As the number of organized retail crimes has continued to spike, retailers have voiced concerns over the negative impact these crimes have on their businesses.

In March 2021, the Senate reintroduced a revised version of a bill calling for online retailers to publish specific, verified information concerning high-volume third-party sellers[1] of consumer products for their customers. The Integrity, Notification and Fairness in Online Retail Marketplaces (INFORM) for Consumers Act is directed toward putting an end to the online sale of stolen, counterfeit and unsafe consumer products.

In particular, online marketplaces that include high-volume third-party sellers would be required to authenticate vendors’ identities through essential identification and contact information in the hopes of preventing not only anonymous online sales of counterfeit goods, but also preventing organized retail crime rings from stealing from stores and reselling items online.

From an economic standpoint, widespread looting and increased sales of fake products have caused retailers to lose a significant portion of their profits. The decrease in profits has led to a ripple effect of economic harms in the retail industry, such as employee layoffs, damage to the value of the authentic brands due to the theft of their intellectual property and diminished incentives to innovate. Consequently, smaller businesses are being hit the hardest, since they do not have the capital to invest in brand protection measures.

As the number of organized retail crimes has continued to spike, retailers have voiced concerns over the negative impact these crimes have on their businesses. At the end of 2021, 20 CEOs―representing apparel, electronics, health and beauty, home improvement and other general merchandise areas―came together and sent a letter to congressional leadership urging the lawmakers to pass the INFORM Consumers Act.

A January 2020 report by the Department of Homeland Security (DHS) discussed how pirated and counterfeit goods are taking a toll on the retail space. Although the INFORM Consumers Act will affect the various retail industries in slightly different ways, most retailers seem to share a common goal: protecting their employees and their customers.

The Health, Beauty and Cosmetic Industry

One of the biggest problems in the health, beauty and cosmetic retail space is ingesting and applying counterfeit, potentially harmful, medicines and cosmetic products into and onto our bodies, respectively. With the number of internet pharmacies rising, it seems that preventing counterfeit products from entering the United States is beyond our control. To counteract this difficulty, the INFORM Consumers Act will create more transparency for consumers, because, as stated in the DHS report, “Counterfeit medicines not only defraud consumers who are often afflicted with serious health issues; they can also be lethal” since “[f]ake prescription drugs can lack active ingredients, contain incorrect dosages, or include dangerous additives.” And, as further reported, “counterfeit cosmetics and other beauty products can contain hazardous ingredients including arsenic, mercury, aluminum, or lead―ultimately putting consumer health and safety at risk.”

The Jewelry, Apparel and Accessories Industry

Like fake prescription drugs and cosmetic products, the products sold online in the jewelry, apparel and accessories industry can contain hidden toxins that can have significant risks for a consumer’s health and safety. Additionally, consumers are taking big financial risks when purchasing jewelry, apparel and accessories online, because luxury goods can cost thousands of dollars. The INFORM Consumers Act will allow purchasers to verify the vendors selling the retail goods and confirm the authenticity of the products before spending money on items that could potentially be made from low-grade materials that lack longevity and quality.

The Home Goods, Appliances, Housewares and Tabletop Industry

The home goods, appliances, housewares and tabletop industry is focused on consumer safety when it comes to consumers using these products. A plethora of goods in this sector are coming from illegitimate imports, as disclosed in a 2020 report by the Buy Safe America Coalition. Some relevant examples of industry areas impacted by these illegitimate imports include household laundry equipment manufacturing, household refrigerator and home freezer manufacturing, household cooking appliance manufacturing, and blinds and shades manufacturing. In a specific example, the DHS report stated that, “[a]n investigation of counterfeit iPhone adapters conducted by the [Government Accountability Office] found a 99 percent failure rate in 400 counterfeit adapters tested for safety, fire, and shock hazards, and found that 12 of the adapters posed a risk of lethal electrocution to the user.” Buyers need a way to verify that these everyday household items are coming from legitimate sources with high safety standards, and the INFORM Consumers Act will aid with disclosing this information to consumers before they make a purchase.

The Food and Beverages Industry

In the food and beverage business, customers are apprehensive about tampering and food safety generally. Retailers spend a tremendous amount of money to ensure that food, including raw ingredients, is properly prepared, packaged, labeled and distributed, which entails monitoring transportation, temperature and shelf life across the United States. When a food product leaves the distribution center or even a local store, however, there is no assurance regarding how the food is handled, leaving consumers in the dark. The implementation of the INFORM Consumers Act points consumers directly to the source, creating reliability and certainty before they purchase potentially unsafe food and beverage products. 

The Toy Industry

The INFORM Consumers Act is intended to curb counterfeiting, which affects toy company sales. But more importantly, counterfeit toys are not tested to meet, and do not meet, safety standards designed to protect the public. As reported by the DHS, “Children’s toys… [have been] laced with deadly metals like cadmium and lead… [and is an] area in which counterfeiters have taken advantage of e-commerce business models that provide limited to no accountability for sellers.” The current state of unverified toy sellers has led to parents making blind decisions where they may unknowingly purchase hazardous, counterfeit toys for their children. The INFORM Consumers Act will ease parents’ fears by ensuring that the goods are coming from a substantiated source. 

Conclusion

All in all, the INFORM Consumers Act is a straightforward, bipartisan act that is aimed to protect consumers by heightening online transparency in the retail market. However, not all retailers have the resources or even the competency to compile and publish the required information. Though, with the assistance of counsel, retailers will be able to conform with the requirements that the act will demand.

For More Information

If you have any questions about this Alert, please contact Brian D. Siff, Emily Tannenbaum, any of the attorneys in our Fashion, Retail and Consumer Branded Products Industry Group or the attorney in the firm with whom you are regularly in contact.

Notes

[1] The bill defines a high-volume third-party seller as “a user of an online marketplace who is a third-party seller and who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete sales or transactions in the accumulation of an aggregate total of $5,000 or more in gross revenues.”

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.