Here’s part of the solution: Bipartisan legislation would require sellers to verify their identity
Online third-party sellers faced tremendous challenges over the past year—from stringent quantity limits to logistical hurdles that twisted supply chains—that tested their business models to serve consumers looking to shop safely from home amid the pandemic.
However, one longstanding problem, in particular, has threatened the operations of third-party sellers for decades: the sale of counterfeit and stolen goods online. Counterfeit goods have grown into a $509 billion issue, according to a 2020 report by the Department of Homeland Security.
In order to support these small businesses—while also ensuring that buyers are kept safe from hazardous products—lawmakers must consider practical solutions that bolster transparency online.
But these online businesses—and the enduring relationships they have built with consumers over the years—are under attack by criminals who sell illicit merchandise online. Motivated by profit, criminals peddle stolen and counterfeit products without regard for how their actions hurt honest sellers or consumers. Legitimate merchants pay the greatest price when fake, often unsafe merchandise is sold below market value besides their honest products.
I have heard too many horror stories from honest business owners who play by the rules and get burned by these nefarious tactics. As part of an effort to defend their own businesses from counterfeiting networks, sellers may be forced to spend hundreds of thousands of dollars to defend their intellectual property and their business.
And while some online marketplaces have attempted to create self-reporting methods to report violations, many times they cause even more trouble for sellers—especially when sellers are forced to defend false claims against honest businesses after bad-acting competitors use these tools against them.
Take Amazon, for instance. In 2019, Amazon shared that they spent $500 million to fight fraud, abuse, and counterfeits and have hired 8,000 employees to address these issues. However, what the company will not say is that this amount is barely 1% of their gross merchandise value (GMV), or total sales on Amazon.com, for a problem that affects tens of thousands of small businesses. And are 8,000 employees—far less than 1% of Amazon’s workforce—enough to address a problem of this magnitude, with potentially millions of counterfeit products available on its platform?
It’s a common tactic of Amazon’s PR department to only share the numerator—and not the denominator.
This surge in counterfeit merchandise can be attributed largely to Chinese sellers, who have flooded e-commerce platforms with knockoff products. Today, China-based sellers account for a staggering 75% of new Amazon vendors. Yet a 2020 government report noted that eight out of every 10 contraband items seized by U.S. Customs and Border Protection came from Hong Kong and China.
It’s clear that courting these Chinese sellers and allowing them to anonymously sell on these platforms is putting more unwitting shoppers at risk.
A big step
This issue has not gone unnoticed by federal lawmakers, especially now with record numbers of individuals turning to e-commerce websites for their shopping needs. The INFORM Consumers Act, which was recently reintroduced by a group of lawmakers from both sides of the political aisle, would require online marketplaces to verify sellers through basic details that any legitimate business would have readily available, such as bank account information, contact information, and tax ID—requiring e-commerce platforms to pull back the veil and reveal just who is selling on their marketplaces.
This type of common-sense legislation is welcomed by the overwhelming majority of sellers who play by the rules. For them, this bill represents a viable approach to weeding out bad actors lurking in the shadows. If signed into law, the INFORM Consumers Act would help to clean up e-commerce platforms and provide an extra level of assurance to U.S. shoppers that the products they purchase are safe and legitimate.
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