A new set of California laws will require online marketplaces to gather verifiable identifying information about high volume third party sellers, or else boot them off the platform. The laws, which seek to combat the resale of stolen goods online, call for marketplaces and sellers to ramp up their consumer disclosures around sellers’ identities and options for consumers to report suspected stolen goods. 

Companies hosting digital platforms should look closely at the new online marketplace laws, which carry steep civil penalties and quick operational deadlines coming up in February and July 2023. 

Why is California cracking down on the resale of stolen goods now? 

Organized crime rings are increasingly counting the mass resale of goods stolen from retailers among their areas of focus. Large scale, sophisticated theft from retail stores have become increasingly common over the past few years, with studies showing retail theft causes an annual industry-wide impact of tens of billion of dollars. The growing popularity of online marketplaces creates an opportunity for sophisticated criminal groups to operate as online resellers to turn around huge amounts of stolen goods through seemingly legitimate digital storefronts. 

California is one of many states nationwide whose law enforcement agencies are trying to curb organized online retail crime. The Organized Retail Crime Task Force within California Highway Patrol states it has recovered nearly $26 million in stolen retail merchandise since it’s inception in 2018. 

What do the marketplace laws require?

The new marketplace laws will impact multiple operational functions and include specific consumer disclosure requirements, all on tight timeframes. 

Beginning February 1, 2023, online marketplaces must display the California Attorney General’s suspected stones goods reporting link on their platforms in a sufficiently clear and conspicuous manner. 

Beginning July 1, 2023, online marketplaces must:

• Collect and verify all high volume third party sellers’ name, tax, and contact information. 

• Facilitate certain high volume third party sellers in providing their information and the identity of the person or company fulfilling the order to consumers after completing transactions.

• Suspend future sales activity of a high-volume third-party seller that does not comply with these disclosure rules or that makes a false representation to consumers. 

• Provide a mechanism for consumers to report suspicious activity to the marketplace. 

Is my company an “online marketplace”? 

It very well may be. A wide variety of consumer-focused digital platforms may qualify as marketplaces under the new California laws’ broad language. 

In addition to covering marketplaces that allow third parties to buy and sell consumer products on their platform, the new laws cover marketplaces that facilitate third party payments for consumer products. They also cover marketplaces facilitating or enabling third party shipping and delivery of consumer products. Marketplaces may include not only traditional websites, but also app- or game-based platforms. 

Marketplaces with at least one high volume third party seller are likely within the reaches of the rules covering the collection and verification of sellers’ information, and the link posting requirements. High volume third party sellers are those who have completed at least 200 transactions through that marketplace with California-based buyers, resulting in at least $5,000 in gross annual revenue for any consecutive 12-month period in the last 24 months. Any high volume third party sellers that have over $20,000 in gross annual revenue in either of the last two years must also comply with the new transaction disclosure requirements. 

What is the enforcement risk? 

The marketplace laws come along with statutory civil penalties that can be enforced only by the California Attorney General, not individual consumers. Potential penalties may be steep, however. Entities that violate the Marketplace Act may be subject to civil penalties of up to $10,000 per violation of the new rules going into effect July 1, 2023. 

Putting it Into Practice

Companies should look closely to determine whether they are covered by the new marketplace laws. Covered entities will need to implement processes to collect and validate seller information, and prepare for the required consumer disclosures.