcement in this area and will provide updates as they occur.
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