Existing law generally requires an online marketplace to require a high-volume third-party seller on the online marketplace to make certain disclosures. Existing law requires an online marketplace to suspend future sales activity of a high-volume third-party seller that is not in compliance with those information sharing requirements, as specified. Existing law imposes certain information retention and security requirements on an online marketplace and prohibits specified uses of that information.

Existing law generally defines a high-volume third-party seller, for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified. Existing law defines an online marketplace, for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

This bill would revise the types of transactions that qualify a third-party seller as a high-volume third-party seller, for those purposes. Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace. The bill would also revise the definition of online marketplace by removing the conditions that the above-described features be used by third-party sellers, and that the platform have the above-described contractual relationship with consumers.

Existing law requires a high-volume third-party seller to disclose and certify to the online marketplace certain identification, contact, and payment information of the seller, as specified.

This bill would require an online marketplace to establish and maintain a policy prohibiting the sale of stolen goods on the marketplace and to provide a mechanism to notify the marketplace of the sale of stolen goods, as specified. The bill would require an online marketplace to alert local, regional, or state law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, except as specified.

Existing law requires a person or entity who violates the above-described provisions to be liable for a civil penalty not to exceed $10,000 for each violation and reasonable attorneys fees and costs and to be subject to preventive relief, as specified. Existing law limits recovery and relief to a civil action brought by the Attorney General, as specified.

This bill would expand recovery and relief to a civil action brought by a district attorney in any county, a city attorney in any city or city and county, or a county counsel in any county.

The bill would make these changes operative on July 1, 2025.

Existing law generally requires an online marketplace to require a high-volume third-party seller on the online marketplace to make certain disclosures. Existing law requires an online marketplace to suspend future sales activity of a high-volume third-party seller that is not in compliance with those information sharing requirements, as specified. Existing law imposes certain information retention and security requirements on an online marketplace and prohibits specified uses of that information.

Existing law generally defines a high-volume third-party seller, for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified. Existing law defines an online marketplace, for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

This bill would revise the types of transactions that qualify a third-party seller as a high-volume third-party seller, for those purposes. Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace. The bill would also revise the definition of online marketplace by removing the conditions that the above-described features be used by third-party sellers, and that the platform have the above-described contractual relationship with consumers.

Existing law requires a high-volume third-party seller to disclose and certify to the online marketplace certain identification, contact, and payment information of the seller, as specified.

This bill would require an online marketplace to establish and maintain a policy prohibiting the sale of stolen goods on the marketplace and to provide a mechanism to notify the marketplace of the sale of stolen goods, as specified. The bill would require an online marketplace to alert local, regional, or state law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, except as specified.

Existing law requires a person or entity who violates the above-described provisions to be liable for a civil penalty not to exceed $10,000 for each violation and reasonable attorneys fees and costs and to be subject to preventive relief, as specified. Existing law limits recovery and relief to a civil action brought by the Attorney General, as specified.

This bill would expand recovery and relief to a civil action brought by a district attorney in any county, a city attorney in any city or city and county, or a county counsel in any county.

The bill would make these changes operative on July 1, 2025.

Existing law generally requires an online marketplace to require a high-volume third-party seller on the online marketplace to make certain disclosures. Existing law requires an online marketplace to suspend future sales activity of a high-volume third-party seller that is not in compliance with those information sharing requirements, as specified. Existing law imposes certain information retention and security requirements on an online marketplace and prohibits specified uses of that information.

Existing law generally defines a high-volume third-party seller, for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified. Existing law defines an online marketplace, for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

This bill would revise the types of transactions that qualify a third-party seller as a high-volume third-party seller, for those purposes. Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace. The bill would also revise the definition of online marketplace by removing the conditions that the above-described features be used by third-party sellers, and that the platform have the above-described contractual relationship with consumers.

Existing law requires a high-volume third-party seller to disclose and certify to the online marketplace certain identification, contact, and payment information of the seller, as specified.

This bill would require an online marketplace to establish and maintain a policy prohibiting the sale of stolen goods on the marketplace and to provide a mechanism to notify the marketplace of the sale of stolen goods, as specified. The bill would require an online marketplace to, on and after July 1, 2025, to alert local, regional, or state law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, except as specified.

Existing law requires a person or entity who violates the above-described provisions to be liable for a civil penalty not to exceed $10,000 for each violation and reasonable attorneys fees and costs and to be subject to preventive relief, as specified. Existing law limits recovery and relief to a civil action brought by the Attorney General, as specified.

This bill would, on and after July 1, 2025, would expand recovery and relief to a civil action brought by a district attorney in any county, a city attorney in any city or city and county, or a county counsel in any county.

The bill would make these changes inoperative if a specified initiative is approved by the voters. operative on July 1, 2025.

Existing law generally requires an online marketplace to require a high-volume third-party seller on the online marketplace to make certain disclosures. Existing law requires an online marketplace to suspend future sales activity of a high-volume third-party seller that is not in compliance with those information sharing requirements, as specified. Existing law imposes certain information retention and security requirements on an online marketplace and prohibits specified uses of that information.

Existing law generally defines a high-volume third-party seller, for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified. Existing law defines an online marketplace, for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

This bill would revise the types of transactions that qualify a third-party seller as a high-volume third-party seller, for those purposes. Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace. The bill would also revise the definition of online marketplace by removing the conditions that the above-described features be used by third-party sellers, and that the platform have the above-described contractual relationship with consumers.

Existing law requires a high-volume third-party seller to disclose and certify to the online marketplace certain identification, contact, and payment information of the seller, as specified.

This bill would require an online marketplace to establish and maintain a policy prohibiting the sale of stolen goods on the marketplace and to provide a mechanism to notify the marketplace of the sale of stolen goods, as specified. The bill would require an online marketplace to to, on and after July 1, 2025, alert local, regional, or state law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, except as specified.

Existing law requires a person or entity who violates the above-described provisions to be liable for a civil penalty not to exceed $10,000 for each violation and reasonable attorneys fees and costs and to be subject to preventive relief, as specified. Existing law limits recovery and relief to a civil action brought by the Attorney General, as specified.

This bill would would, on and after July 1, 2025, expand recovery and relief to a civil action brought by a district attorney in any county, a city attorney in any city, city or city and county, or a county counsel in any county.

Existing law generally requires an online marketplace to require a high-volume third-party seller on the online marketplace to make certain disclosures. Existing law requires an online marketplace to suspend future sales activity of a high-volume third-party seller that is not in compliance with those information sharing requirements, as specified. Existing law imposes certain information retention and security requirements on an online marketplace and prohibits specified uses of that information.

Existing law generally defines a high-volume third-party seller, for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified. Existing law defines an online marketplace, for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

This bill would revise the types of transactions that qualify a third-party seller as a high-volume third-party seller, for those purposes. Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace. The bill would also revise the definition of online marketplace by removing the conditions that the above-described features be used by third-party sellers, and that the platform have the above-described contractual relationship with consumers.

Existing law requires a high-volume third-party seller to disclose and certify to the online marketplace certain identification, contact, and payment information of the seller, as specified.

This bill would require an online marketplace to disclose to consumers whether a high-volume third-party seller has complied with those disclosure and certification requirements. The bill would require an online marketplace to establish and maintain a policy prohibiting the sale of stolen goods on the marketplace and to provide a mechanism to notify the marketplace of the sale of stolen goods, as specified. The bill would require an online marketplace to alert local, regional, or state law enforcement agencies in California if it reasonably believes knows or should know that a third-party seller or high-volume third-party seller is selling or attempting to sell stolen goods to a California resident. resident, except as specified.

Existing law requires a person or entity who violates the above-described provisions to be liable for a civil penalty not to exceed $10,000 for each violation and reasonable attorneys fees and costs and to be subject to preventive relief, as specified. Existing law limits recovery and relief to a civil action brought by the Attorney General, as specified.

This bill would expand recovery and relief to a civil action brought by a district attorney in any county, a city attorney in any city, or a county counsel in any county.

Existing law generally requires an online marketplace to require a high-volume third-party seller on the online marketplace to make certain disclosures. Existing law requires an online marketplace to suspend future sales activity of a high-volume third-party seller that is not in compliance with those information sharing requirements, as specified. Existing law imposes certain information retention and security requirements on an online marketplace and prohibits specified uses of that information.

Existing law generally defines a high-volume third-party seller, for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified. Existing law defines an online marketplace, for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

This bill would revise the types of transactions that qualify a third-party seller as a high-volume third-party seller, for those purposes. Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace. The bill would also revise the definition of online marketplace by removing the conditions that the above-described features be used by third-party sellers, and that the platform have the above-described contractual relationship with consumers.

Existing law requires a high-volume third-party seller to disclose and certify to the online marketplace certain identification, contact, and payment information of the seller, as specified.

This bill would require an online marketplace to disclose to consumers whether a high-volume third-party seller has complied with those disclosure and certification requirements. The bill would require an online marketplace to establish and maintain a policy prohibiting the sale of stolen goods on the marketplace and to provide a mechanism to notify the marketplace of the sale of stolen goods, as specified. The bill would require an online marketplace to alert local, regional, or state law enforcement agencies in California if it reasonably believes that a third-party seller or high-volume third-party seller is selling or attempting to sell stolen goods to a California resident.

Existing law requires a person or entity who violates the above-described provisions to be liable for a civil penalty not to exceed $10,000 for each violation and reasonable attorneys fees and costs and to be subject to preventive relief, as specified. Existing law limits recovery and relief to a civil action brought by the Attorney General, as specified.

This bill would expand recovery and relief to a civil action brought by a district attorney in any county, a city attorney in any city, or a county counsel in any county.

Existing law generally requires an online marketplace to require a high-volume third-party seller on the online marketplace to make certain disclosures. Existing law requires an online marketplace to suspend future sales activity of a high-volume third-party seller that is not in compliance with those information sharing requirements, as specified. Existing law imposes certain information retention and security requirements on an online marketplace and prohibits specified uses of that information.

Existing law generally defines a high-volume third-party seller, for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified. Existing law defines an online marketplace, for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

This bill would revise the types of transactions that qualify a third-party seller as a high-volume third-party seller, for those purposes. Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace. The bill would also revise the definition of online marketplace by removing the conditions that the above-described features be used by third-party sellers, and that the platform have the above-described contractual relationship with consumers.

Existing law requires a high-volume third-party seller to disclose and certify to the online marketplace certain identification, contact, and payment information of the seller, as specified.

This bill would require an online marketplace to verify and identify disclose to consumers that each whether a high-volume third-party seller has complied with those disclosure and certification requirements. The bill would prohibit require an online marketplace from allowing a business or person to utilize its platform or other services if there is reason to believe the business or person is selling stolen goods. to establish and maintain a policy prohibiting the sale of stolen goods on the marketplace and to provide a mechanism to notify the marketplace of the sale of stolen goods, as specified. The bill would require an online marketplace to alert local, regional, or state law enforcement agencies in California if it reasonably believes that a third-party seller or high-volume third-party seller is selling or attempting to sell stolen goods to a California resident.

Existing law requires a person or entity who violates the above-described provisions to be liable for a civil penalty not to exceed $10,000 for each violation and reasonable attorneys fees and costs and to be subject to preventive relief, as specified. Existing law limits recovery and relief to a civil action brought by the Attorney General, as specified.

This bill would expand recovery and relief to a civil action brought by a district attorney in any county, a city attorney in any city, or a county counsel in any county.

Existing law generally requires an online marketplace to require a high-volume third-party seller on the online marketplace to make certain disclosures. In this regard, existing law requires a high-volume third-party seller to disclose to the online marketplace certain contact and payment information, and, under certain conditions, to disclose to the online marketplace and to consumers certain additional information about the seller and the party responsible for supplying the product, as provided. Existing law requires an online marketplace to suspend future sales activity of a high-volume third-party seller that is not in compliance with those information sharing requirements, as specified. Existing law imposes certain information retention and security requirements on an online marketplace and prohibits specified uses of that information. Existing law requires a person or entity who violates these provisions to be liable for a civil penalty not to exceed $10,000 for each violation and reasonable attorneys fees and costs and to be subject to preventive relief, as specified. Existing law limits recovery and relief to a civil action brought by the Attorney General, as specified.

Existing law generally defines a high-volume third-party seller, for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified. Existing law defines an online marketplace, for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers. consumers governing their use of the platform to purchase consumer products.

This bill would revise the types of transactions that qualify a third-party seller as a high-volume third-party seller, for those purposes. Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace. The bill would also revise the definition of online marketplace by removing the conditions that the above-described features be used by third-party sellers, and that the platform have a the above-described contractual relationship with consumers.

This bill would require an online marketplace to verify and certify that each consumer product advertised on its platform by a high-volume third-party seller was produced, procured, purchased, or acquired in a lawful manner, as specified. The bill would require an online marketplace to identify, on its internet website, a third-party seller that is certified as operating in a legal and ethical manner. This identify to consumers that each high-volume third-party seller has complied with those disclosure and certification requirements. The bill would prohibit an online marketplace from allowing a business or person to utilize its platform or other services if it suspects there is reason to believe the business or person is selling stolen goods. The bill would require an online marketplace to alert local, regional, or state law enforcement agencies in California if it suspects reasonably believes that a third-party seller or high-volume third-party seller is selling or attempting to sell stolen goods to a California resident.

Existing law generally requires an online marketplace to require a high-volume third-party seller on the online marketplace to make certain disclosures. In this regard, existing law requires a high-volume third-party seller to disclose to the online marketplace certain contact and payment information, and, under certain conditions, to disclose to the online marketplace and to consumers certain additional information about the seller and the party responsible for supplying the product, as provided. Existing law requires an online marketplace to suspend future sales activity of a high-volume third-party seller that is not in compliance with those information sharing requirements, as specified. Existing law imposes certain information retention and security requirements on an online marketplace and prohibits specified uses of that information. Existing law requires a person or entity who violates these provisions to be liable for a civil penalty not to exceed $10,000 for each violation and reasonable attorneys fees and costs and to be subject to preventive relief, as specified. Existing law limits recovery and relief to a civil action brought by the Attorney General, as specified.

Existing law generally defines a high-volume third-party seller, for purposes of the above-described provisions, as a third-party seller who has entered into a certain number of consumer product sales transactions through an online marketplace for which payment is processed by the online marketplace, as specified. Existing law defines an online marketplace, for purposes of those provisions, as a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable, and are used by, a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product and that has a contractual relationship with consumers.

This bill would revise the types of transactions that qualify a third-party seller as a high-volume third-party seller, for those purposes. Specifically, the bill would remove the conditions that the transactions be made through an online marketplace and that the online marketplace process the payment and, instead, would add the condition that the transactions were made utilizing an online marketplace. The bill would also revise the definition of online marketplace by removing the conditions that the above-described features be used by third-party sellers, and that the platform have a contractual relationship with consumers.

This bill would require an online marketplace to verify and certify that each consumer product advertised on its platform by a high-volume third-party seller was produced, procured, purchased, or acquired in a lawful manner, as specified. The bill would require an online marketplace to identify, on its internet website, a third-party seller that is certified as operating in a legal and ethical manner. This bill would prohibit an online marketplace from allowing a business or person to utilize its platform or other services if it suspects the business or person is selling stolen goods. The bill would require an online marketplace to alert local, regional, or state law enforcement agencies in California if it suspects that a third-party seller or high-volume third-party seller is selling or attempting to sell stolen goods to a California resident.

The bill would require the Department of Justice to create a searchable database named the California Online Market Anti-Theft (COMAT) system, which would receive, file, and make available specific information to law enforcement, including, among other things, the business names of online marketplaces and high-volume third-party sellers. The bill would require the department to create a licensing system for online marketplaces and high-volume third-party sellers and assess a reasonable license fee, as specified, to cover the reasonable regulatory costs of developing, implementing, and maintaining the COMAT system and the licensing system. The bill would establish the COMAT Fund for these purposes.

 UNFINISHED BUSINESS  

Bill No: SB 1144

Author: Skinner (D), et al.

Amended: 7/1/24

Vote: 21

SENATE JUDICIARY COMMITTEE: 10-1, 4/2/24

AYES: Umberg, Allen, Ashby, Caballero, Durazo, Laird, Min, Niello, Stern, Wahab

NOES: Wilk

SENATE PUBLIC SAFETY COMMITTEE: 4-0, 4/23/24

AYES: Wahab, Bradford, Skinner, Wiener

NO VOTE RECORDED: Seyarto

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/16/24

AYES: Caballero, Ashby, Becker, Bradford, Wahab

NOES: Jones, Seyarto

SENATE FLOOR: 33-1, 5/22/24

AYES: Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener

NOES: Dahle

NO VOTE RECORDED: Allen, Grove, Jones, Nguyen, Seyarto, Wilk

ASSEMBLY FLOOR: 73-0, 8/8/24 - See last page for vote

SUBJECT: Marketplaces: online marketplaces

SOURCE: Prosecutors Alliance of California

DIGEST:

This bill expands, beginning July 1, 2025, existing requirements for online marketplaces, as defined, to collect certain information from high-volume third-party sellers on those platforms, as defined, and permits a district attorney, city attorney, or county counsel to enforce the requirements.

Assembly Amendments

add the July 1, 2025, effective date; remove the requirement that an online marketplace disclose to consumers whether a high-volume third-party seller has complied with specified requirements; and add the requirement that an online marketplace provide a mechanism that allows the marketplace and law enforcement to communicate in a timely and confidential manner.

ANALYSIS:

Existing federal law:

1. Establishes the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act (INFORM), which imposes largely the same obligations on online marketplaces and high-volume third-party sellers as the state law set forth above. (15 U.S.C. § 45f.)
2. Provides that no state or political subdivision of a state, or territory of the United States, may establish or continue in effect any law, regulation, rule, requirement, or standard that conflicts with the requirements of the INFORM Consumers Act. (15 U.S.C. § 15f(g).)

Existing state law:

1. Establishes, within Title 1.d of Part 4 of Division 3 of the Civil Code (Title 1.4d), requirements for online marketplaces that facilitate sales transactions between third-party sellers and consumers, and on certain third-party sellers on those online marketplaces, as set forth below.
2. Defines the following terms:
   1. “Consumer product” is tangible personal property that is distributed in commerce and normally used for personal, family, or household purposes, including property intended to be attached to or installed in real property regardless of whether it is actually installed or attached.
   2. “High-volume third-party seller” is a third-party seller who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete transactions through an online marketplace for the sale of new or unused consumer products to buyers located in California, resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues. For purposes of this definition, only transactions for which payment is processed by the online marketplace directly or through its payment processor are counted.
   3. “Online marketplace” is a consumer-directed, electronically accessed platform for which all of the following are true:
      1. The platform 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 state, and these features are used by third-party sellers.
      2. The platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.
   4. “Third-party seller” is a person or entity, independent of an online marketplace, who sells, offers to sell, or contracts with an online marketplace to sell a consumer product in the state by or through an online marketplace.
   5. “Verify” is to confirm that information provided to an online marketplace pursuant to the requirements below is accurate. Methods of confirmation include the use of one or more methods that enable the online marketplace to reliably determine that the information and documents are valid, correspond to the seller or an individual acting on the seller’s behalf, are not misappropriated, and are not falsified. (Civ. Code, § 1749.8.)
3. Requires an online marketplace to require each high-volume third-party seller on the online marketplace to provide, not 10 days later after qualifying as a high-volume third-party seller, all of the following information to the online marketplace:
   1. A bank account number or, if the high-volume third-party seller does not have a bank account, the name of the payee for payments issued by the online marketplace to the seller.
   2. The high-volume third party seller’s name, if they are an individual; if they are not an individual, a copy of a valid government-issued identification of an individual who has legal authority to act on behalf of the high-volume third-party seller, or a government document that includes the business name and address of the high-volume third-party seller.
   3. A business or tax identification number for the business or taxpayer.
   4. A valid email address and telephone number for the high-volume third-party seller. (Civ. Code, § 1749.8.1(a).)
4. Requires an online marketplace to verify the information provided under 3) within 10 days and, on an annual basis, notify each high-volume third-party seller of the requirement to update any information within 10 days of the notification and certify that the information provided is accurate. If the high-volume third-party seller does not provide the information or certification as required, the online marketplace shall, after providing notice and opportunity to provide the information or certification, suspend any future sales activity until the information or certification is provided. (Civ. Code, § 1749.8.1(b), (c).)
5. Requires an online marketplace to require a high-volume third-party seller with at least $20,000 of gross annual revenues from transactions with buyers in California through the online marketplace in either of the prior two calendar years to provide, in addition to the information required in 3), the following to the online marketplace and disclose it to consumers in a clear and conspicuous manner, as specified:
   1. The full name of the high-volume third party seller, as specified.
   2. The high-volume third-party seller’s physical address and contact information for the high-volume third-party seller, including a current working telephone, email address, or other means of direct electronic messaging, to allow users to have direct and unhindered communication with the seller. In the event that a seller certifies that they do not have a physical address or telephone number other than their residential address or personal number, the online marketplace shall direct consumers to use other methods of contact, as specified.
   3. Whether or not another party is responsible for supplying the product to the consumer upon purchase; and upon request from an authenticated purchaser, the high-volume third-party seller shall provide contact information for the party who is responsible for supplying the product. (Civ. Code, § 1749.8.2(a).)
6. Requires an online marketplace to disclose to consumers, in a clear or conspicuous manner on the product listing of a high-volume third-party seller, a reporting mechanism that allows for electronic and telephonic reporting of suspicious activity by the high-volume third-party seller to the online marketplace. (Civ. Code, § 1749.8.2.(b).)
7. Provides for the suspension of a high-volume third-party seller by an online marketplace for failure to comply with the disclosure requirements; before suspending a high-volume third-party seller, the online marketplace must provide notice and an opportunity to comply, as specified; if the high-volume third-party seller comes into compliance following the suspension, the online marketplace shall restore the seller, as specified. (Civ. Code, § 1749.8.2(c).)
8. Provides that a person or entity who violates any provision of 3)-7) shall be liable for a civil penalty of up to $10,000 for each violation, which may be assessed and recovered only in a civil action brought in the name of the people of the State of California by the Attorney General. If the Attorney General prevails in such an action, it may recover reasonable attorney fees and costs and preventive relief, including a permanent or temporary injunction against any person responsible for the conduct. (Civ. Code, § 1749.8.4.)

This bill:

1. States that the Legislature finds and declares that it is the intent of the Legislature to stop theft from retail stores and community theft by curtailing the sale of stolen property on online marketplaces.
2. Modifies the definition of “high-volume third-party seller” in existing law, effective July 1, 2025, to mean a third-party seller on an online marketplace who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more transactions using the online marketplace for the sale of consumer products to buyers located in California resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues.
3. Modifies the definition of “online marketplace,” effective July 1, 2025, to mean a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product in this state.
4. Permits a district attorney in any county, a city attorney in any city, or a county counsel in any county to bring a civil action for a violation of Title 1.4d, beginning July 1, 2025.
5. Requires an online marketplace, beginning July 1, 2025, to alert law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, unless the online marketplace has received a notice from the law enforcement agency that a third-party seller is selling or attempting to sell stolen goods to a California resident.
6. Requires an online marketplace, beginning July 1, 2025, to establish and publically post a policy prohibiting the sale of stolen goods on the online marketplace, provide a mechanism that allows any individual to notify the online marketplace that a seller is selling stolen goods, provide a mechanism that allows the online marketplace to communicate with law enforcement, and maintain internal policies and systems to monitor sales listing to affirmatively prevent and detect organized retail crime.

Comments

In 2022, the Legislature passed SB 301 (Skinner, Chapter 857, Statutes of 2022), which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult to profit from retail theft and, hopefully, disincentivizing such thefts. At the end of 2022, the United States Congress passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act—a.k.a. the INFORM Consumers Act—which imposes, on a nationwide basis, largely the same requirements as SB 301.

SB 301 took effect on July 1, 2023, and the INFORM Consumers Act took effect a few days earlier. Since then, there have been mixed reports on whether retail theft is continuing to increase, is leveling out, or was overstated in the first place, and it is unclear whether there are data showing whether SB 301 and the federal bill have had any effect. According to the author, however, SB 301 and the INFORM Consumers Act have gaps that allow certain large online platforms to avoid those bills’ requirements.

This bill is intended to expand the scope of SB 301 and make other changes to the SB 301 regime to make it more difficult for stolen goods to be sold online. To do so, this bill modifies certain definitions within current law so that all platforms that connect buyers and sellers are covered, even if the sale is not conducted through the platform’s payment processor. This bill also allows district attorneys, county counsel, and city attorneys to enforce violations of this bill; currently only the Attorney General is permitted to bring an enforcement action, which may be leading to under-enforcement. Finally, this bill requires online marketplaces to take a few additional steps, reporting sellers to law enforcement where there is reason to believe the seller is offering stolen goods for sale and providing a mechanism for communicating with law enforcement. This bill’s provisions will take effect on July 1, 2025.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Assembly Appropriations Committee:

Costs (Trial Court Trust Fund, General Fund) of an unknown but potentially significant amount to the courts to adjudicate additional actions filed as a result of this bill. Under existing law, only the Attorney General may file a civil enforcement action against an online marketplace for a violation of statutory requirements. This bill authorizes additional public prosecutors to bring such civil enforcement actions, likely increasing the number of actions that will be filed statewide. It generally costs approximately $1,000 to operate a courtroom for one hour. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a need for increased funding for courts from the General Fund.

The Governor’s 2024-25 budget proposes $83.1 million ongoing from the General Fund to backfill declining revenue to the Trial Court Trust Fund. According to the Legislative Analyst’s Office, the General Fund faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

SUPPORT: (Verified 7/3/24)

Prosecutors Alliance of California (source)

Barbara J. Parker, City of Attorney, City of Oakland

California Business Properties Association

California District Attorneys Association

California Retailers Association

Californians for Safety and Justice

City of Agoura Hills

City of Alameda

City of Artesia

City of Buena Park

City of Cypress

City of El Cerrito

City of Emeryville

City of Fontana

City of Fountain Valley

City of Fullerton

City of Grand Terrace

City of Hidden Hills

City of La Mirada

City of Lakeport

City of Lakewood

City of Los Alamitos

City of Manteca

City of Mission Viejo

City of Oakdale

City of Oakland

City of Oakley

City of Paramount

City of Patterson

City of Rohnert Park

City of Rolling Hills Estates

City of Rosemead

City of San Luis Obispo

City of Stanton

David Chu, City Attorney, City and County of San Diego

Friends Committee on Legislation of California

Jesse Arreguín, Mayor, City of Berkeley

League of California Cities
League of California Cities – Central Valley Division

Los Angeles Area Chamber of Commerce

Los Angeles County Business Federation

Los Angeles County Sheriff’s Department

Mara W. Elliott, City Attorney, City of San Diego

Oakland City Council

Smart Justice California

Target Corporation

The Home Depot

The Toy Association

Todd Gloria, Mayor, City of San Diego

Town of Apple Valley

UnCommon Law

United Food and Commercial Food Workers Western States Council

Valley Industry & Commerce Association

Vera Institute of Justice

OPPOSITION: (Verified 7/3/24)

CCIA

Chamber of Progress

Internet.Works California

OfferUp

TechNet

ARGUMENTS IN SUPPORT: According to the Prosecutors Alliance of California:

The bill strengthens existing law by mandating that all high volume third party sellers who utilize an online marketplace to sell goods must comply with the recently enacted SB 301 (Skinner 2022), by providing to the online marketplace their name, physical location, banking information, a valid tax document or record that demonstrates that they are a lawfully authorized business, and other key information. The information mandated by SB 301 allowed the California Attorney General, working in concert with federal, state and local law enforcement and online marketplaces to identify individuals directing criminal enterprises and to shut them down, charging them for grand theft and other felonies.

SB 1144 will mandate that online marketplaces create a consumer friendly means of identifying which online sellers are in compliance with California law. Further, the bill will also local prosecutors and city and county counsels to enforce the law, a power that is currently limited to the California Attorney General…

SB 1144 will be a powerful crime prevention and investigatory tool, reducing the opportunity to resell stolen goods, and therefore discouraging those who would profit from breaking the law. For these reasons, PAC strongly supports SB 1144 (Skinner).

ARGUMENTS IN OPPOSITION: According to the Chamber of Progress:

[O]nline marketplaces have invested in technologies, clear policies, personnel, and processes that identify suspected bad actors and bad listings, and block them from being published and remove them from their platforms. When there is evidence that bad actors are misusing a marketplace to sell stolen or illicit goods, our partners work directly with law enforcement, retailers, and brands to bring offenders to justice.

Fortunately, there are proven models that can help to address organized retail crime (ORC). The most impactful thing the state can do is ensure law enforcement have the tools and resources necessary to pursue these criminals and prosecute them. Additionally, there are recent examples of ORC task forces in a number of states, including Illinois, Utah, Arizona, and Connecticut. The task forces bring together law enforcement, retail loss prevention experts, online marketplaces, and other key stakeholders to collaborate on investigations and prosecutions of ORC. Chamber of Progress stands ready to be engaged partners in these endeavors.

ASSEMBLY FLOOR: 73-0, 8/8/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bennett, Berman, Boerner, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Friedman, Gabriel, Gallagher, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, Mathis, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Quirk-Silva, Ramos, Rendon, Reyes, Luz Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Villapudua, Waldron, Wallis, Ward, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Bauer-Kahan, Bonta, Garcia, Petrie-Norris, Valencia, Weber

Prepared by: Allison Whitt Meredith / JUD. / (916) 651-4113

8/9/24 16:38:05

**** END ****

SENATE THIRD READING

STR Bill Id:SB 1144

Author:(Skinner)

As Amended Ver:July 1, 2024

Majority vote

SUMMARY

Expands existing provisions requiring online marketplaces to collect certain information from high-volume third-party sellers and extends the authority to enforce these provisions to the district attorney in any county, a city attorney in any city, or a county counsel in any county.

Major Provisions

1. Modifies the definition of "high-volume third-party seller" in existing law to mean a third-party seller on an online marketplace who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more transactions using the online marketplace for the sale of consumer products to buyers located in California resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues.
2. Modifies the definition of "online marketplace" to mean a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product in this state.
3. Permits a district attorney in any county, a city attorney in any city, or a county counsel in any county to bring a civil action for a violation, on or after July 1, 2025.
4. Requires an online marketplace, on or after July 1, 2025, to alert law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, unless the online marketplace has received a notice from the law enforcement agency that a third-party seller is selling or attempting to sell stolen goods to a California resident.
5. Requires an online marketplace to establish and publically post a policy prohibiting the sale of stolen goods on the online marketplace, provide a mechanism that allows any individual to notify the online marketplace that a seller is selling stolen goods, provide a mechanism that allows the online marketplace to communicate with law enforcement, and maintain internal policies and systems to monitor sales listing to affirmatively prevent and detect organized retail crime.

COMMENTS

In 2022, the Legislature passed SB 301 (Skinner), Chapter 857, Statutes of 2022, which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult to profit from retail theft and, hopefully, disincentivizing such thefts.

Among other things, this bill expands the scope of the current law by requiring all high-volume sellers and all marketplaces to comply with the registration requirements, regardless of whether the payment for the items are made through the marketplace. Closing this loophole would now require marketplaces like Facebook and NextDoor to monitor the activity of high-volume sellers on their platforms.

According to the Author

In 2022, I introduced SB 301 to address the increasing use of online marketplaces as the mechanism to resell stolen goods. Regulations under SB 301 required online marketplaces to ensure that high volume third party sellers on their platforms were operating legally. While SB 301 made great strides in combating the sale of stolen goods on online marketplaces, there is still more work to be done. This bill strengthens SB 301 by auditing additional regulations on those high volume third party sellers that use online marketplaces to advertise goods, but then collect the money from buyers in "offline" transactions — transactions that make it much more difficult to track whether the goods sold were stolen.

Arguments in Support

Writing in support of the bill, the California Retailers Association notes:

Organized retail crime is a complex, multi-faceted problem and combatting it requires a comprehensive approach. The threat of organized retail crime extends beyond the storefronts—it undermines the trust and safety of the online marketplace. Building on the foundation of SB 301 (Skinner), SB 1144 enhances accountability and transparency within online marketplaces. This legislation brings critical updates to the criteria for high-volume third-party sellers and improves the measures required for online marketplaces to prevent the trafficking of stolen goods.

Arguments in Opposition

OfferUp [an online classified marketplace], writes in strong opposition to the bill:

SB 1144 broadens the definition of 'high-volume third-party sellers' from the INFORM Consumers Act to apply to any purchase made in connection with an online marketplace, regardless of whether that payment was processed by the online marketplace or through a third party. To be clear, the definitions in the INFORM Consumers Act are not unintended loopholes – they were carefully and thoughtfully negotiated between marketplaces, retailers, and legislators over the course of the two years that the Act was considered.

SB 1144 contradicts the preemptive federal INFORM Consumers Act by drastically broadening the scope of the INFORM Consumers Act and it would establish rules that make it almost impossible for local classifieds marketplaces, like OfferUp, to comply. OfferUp is an classifieds marketplace that connects buyers and sellers within the local community to make peer-to-peer transactions possible, which ultimately means that OfferUp is not always privy to when users meet up, how much they sell an item for, or whether they completed a transaction at all. Therefore, every user on the platform will potentially need to be considered a 'high-volume third-party seller' for OfferUp to ensure compliance. The requirements of the INFORM Consumers Act were written to apply to businesses and other large volume sellers - not to individuals. However, because in-person platforms like OfferUp cannot know whether a transaction actually occurred, we may be forced to collect information on EVERY seller. The practical effects of the removal of “and for which payment was processed by the online marketplace or through a third party” is that OfferUp and other classifieds marketplaces will be required to collect sensitive personal information (including social security numbers, bank account numbers, driver’s licenses, and tax forms) from every Californian that wants to sell an item on an online marketplace, or ultimately the online marketplace will be unable to operate in your state.

FISCAL COMMENTS

Costs (Trial Court Trust Fund, General Fund) of an unknown but potentially significant amount to the courts to adjudicate additional actions filed as a result of this bill. Under existing law, only the Attorney General may file a civil enforcement action against an online marketplace for a violation of statutory requirements. This bill authorizes additional public prosecutors to bring such civil enforcement actions, likely increasing the number of actions that will be filed statewide. It generally costs approximately $1,000 to operate a courtroom for one hour. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a need for increased funding for courts from the General Fund.

The Governor's 2024-25 budget proposes $83.1 million ongoing from the General Fund to backfill declining revenue to the Trial Court Trust Fund. According to the Legislative Analyst's Office, the General Fund faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

VOTES

SENATE FLOOR: 33-1-6

YES: Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood‑Cuevas, Stern, Umberg, Wahab, Wiener

NO: Dahle

ABS, ABST OR NV: Allen, Grove, Jones, Nguyen, Seyarto, Wilk

ASM PRIVACY AND CONSUMER PROTECTION: 11-0-0

YES: Bauer-Kahan, Joe Patterson, Bryan, Dixon, Hoover, Irwin, Lowenthal, Ortega, Ward, Wicks, Wilson

ASM JUDICIARY: 11-0-1

YES: Kalra, Dixon, Bauer-Kahan, Bryan, Connolly, Haney, Maienschein, McKinnor, Pacheco, Joe Patterson, Reyes

ABS, ABST OR NV: Sanchez

ASM APPROPRIATIONS: 10-4-1

YES: Wicks, Arambula, Bryan, Calderon, Berman, Mike Fong, Haney, Hart, Pellerin, Aguiar‑Curry

NO: Sanchez, Dixon, Jim Patterson, Ta

ABS, ABST OR NV: Grayson

UPDATED

VERSION: July 1, 2024

CONSULTANT: Julie Salley / P. & C.P. / (916) 319-2200 FN: 0003712

SENATE THIRD READING

STR Bill Id:SB 1144

Author:(Skinner)

As Amended Ver:July 1, 2024

Majority vote

SUMMARY

Expands existing provisions requiring online marketplaces to collect certain information from high-volume third-party sellers and extends the authority to enforce these provisions to the district attorney in any county, a city attorney in any city, or a county counsel in any county.

Major Provisions

1. Modifies the definition of "high-volume third-party seller" in existing law to mean a third-party seller on an online marketplace who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more transactions using the online marketplace for the sale of consumer products to buyers located in California resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues.
2. Modifies the definition of "online marketplace" to mean a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product in this state.
3. Permits a district attorney in any county, a city attorney in any city, or a county counsel in any county to bring a civil action for a violation, on or after July 1, 2025.
4. Requires an online marketplace, on or after July 1, 2025, to alert law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, unless the online marketplace has received a notice from the law enforcement agency that a third-party seller is selling or attempting to sell stolen goods to a California resident.
5. Requires an online marketplace to establish and publically post a policy prohibiting the sale of stolen goods on the online marketplace, provide a mechanism that allows any individual to notify the online marketplace that a seller is selling stolen goods, provide a mechanism that allows the online marketplace to communicate with law enforcement, and maintain internal policies and systems to monitor sales listing to affirmatively prevent and detect organized retail crime.

COMMENTS

In 2022, the Legislature passed SB 301 (Skinner), Chapter 857, Statutes of 2022, which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult to profit from retail theft and, hopefully, disincentivizing such thefts.

Among other things, this bill expands the scope of the current law by requiring all high-volume sellers and all marketplaces to comply with the registration requirements, regardless of whether the payment for the items are made through the marketplace. Closing this loophole would now require marketplaces like Facebook and NextDoor to monitor the activity of high-volume sellers on their platforms.

According to the Author

In 2022, I introduced SB 301 to address the increasing use of online marketplaces as the mechanism to resell stolen goods. Regulations under SB 301 required online marketplaces to ensure that high volume third party sellers on their platforms were operating legally. While SB 301 made great strides in combating the sale of stolen goods on online marketplaces, there is still more work to be done. This bill strengthens SB 301 by auditing additional regulations on those high volume third party sellers that use online marketplaces to advertise goods, but then collect the money from buyers in "offline" transactions — transactions that make it much more difficult to track whether the goods sold were stolen.

Arguments in Support

Writing in support of the bill, the California Retailers Association notes:

Organized retail crime is a complex, multi-faceted problem and combatting it requires a comprehensive approach. The threat of organized retail crime extends beyond the storefronts—it undermines the trust and safety of the online marketplace. Building on the foundation of SB 301 (Skinner), SB 1144 enhances accountability and transparency within online marketplaces. This legislation brings critical updates to the criteria for high-volume third-party sellers and improves the measures required for online marketplaces to prevent the trafficking of stolen goods.

Arguments in Opposition

OfferUp [an online classified marketplace], writes in strong opposition to the bill:

SB 1144 broadens the definition of 'high-volume third-party sellers' from the INFORM Consumers Act to apply to any purchase made in connection with an online marketplace, regardless of whether that payment was processed by the online marketplace or through a third party. To be clear, the definitions in the INFORM Consumers Act are not unintended loopholes – they were carefully and thoughtfully negotiated between marketplaces, retailers, and legislators over the course of the two years that the Act was considered.

SB 1144 contradicts the preemptive federal INFORM Consumers Act by drastically broadening the scope of the INFORM Consumers Act and it would establish rules that make it almost impossible for local classifieds marketplaces, like OfferUp, to comply. OfferUp is an classifieds marketplace that connects buyers and sellers within the local community to make peer-to-peer transactions possible, which ultimately means that OfferUp is not always privy to when users meet up, how much they sell an item for, or whether they completed a transaction at all. Therefore, every user on the platform will potentially need to be considered a 'high-volume third-party seller' for OfferUp to ensure compliance. The requirements of the INFORM Consumers Act were written to apply to businesses and other large volume sellers - not to individuals. However, because in-person platforms like OfferUp cannot know whether a transaction actually occurred, we may be forced to collect information on EVERY seller. The practical effects of the removal of “and for which payment was processed by the online marketplace or through a third party” is that OfferUp and other classifieds marketplaces will be required to collect sensitive personal information (including social security numbers, bank account numbers, driver’s licenses, and tax forms) from every Californian that wants to sell an item on an online marketplace, or ultimately the online marketplace will be unable to operate in your state.

FISCAL COMMENTS

Costs (Trial Court Trust Fund, General Fund) of an unknown but potentially significant amount to the courts to adjudicate additional actions filed as a result of this bill. Under existing law, only the Attorney General may file a civil enforcement action against an online marketplace for a violation of statutory requirements. This bill authorizes additional public prosecutors to bring such civil enforcement actions, likely increasing the number of actions that will be filed statewide. It generally costs approximately $1,000 to operate a courtroom for one hour. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a need for increased funding for courts from the General Fund.

The Governor's 2024-25 budget proposes $83.1 million ongoing from the General Fund to backfill declining revenue to the Trial Court Trust Fund. According to the Legislative Analyst's Office, the General Fund faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

VOTES

SENATE FLOOR: 33-1-6

YES: Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener

NO: Dahle

ABS, ABST OR NV: Allen, Grove, Jones, Nguyen, Seyarto, Wilk

ASM PRIVACY AND CONSUMER PROTECTION: 11-0-0

YES: Bauer-Kahan, Joe Patterson, Bryan, Dixon, Hoover, Irwin, Lowenthal, Ortega, Ward, Wicks, Wilson

ASM JUDICIARY: 11-0-1

YES: Kalra, Dixon, Bauer-Kahan, Bryan, Connolly, Haney, Maienschein, McKinnor, Pacheco, Joe Patterson, Reyes

ABS, ABST OR NV: Sanchez

ASM APPROPRIATIONS: 10-4-1

YES: Wicks, Arambula, Bryan, Calderon, Berman, Mike Fong, Haney, Hart, Pellerin, Aguiar-Curry

NO: Sanchez, Dixon, Jim Patterson, Ta

ABS, ABST OR NV: Grayson

UPDATED

VERSION: July 1, 2024

CONSULTANT: Julie Salley / P. & C.P. / (916) 319-2200 FN: 0003712

SENATE THIRD READING

STR Bill Id:SB 1144

Author:(Skinner)

As Amended Ver:June 20, 2024

2/3 vote. Urgency

SUMMARY

Expands existing provisions requiring online marketplaces to collect certain information from high-volume third-party sellers and extends the authority to enforce these provisions to the district attorney in any county, a city attorney in any city, or a county counsel in any county.

Major Provisions

1. Modifies the definition of "high-volume third-party seller" in existing law to mean a third-party seller on an online marketplace who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more transactions using the online marketplace for the sale of consumer products to buyers located in California resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues.
2. Modifies the definition of "online marketplace" to mean a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product in this state.
3. Permits a district attorney in any county, a city attorney in any city, or a county counsel in any county to bring a civil action for a violation, on or after July 1, 2025.
4. Requires an online marketplace, on or after July 1, 2025, to alert law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, unless the online marketplace has received a notice from the law enforcement agency that a third-party seller is selling or attempting to sell stolen goods to a California resident.
5. Requires an online marketplace to establish and publically post a policy prohibiting the sale of stolen goods on the online marketplace, provide a mechanism that allows any individual to notify the online marketplace that a seller is selling stolen goods, provide a mechanism that allows the online marketplace to communicate with law enforcement, and maintain internal policies and systems to monitor sales listing to affirmatively prevent and detect organized retail crime.
6. States that if the proposed initiative measure titled "The Homelessness, Drug Addiction, and Theft Reduction Act" (Initiative 23-0017A1) is approved by the voters at the statewide general election on November 5, 2024, this provisions in the bill shall become inoperative on the fifth day after the Secretary of State files the statement of the vote for the election, and shall be repealed on January 1, 2025.
7. States that this act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect.

COMMENTS

In 2022, the Legislature passed SB 301 (Skinner), Chapter 857, Statutes of 2022, which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult to profit from retail theft and, hopefully, disincentivizing such thefts.

Among other things, this bill expands the scope of the current law by requiring all high-volume sellers and all marketplaces to comply with the registration requirements, regardless of whether the payment for the items are made through the marketplace. Closing this loophole would now require marketplaces like Facebook and NextDoor to monitor the activity of high-volume sellers on their platforms.

According to the Author

In 2022, I introduced SB 301 to address the increasing use of online marketplaces as the mechanism to resell stolen goods. Regulations under SB 301 required online marketplaces to ensure that high volume third party sellers on their platforms were operating legally. While SB 301 made great strides in combating the sale of stolen goods on online marketplaces, there is still more work to be done. This bill strengthens SB 301 by auditing additional regulations on those high volume third party sellers that use online marketplaces to advertise goods, but then collect the money from buyers in "offline" transactions — transactions that make it much more difficult to track whether the goods sold were stolen.

Arguments in Support

Writing in support of the bill, the California Retailers Association notes:

Organized retail crime is a complex, multi-faceted problem and combatting it requires a comprehensive approach. The threat of organized retail crime extends beyond the storefronts—it undermines the trust and safety of the online marketplace. Building on the foundation of SB 301 (Skinner), SB 1144 enhances accountability and transparency within online marketplaces. This legislation brings critical updates to the criteria for high-volume third-party sellers and improves the measures required for online marketplaces to prevent the trafficking of stolen goods.

Arguments in Opposition

OfferUp [an online classified marketplace], writes in strong opposition to the bill:

SB 1144 broadens the definition of 'high-volume third-party sellers' from the INFORM Consumers Act to apply to any purchase made in connection with an online marketplace, regardless of whether that payment was processed by the online marketplace or through a third party. To be clear, the definitions in the INFORM Consumers Act are not unintended loopholes – they were carefully and thoughtfully negotiated between marketplaces, retailers, and legislators over the course of the two years that the Act was considered.

SB 1144 contradicts the preemptive federal INFORM Consumers Act by drastically broadening the scope of the INFORM Consumers Act and it would establish rules that make it almost impossible for local classifieds marketplaces, like OfferUp, to comply. OfferUp is an classifieds marketplace that connects buyers and sellers within the local community to make peer-to-peer transactions possible, which ultimately means that OfferUp is not always privy to when users meet up, how much they sell an item for, or whether they completed a transaction at all. Therefore, every user on the platform will potentially need to be considered a 'high-volume third-party seller' for OfferUp to ensure compliance. The requirements of the INFORM Consumers Act were written to apply to businesses and other large volume sellers - not to individuals. However, because in-person platforms like OfferUp cannot know whether a transaction actually occurred, we may be forced to collect information on EVERY seller. The practical effects of the removal of “and for which payment was processed by the online marketplace or through a third party” is that OfferUp and other classifieds marketplaces will be required to collect sensitive personal information (including social security numbers, bank account numbers, driver’s licenses, and tax forms) from every Californian that wants to sell an item on an online marketplace, or ultimately the online marketplace will be unable to operate in your state.

FISCAL COMMENTS

Costs (Trial Court Trust Fund, General Fund) of an unknown but potentially significant amount to the courts to adjudicate additional actions filed as a result of this bill. Under existing law, only the Attorney General may file a civil enforcement action against an online marketplace for a violation of statutory requirements. This bill authorizes additional public prosecutors to bring such civil enforcement actions, likely increasing the number of actions that will be filed statewide. It generally costs approximately $1,000 to operate a courtroom for one hour. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a need for increased funding for courts from the General Fund.

The Governor's 2024-25 budget proposes $83.1 million ongoing from the General Fund to backfill declining revenue to the Trial Court Trust Fund. According to the Legislative Analyst's Office, the General Fund faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

VOTES

SENATE FLOOR: 33-1-6

YES: Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dodd, Durazo, Eggman, Glazer, Gonzalez, Hurtado, Laird, Limón, McGuire, Menjivar, Min, Newman, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Skinner, Smallwood‑Cuevas, Stern, Umberg, Wahab, Wiener

NO: Dahle

ABS, ABST OR NV: Allen, Grove, Jones, Nguyen, Seyarto, Wilk

ASM PRIVACY AND CONSUMER PROTECTION: 11-0-0

YES: Bauer-Kahan, Joe Patterson, Bryan, Dixon, Hoover, Irwin, Lowenthal, Ortega, Ward, Wicks, Wilson

ASM JUDICIARY: 11-0-1

YES: Kalra, Dixon, Bauer-Kahan, Bryan, Connolly, Haney, Maienschein, McKinnor, Pacheco, Joe Patterson, Reyes

ABS, ABST OR NV: Sanchez

ASM APPROPRIATIONS: 10-4-1

YES: Wicks, Arambula, Bryan, Calderon, Berman, Mike Fong, Haney, Hart, Pellerin, Aguiar‑Curry

NO: Sanchez, Dixon, Jim Patterson, Ta

ABS, ABST OR NV: Grayson

UPDATED

VERSION: June 20, 2024

CONSULTANT: Julie Salley / P. & C.P. / (916) 319-2200 FN: 0003588

Date of Hearing: June 19, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

SBPCA Bill Id:SB 1144

Author:(Skinner) – As Amended Ver:June 5, 2024

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill expands definitions in existing law to require online marketplaces to collect additional information about high-volume third-party sellers, requires online marketplaces to report to law enforcement specified information about suspected sale of stolen property on the marketplace, and grants authority to district attorneys, city attorneys, and county counsel to bring civil actions to enforce violations.

Specifically, this bill:

1. Modifies the definition of “high-volume third-party seller” in existing law to mean a third-party seller on an online marketplace who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more transactions using the online marketplace for the sale of consumer products to buyers located in California resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues.
2. Deletes a provision of existing law providing that the number of discrete transactions includes only transactions made through the online marketplace for which payment is processed by the online marketplace, allowing in-person or otherwise offsite sales to be counted to determine whether a seller is a high-volume seller.
3. Modifies the definition of “online marketplace” to mean a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product in this state.
4. Permits a district attorney in any county, a city attorney in any city, or a county counsel in any county to bring a civil action for a violation.
5. Requires an online marketplace to alert law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, unless the online marketplace has received a notice from the law enforcement agency that a third-party seller is selling or attempting to sell stolen goods to a California resident.
6. Requires an online marketplace to establish and publically post a policy prohibiting the sale of stolen goods on the online marketplace, provide a mechanism that allows any individual to notify the online marketplace that a seller is selling stolen goods, provide a mechanism that allows the online marketplace to communicate with law enforcement, and maintain internal policies and systems to monitor sales listing to affirmatively prevent and detect organized retail crime.

FISCAL EFFECT:

Costs (Trial Court Trust Fund, General Fund) of an unknown but potentially significant amount to the courts to adjudicate additional actions filed as a result of this bill. Under existing law, only the Attorney General may file a civil enforcement action against an online marketplace for a violation of statutory requirements. This bill authorizes additional public prosecutors to bring such civil enforcement actions, likely increasing the number of actions that will be filed statewide. It generally costs approximately $1,000 to operate a courtroom for one hour. Although courts are not funded on the basis of workload, increased pressure on the Trial Court Trust Fund may create a need for increased funding for courts from the General Fund.

The Governor’s 2024-25 budget proposes $83.1 million ongoing from the General Fund to backfill declining revenue to the Trial Court Trust Fund. According to the Legislative Analyst’s Office, the General Fund faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

COMMENTS:

1. Purpose. This bill is sponsored by the Prosecutor’s Alliance. According to the author:

In 2022, I introduced SB 301 to address the increasing use of online marketplaces as the mechanism to resell stolen goods. Regulations under SB 301 required online marketplaces to ensure that high volume third party sellers on their platforms were operating legally. While SB 301 made great strides in combating the sale of stolen goods on online marketplaces, there is still more work to be done. This bill strengthens SB 301 by auditing additional regulations on those high volume third party sellers that use online marketplaces to advertise goods, but then collect the money from buyers in “offline” transactions — transactions that make it much more difficult to track whether the goods sold were stolen.

1. Background. In 2022, the Legislature passed SB 301 (Skinner), Chapter 857, Statutes of 2022, which requires online marketplaces to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. An online marketplace is a platform that enables a third-party seller to sell goods directly to consumers. SB 301, which was modeled after a very similar federal law, intended to make it more difficult to sell stolen goods on online marketplaces. The law requires online marketplaces to collect specified tax, payment, and contact information from qualified high-volume third-party sellers. Violations of the law are enforceable by the Attorney General through civil enforcement actions.

This bill builds on SB 301 by expanding the scope of sellers that an online marketplace must treat as high-volume third-party sellers and requiring online marketplaces to take additional affirmative steps to gather and act on information about potentially stolen goods offered for sale on the marketplace. The bill also authorizes additional public prosecutors to file civil enforcement actions against online marketplaces that violate these requirements.

1. Proposed Amendments. This bill has been proposed to be amended to contain an urgency clause, allowing the bill’s provisions to take effect immediately upon approval of the Governor. Amendments have also been proposed to add an inoperability clause stating that its provisions will become inoperative if the proposed initiative measure titled “The Homelessness, Drug Addiction, and Theft Reduction Act” (Initiative 23-0017A1) is approved by the voters at the statewide general election on November 5, 2024.

Additionally, when the bill was in the Assembly Committee on Judiciary and the Assembly Committee on Privacy and Consumer Protection, the author and those committees agreed to amendments to: (1) delay the implementation of civil liability enforcement; (2) specify that a city attorney in any city or city and county has civil enforcement authority; and (3) delay implementation of the provision that requires an online marketplace to alert law enforcement agencies of specified third-party seller actions. These changes have also been proposed to be amended into the bill in this committee.

Analysis Prepared by: Annika Carlson / APPR. / (916) 319-2081

Date of Hearing: June 11, 2024

ASSEMBLY COMMITTEE ON PRIVACY AND CONSUMER PROTECTION

Rebecca Bauer-Kahan, Chair

SBPCA Bill Id:SB 1144

Author:(Skinner) – As Amended Ver:June 5, 2024

SENATE VOTE: 33-1

SUBJECT: Marketplaces: online marketplaces

SYNOPSIS

In 2022, the Legislature passed SB 301 (Skinner, Stats. 857, Ch. 2022), which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult to profit from retail theft and, hopefully, disincentivizing such thefts. This bill expands the scope of current law in the following ways:

1. It requires all high-volume sellers and all marketplaces to comply with the registration requirements, regardless of whether or not the payment for the items are made through the marketplace. Closing this loophole would now require marketplaces like Facebook and NextDoor to monitor the activity of high-volume sellers on their platforms.
2. It expands the scope of public attorneys who can enforce the requirements related to high-volume online sellers. Currently, only the state Attorney General has the authority to bring an action against a high-volume seller or a marketplace. Under this bill, district attorneys, city attorneys and county counsel would be authorized to take action against people suspected of selling stolen merchandise.

This bill is scheduled to be heard in the Judiciary Committee on the same day as this Committee’s hearing. If it passes that Committee in the morning, it will be heard by this Committee in the afternoon. The bill is sponsored by the Prosecutors Alliance and supported by a number of organizations. The Computer & Communications Industry Association, Offer Up, Inc. and Technet are opposed.

SUMMARY: Expands existing provisions requiring online marketplaces to collect certain information from high-volume third-party sellers and extends the authority to enforce these provisions to the district attorney in any county, a city attorney in any city, or a county counsel in any county. Specifically, this bill:

1. Expands the definition of “high-volume third party seller” by deleting the requirement that the number of transactions required to be a high-volume seller only count transactions that are made through the online marketplace for which the payment is processed directly by the marketplace or through the marketplace’s payment processor.
2. Expands the definition of “online marketplace” by removing language that limits the definition by requiring that the platform must have a contractual relationship with consumers governing their use of the platform and that a third party seller uses features on the platform that allow the seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product.
3. Expands enforcement authority to include any district attorney, city attorney or county counsel.
4. Requires an online marketplace to alert appropriate law enforcement agencies if it knows or should know that a third party seller is selling stolen goods unless the marketplace has already been alerted by a law enforcement agency.
5. Requires the marketplace to provide a mechanism that allows the marketplace and law enforcement agencies to communicate in a timely and confidential manner.
6. Requires the marketplace to maintain internal written policies, systems, and staff to monitor listings in order to prevent and detect organized retail crime.

EXISTING LAW:

1. Establishes requirements for online marketplaces that facilitate sales transactions between third-party sellers and consumers, and on certain third-party sellers on those online marketplaces, as set forth below. (Civ. Code §§ 1749.8–1749.8.5.)
2. Defines the following terms:
   1. “Consumer product” is tangible personal property that is distributed in commerce and normally used for personal, family, or household purposes, including property intended to be attached to or installed in real property regardless of whether it is actually installed or attached.
   2. “High-volume third-party seller” is a third-party seller who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete transactions through an online marketplace for the sale of new or unused consumer products to buyers located in California, resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues. For purposes of this definition, only transactions for which payment is processed by the online marketplace directly or through its payment processor are counted.
   3. “Online marketplace” is a consumer-directed, electronically accessed platform for which all of the following are true:
      1. The platform 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 state, and these features are used by third-party sellers.
      2. The platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.
   4. “Third-party seller” is a person or entity, independent of an online marketplace, who sells, offers to sell, or contracts with an online marketplace to sell a consumer product in the state by or through an online marketplace.
   5. “Verify” is to confirm that information provided to an online marketplace pursuant to the requirements below is accurate. Methods of confirmation include the use of one or more methods that enable the online marketplace to reliably determine that the information and documents are valid, correspond to the seller or an individual acting on the seller’s behalf, are not misappropriated, and are not falsified. (Civ. Code, § 1749.8.)
3. Requires an online marketplace to require each high-volume third-party seller on the online marketplace to provide, not 10 days later after qualifying as a high-volume third-party seller, all of the following information to the online marketplace:
   1. A bank account number or, if the high-volume third-party seller does not have a bank account, the name of the payee for payments issued by the online marketplace to the seller.
   2. The high-volume third-party seller’s name, if they are an individual; if they are not an individual, a copy of a valid government-issued identification of an individual who has legal authority to act on behalf of the high-volume third-party seller, or a government document that includes the business name and address of the high-volume third-party seller.
   3. A business or tax identification number for the business or taxpayer.
   4. A valid email address and telephone number for the high-volume third-party seller. (Civ. Code, § 1749.8.1(a).)
4. Requires an online marketplace to verify the information provided under 3) within 10 days and, on an annual basis, notify each high-volume third-party seller of the requirement to update any information within 10 days of the notification and certify that the information provided is accurate. If the high-volume third-party seller does not provide the information or certification as required, the online marketplace shall, after providing notice and opportunity to provide the information or certification, suspend any future sales activity until the information or certification is provided. (Civ. Code, § 1749.8.1(b), (c).)
5. Requires an online marketplace to require a high-volume third-party seller with at least $20,000 of gross annual revenues from transactions with buyers in California through the online marketplace in either of the prior two calendar years to provide, in addition to the information required in 3), the following to the online marketplace and disclose it to consumers in a clear and conspicuous manner, as specified:
   1. The full name of the high-volume third party seller, as specified.
   2. The high-volume third-party seller’s physical address and contact information for the high-volume third-party seller, including a current working telephone, email address, or other means of direct electronic messaging, to allow users to have direct and unhindered communication with the seller. In the event that a seller certifies that they do not have a physical address or telephone number other than their residential address or personal number, the online marketplace shall direct consumers to use other methods of contact, as specified.
   3. Whether or not another party is responsible for supplying the product to the consumer upon purchase; and upon request from an authenticated purchaser, the high-volume third-party seller shall provide contact information for the party who is responsible for supplying the product. (Civ. Code, § 1749.8.2(a).)
6. Requires an online marketplace to disclose to consumers, in a clear or conspicuous manner on the product listing of a high-volume third-party seller, a reporting mechanism that allows for electronic and telephonic reporting of suspicious activity by the high-volume third-party seller to the online marketplace. (Civ. Code, § 1749.8.2.(b).)
7. Provides for the suspension of a high-volume third-party seller by an online marketplace, as follows:
   1. The online marketplace must suspend the high-volume third-party seller if the high-volume third-party seller is not in compliance with the requirements of 4), made a false representation to the online marketplace about its lack of a business address or phone number, or made a false representation to a consumer.
   2. The online marketplace may suspend the high-volume third-party seller if the high-volume third-party seller has not answered consumer inquiries within a reasonable time.
   3. Before suspending a high-volume third-party seller, the online marketplace must provide notice and an opportunity to comply, as specified; if the high-volume third-party seller comes into compliance following the suspension, the online marketplace shall restore the seller, as specified. (Civ. Code, § 1749.8.2(c).)
8. Requires an online marketplace to retain the information provided to comply with 3)-7) for no fewer than two years, using reasonable security procedures and practices to protect the information, as specified. (Civ. Code, § 1749.8.3.)
9. Provides that a person or entity who violates any provision of 3)-8) shall be liable for a civil penalty of up to $10,000 for each violation, which may be assessed and recovered only in a civil action brought in the name of the people of the State of California by the Attorney General. If the Attorney General prevails in such an action, it may recover reasonable attorney fees and costs and preventive relief, including a permanent or temporary injunction against any person responsible for the conduct. (Civ. Code, § 1749.8.4.)
10. Provides that 3)-9) do not apply to or affect the liability of an entity, including an entity that meets the definition of a high-volume third-party seller, for damages caused by a conumer product that is sold online. (Civ. Code, § 1749.8.5(a).)
11. Provides that 1)-10) became operative on July 1, 2023. (Civ. Code, § 1749.5(b).)
12. Establishes the INFORM Consumers Act, which imposes largely the same obligations on online marketplaces and high-volume third-party sellers as the state law set forth above. (15 U.S.C. § 45f.)
13. Authorizes the Federal Trade Commission (FTC), State Attorneys General, or other state officers authorized by state law to investigate and prosecute violations of the INFORM Consumers Act; however, a state officer may not bring a separate action for a violation while an action brought by the FTC is pending. (15 U.S.C. 45f(c) & (d).)
14. Provides that no state or political subdivision of a state, or territory of the United States, may establish or continue in effect any law, regulation, rule, requirement, or standard that conflicts with the requirements of the INFORM Consumers Act. (15 U.S.C. § 15f(g).)

FISCAL EFFECT: As currently in print, this bill is keyed fiscal.

COMMENTS:

1) Background. According to the California Department of Justice’s Open Justice database, reports of shoplifting (one aspect of retail theft) increased significantly between 2021 and 2022, but, as shown in the table below, it remained significantly lower than the years prior to the COVID19 pandemic.

In 2022, the National Retail Federation (NRF) claimed that “nearly half” of the shopping industry’s $94.5 billion in losses due to “shrink” in 2021 were caused by “organized retail theft.”^[1] This claim was reported widely and cited in connection with stories about retail theft incidents. Store owners said that the prevalence of retail theft led them to raise prices.^[2] Large companies like Walmart, Home Depot, and CVS agreed that the rate of retail theft was increasing.^[3] Media outlets carried regular stories about the huge numbers of people who were walking into stores and walking out with armloads of merchandise. Retailers large and small were ringing alarm bells about increases in retail theft. In May of 2023, CNN reported that Target was bracing to lose half a billion dollars because of rising theft. Nordstrom, Whole Foods and some other big chains said they were abandoning San Francisco because of changing economic conditions or employee safety. Many other retailers have blamed crime for closing stores.^[4] Despite the panicked reports about increases in shoplifting, the data did not bear that out, particularly in San Francisco.^[5]

In 2023, the NRF walked back its claim about the epidemic of organized theft because they lacked evidence to support it.^[6] According to the Senate Judiciary Committee analysis of this bill:

There are increasing questions about whether the scope of retail theft is as high as the NRF and other sources claim.^[7] Accepting the NRF’s claim that retailers lost $112 billion to shrink in 2022, the rate of retail theft as a percentage of overall sales is the same as it was in 2020 and 2019.^[8] More fundamentally, however, there is a debate over whether the data on retail theft are reliable at all.^[9] Reported numbers can vary wildly; for example, one study showed that monthly shoplifting incidents in Los Angeles were between 200-300 per month in the latter half of 2022, while another reported 500-700 monthly shoplifting incidents in the same time frame.^[10] There is also a debate over whether retailers are under-reporting retail theft—making it difficult to track stolen products—or actually reporting more incidents of retail theft than in the past—giving rise to the appearance of higher retail theft rates.^[11]

In the last few months, retailers have been more neutral about the threat of retail theft.^[12] According to retailers, the reduced threat is due to some changed behavior on their part—such as cutting back on self-checkout and locking up certain merchandise—as well as state and federal legislation targeted at retail theft.^[13]

2) The INFORM Consumers Act. At the end of 2021, Congress passed the INFORM Consumers Act as part of the Consolidated Appropriations Act of 2023. The INFORM Consumers Act is nearly identical to SB 301, except that it applies to the United States as a whole and gives the Federal Trade Commission (FTC) first crack at enforcement. State Attorneys General are also entitled to bring INFORM Consumers Act suits, but they may not commence such an action while an FTC action is pending, and the FTC may intervene in a pending state suit. The INFORM Consumers Act further states that “[n]o State or political subdivision of a State, or territory of the United States, may establish or continue in effect any law, regulation, rule, requirement, or standard that conflicts with the requirements of this section.” The INFORM Consumers Act took effect on June 27, 2023. ^[14]

3) Attorney General’s Joint Statement of Principles. In June of 2023, Attorney General Rob Bonta and retailers and online marketplaces representing some of the largest share of retail and online business in the nation, signed an agreement committing to specific actions aimed at helping address the growing issue of organized retail crime. The signatories, including major brick and mortar retailers and online marketplaces, including Home Depot, eBay, and Amazon, agreed to cooperate to deter, detect, and prosecute retail theft in their stores and on their online marketplaces.

The businesses signing onto the agreement committed to the following:

• Retailers commit to filing police reports for all incidents determined to be related to Organized Retail Crime (ORC) with specific information relating to the theft—store location, suspect information, and details of the stolen items, including stock keeping unit (SKU) numbers and retail price.
• Retailers will maintain policies related to the retention of video of ORC-related incidents to aid in prosecution and keep internal rosters of individuals who can lay the foundation for the introduction of such video evidence during prosecution.
• Retailers will ensure loss prevention personnel are trained on gathering, reporting, and retaining the evidence listed above to aid in the prosecution of ORC-related incidents.
• Retailers will maintain records of ORC-related thefts in a case management system.
• Retailers will communicate with marketplaces to establish connections between ORC incidents and threat patterns across the retail ecosystem.
• Retailers will communicate with marketplaces to stay updated on trends in ORC.
• Retailers will collaborate to provide training to law enforcement on how to partner with retailers to identify, investigate, and resolve ORC investigations.
• Marketplaces will maintain staff responsible for addressing reports from law enforcement, retailers, and the public of ORC on their platforms.
• Marketplaces will maintain a dedicated webpage, online portal, or point of contact to ensure timely replies to law enforcement requests, including warrants, subpoenas, and other legal process.
• Marketplaces will maintain internal written policies, systems, and staff to monitor listings in order to affirmatively prevent and detect ORC.
• Marketplaces will maintain external policies defining marketplace rules and the consequences of violations.
• Marketplaces will maintain internal written policies that guide collaboration and information-sharing with retailers and other marketplaces, facilitated through a webpage, online portal, or dedicated point of contact, in order to collectively combat ORC.
• Marketplaces will communicate with retailers to stay updated on trends in ORC. Such communication should focus on sharing general intelligence gathered by retailers, online marketplaces, and law enforcement on how to detect and prevent common methods of ORC.
• Marketplaces will maintain internal polices relating to referring identified ORC to the appropriate law enforcement agency.^[15]

4) Author’s statement. According to the author:

In 2022, I introduced SB 301 to address the increasing use of online marketplaces as the mechanism to resell stolen goods. Regulations under SB 301 required inline marketplaces to ensure that high volume third party sellers on their platforms were operating legally. While SB 301 made great strides in combating the sale of stolen goods on online marketplaces, there is still more work to be done. This bill strengthens SB 301 by auditing additional regulations on those high volume third party sellers that use online marketplaces to advertise goods, but then collect the money from buyers in “offline” transactions — transactions that make it much more difficult to track whether the goods sold were stolen.

5) How this bill would work. In 2022, the Legislature passed SB 301 (Skinner, Stats. 857, Ch. 2022), which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult to profit from retail theft and, hopefully, disincentivizing such thefts. This bill expands the scope of current law in the following ways:

1. It requires all high-volume sellers and all marketplaces to comply with the registration requirements, regardless of whether or not the payment for the items are made through the marketplace. Closing this loophole would now require marketplaces like Facebook and NextDoor to monitor the activity of high-volume sellers on their platforms.

In practice, under this bill, platforms that currently do not track the amount of revenue that high-volume sellers are making from their merchandise would either have to assume that every seller on their marketplace is a high-volume seller or develop a method to determine whether or not a seller who has entered into 200 or more discrete transactions utilizing the marketplace. Once those sellers are identified, the marketplace will be required to collect, verify, and retain the following information:

• Bank account information.
• The name of the seller.
• A business tax identification number.
• An email address and telephone number.

In the event the marketplace determines that the high-volume seller has had $20,000 in gross annual sales in either of the prior two calendar years will also be required to collect, verify, and retain contact information and the physical address of the seller. Finally, the seller will be required to disclose whether or not another party is responsible for supplying the merchandise to the consumer and, if asked by the buyer, the contact information for the supplier.

1. It expands the scope of public attorneys who can enforce the requirements related to high-volume online sellers. Currently, only the state Attorney General has the authority to bring an action against a high-volume seller or a marketplace. Under this bill, district attorneys, city attorneys and county counsel would be authorized to take action against people suspected of selling stolen merchandise.

6) Related legislation. SB 301 (Skinner, Chapter 857, Statutes of 2022) requires online marketplaces to require qualified high-volume third-party sellers to provide specified tax, payment, and contact information to the platform and consumers, as specified.

AB 1700 (Maienschein, Chapter 855, Statutes of 2022), requires the DOJ to establish on its website a reporting location for a person to report stolen items located in online marketplaces and notify law enforcement of possible stolen goods.

ARGUMENTS IN SUPPORT: Writing in support of the bill, the California Retailers Association notes:

Organized retail crime is a complex, multi-faceted problem and combatting it requires a comprehensive approach. The threat of organized retail crime extends beyond the storefronts—it undermines the trust and safety of the online marketplace. Building on the foundation of SB 301 (Skinner), SB 1144 enhances accountability and transparency within online marketplaces. This legislation brings critical updates to the criteria for high-volume third-party sellers and improves the measures required for online marketplaces to prevent the trafficking of stolen goods.

ARGUMENTS IN OPPOSITION: OfferUp, [an online classified marketplace], writes in strong opposition to the bill:

SB 1144 broadens the definition of ‘high-volume third-party sellers’ from the INFORM Consumers Act to apply to any purchase made in connection with an online marketplace, regardless of whether that payment was processed by the online marketplace or through a third party. To be clear, the definitions in the INFORM Consumers Act are not unintended loopholes – they were carefully and thoughtfully negotiated between marketplaces, retailers, and legislators over the course of the two years that the Act was considered.

SB 1144 contradicts the preemptive federal INFORM Consumers Act by drastically broadening the scope of the INFORM Consumers Act and it would establish rules that make it almost impossible for local classifieds marketplaces, like OfferUp, to comply. OfferUp is an classifieds marketplace that connects buyers and sellers within the local community to make peer-to-peer transactions possible, which ultimately means that OfferUp is not always privy to when users meet up, how much they sell an item for, or whether they completed a transaction at all. Therefore, every user on the platform will potentially need to be considered a ‘high-volume third-party seller’ for OfferUp to ensure compliance. The requirements of the INFORM Consumers Act were written to apply to businesses and other large volume sellers - not to individuals. However, because in-person platforms like OfferUp cannot know whether a transaction actually occurred, we may be forced to collect information on EVERY seller. The practical effects of the removal of “and for which payment was processed by the online marketplace or through a third party” is that OfferUp and other classifieds marketplaces will be required to collect sensitive personal information (including social security numbers, bank account numbers, driver’s licenses, and tax forms) from every Californian that wants to sell an item on an online marketplace, or ultimately the online marketplace will be unable to operate in your state.

REGISTERED SUPPORT / OPPOSITION:

Support

Prosecutors Alliance (sponsor)

California District Attorneys Association
California Retailers Association
California State Association of Counties
City of Alameda
City of Norwalk
City of Rocklin
Friends Committee on Legislation of California
Home Depot; the
League of California Cities
Los Angeles County District Attorney's Office
San Diego County District Attorney's Office
Smart Justice California, a Project of Tides Advocacy
Stockton; City of
Target Corporation
Valley Industry and Commerce Association (VICA)

Opposition

Computer & Communications Industry Association
Offerup INC.
Technet-technology Network

Analysis Prepared by: Julie Salley / P. & C.P. / (916) 319-2200

1. Helmore, US retail group retracts claim that half of $94.5bn inventory loss was from theft (Dec. 11, 2023), The Guardian, https://www.theguardian.com/business/2023/dec/07/retail-theft-losses-inventory-nrf. All links in this analysis are current as of March 29, 2024. ↑

2. Stark, Are you spending more because of retail theft? Can California workers chase shoplifters?, Sacramento Bee (Nov. 9, 2023), available at https://www.sacbee.com/news/california/article281619043.html. ↑

3. Fonrogue, et al., America’s biggest companies say retail crime is an epidemic, but just how big is it?, CNBC (Mar. 18, 2023; updated Mar. 20, 2023), https://www.cnbc.com/2023/03/18/organized-retail-crime-debate.html. ↑

4. Parija Kavilanz, Why retail theft is soaring: inflation, the economy – and opportunity, CNN (May 23, 2023). https://www.cnn.com/2023/05/23/business/retail-crime-economy/index.html. ↑

5. Nicole Lewis, What the Panic Over Shoplifting Reveals About American Crime Policy, the Marshall Project (Feb. 27, 2023). https://www.themarshallproject.org/2023/02/27/shoplifting-retail-theft-lawmakers-response. ↑

6. E.g., Helmore, supra. ↑

7. E.g., Fonrogue, supra. ↑

8. Selyukh, Retailers Howled About Retail Theft Last Year. Why Not Now?, KQED (Mar. 12, 2024), https://www.kqed.org/news/11978954/retailers-howled-about-theft-last-year-why-not-now. ↑

9. Fonrouge, supra. ↑

10. Compare Lofstrom, Presentation, Crime Data on Retail Theft and Robberies in California (Dec. 19, 2023), p. 8, presented to the Assem. Select Com. on Retail Theft, hg. on Retail Crime: Community Impacts and Solutions (Dec. 19, 2023) (relying on Department of Justice data) https://www.assembly.ca.gov/committees/selectcommitteeonretailtheft, with id. at p. 9 (relying on Council on Criminal Justice, Shoplifting Trends: What You Need to Know (Nov. 2023), fig 2 (selected for Los Angeles), https://counciloncj.org/shoplifting-trends-what-you-need-to-know/). ↑

11. Compare, e.g., Selyukh, supra (some retailers are not reporting retail thefts to the police), with Council on Criminal Justice, Shoplifting Trends: What You Need to Know (Nov. 2023), supra (discussing data suggesting that retailers in some cities are reporting shoplifting at a greater rate). ↑

12. Sulyukh, supra. ↑

13. Ibid. ↑

14. See Pub. L. No. 117-328 (Dec. 29, 2022) 136 Stat. 4459, div. BB, § 301; 15 U.S.C. § 45f. ↑

15. Attorney General Rob Bonta, Joint Statement of Principles (June 20, 2023). https://oag.ca.gov/system/files/attachments/press-docs/Final%20ORC%20Mark-Up%5B2%5D.pdf ↑

Date of Hearing: June 11, 2024

ASSEMBLY COMMITTEE ON JUDICIARY

Ash Kalra, Chair

SBPCA Bill Id:SB 1144

Author:(Skinner) – As Amended Ver:June 5, 2024

SENATE VOTE: 33-1

SUBJECT: MARKETPLACES: ONLINE MARKETPLACES

KEY ISSUE: IN ORDER TO MORE EFFECTIVELY ADDRESS THE PROBLEM OF THE ONLINE SALE OF STOLEN GOODS BEING FACILITATED BY ONLINE MARKETPLACES, SHOULD THE STATE’S CURRENT ONLINE MARKETPLACE HIGH-VOLUME SALES REPORTING LAW BE REVISED IN SEVERAL WAYS?

SYNOPSIS

In 2022, the National Retail Federation (NRF) claimed that “nearly half” of the shopping industry’s $94.5 billion in losses due to “shrink” in 2021 were caused by “organized retail theft.” But in 2023, the NRF retracted its claim about organized theft because they lacked evidence to support it. There are increasing questions about whether the scope of retail theft is as high as the NRF and other sources have claimed. Regardless of the lack of definitive data about the scope of the retail theft problem in California, however, the issue continues to be the focus of media attention, legislative interest, and public concern.

This bill, sponsored by the Prosecutor’s Alliance of California, revises the state’s current online marketplace high-volume sales reporting law in several ways to make it more difficult for stolen goods to be sold online. Specifically, the bill proposes to: (1) close an “offline loophole;” (2) increase civil enforcement authority so that local prosecutors can enforce the law; (3) require online marketplaces to alert law enforcement if they know or should know that a seller is selling stolen goods; and (4) require online marketplaces to create policies and mechanisms related to the sale of stolen goods on their platforms in order to prevent, deter, and punish the online sale of stolen goods.

The bill is supported by a large number of retailers, law enforcement groups, legal justice advocates, and local governments. It is supported (if amended) by several organizations, and opposed by Offerup Inc., Technet, and the Computer & Communications Industry Association. The bill will be heard by the Committee on Privacy and Consumer Protection on the afternoon of the same day when the Committee is scheduled to hear it in the morning. Although several clarifying amendments ideally should be made to the bill in order to address issues raised in the analysis, given the compressed hearing schedule for the bill, the author has agreed to amend the bill at some point in the future (after the bill passes out of the Committee should it be approved by the Committee), if possible, to address these issues.

SUMMARY: In order to more effectively address the problem of the online sale of stolen goods being facilitated by online marketplaces, revises the state’s current online marketplace high-volume sales reporting law in several ways. Specifically, this bill:

1. States that the Legislature finds and declares that it is the intent of the Legislature to stop theft from retail stores and community theft by curtailing the sale of stolen property on online marketplaces.
2. Modifies the definition of “high-volume third-party seller” to mean a third-party seller on an online marketplace who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete transactions utilizing the online marketplace for the sale of new or unused consumer products to buyers located in California resulting in the accumulation of an aggregate total of five thousand dollars ($5,000) or more in gross revenues.
3. Deletes a provision of existing law providing that the number of discrete transactions, referenced in 2), includes only those transactions through the online marketplace for which payment is processed by the online marketplace directly or through its payment processor.
4. Modifies the definition of “online marketplace” to mean a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable a third-party seller to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product in this state.
   1. Eliminates a requirement that the features described in 4) are used by third-party sellers.
   2. Eliminates the requirement that the platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.
5. Permits a district attorney in any county, a city attorney in any city, or a county counsel in any county (in addition to the Attorney General) to commence a civil action for violations of the bill.
6. Requires an online marketplace to alert local, regional, or state law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, unless the online marketplace has received a notice from the law enforcement agency that a third-party seller is selling or attempting to sell stolen goods to a California resident.
7. Requires an online marketplace to do all of the following:
8. Establish and maintain a policy prohibiting the sale of stolen goods on the online marketplace, which shall include consequences for knowingly selling stolen goods on the online marketplace, including, but not limited to, suspension or termination of the seller’s account.
9. Provide a mechanism on the online marketplace that allows any individual to notify the online marketplace that a seller is or may be selling stolen goods.
10. Provide a mechanism on the online marketplace that allows the online marketplace and law enforcement to communicate in a timely and confidential manner, including a link to a dedicated web page, online portal, or point of contact and ensure timely replies to law enforcement requests, including warrants, subpoenas, and other legal processes.
11. Maintain internal written policies, systems, and staff to monitor listings in order to affirmatively prevent and detect organized retail crime.
12. The policy and mechanism required by this subdivision shall be publicly posted and readily accessible to users.

EXISTING LAW:

1. Defines the following terms:
   1. “Consumer product” is tangible personal property that is distributed in commerce and normally used for personal, family, or household purposes, including property intended to be attached to or installed in real property regardless of whether it is actually installed or attached.
   2. “High-volume third-party seller” is a third-party seller who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete transactions through an online marketplace for the sale of new or unused consumer products to buyers located in California, resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues; clarifies that for purposes of this definition, only transactions for which payment is processed by the online marketplace directly or through its payment processor are counted.
   3. “Online marketplace” is a consumer-directed, electronically accessed platform for which all of the following are true:
      1. The platform 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 state, and these features are used by third-party sellers.
      2. The platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.
   4. “Third-party seller” is a person or entity, independent of an online marketplace, who sells, offers to sell, or contracts with an online marketplace to sell a consumer product in the state by or through an online marketplace.
   5. “Verify” is to confirm that information provided to an online marketplace pursuant to the requirements below is accurate. Methods of confirmation include the use of one or more methods that enable the online marketplace to reliably determine that the information and documents are valid, correspond to the seller or an individual acting on the seller’s behalf, are not misappropriated, and are not falsified. (Civil Code Section 1749.8. All further statutory references are to this code, unless otherwise indicated.)
2. Requires an online marketplace to require each high-volume third-party seller on the online marketplace to provide, not 10 days later after qualifying as a high-volume third-party seller, all of the following information to the online marketplace:
   1. A bank account number or, if the high-volume third-party seller does not have a bank account, the name of the payee for payments issued by the online marketplace to the seller.
   2. The high-volume third party seller’s name, if they are an individual; if they are not an individual, a copy of a valid government-issued identification of an individual who has legal authority to act on behalf of the high-volume third-party seller, or a government document that includes the business name and address of the high-volume third-party seller.
   3. A business or tax identification number for the business or taxpayer.
   4. A valid email address and telephone number for the high-volume third-party seller. (Section 1749.8.1 (a).)
3. Requires an online marketplace to verify the information provided under 2) within 10 days and, on an annual basis, notify each high-volume third-party seller of the requirement to update any information within 10 days of the notification and certify that the information provided is accurate. If the high-volume third-party seller does not provide the information or certification as required, the online marketplace shall, after providing notice and opportunity to provide the information or certification, suspend any future sales activity until the information or certification is provided. (Section 1749.8.1 (b), (c).)
4. Requires an online marketplace to require a high-volume third-party seller with at least $20,000 of gross annual revenues from transactions with buyers in California through the online marketplace in either of the prior two calendar years to provide, in addition to the information required in 2), the following to the online marketplace and disclose it to consumers in a clear and conspicuous manner, as specified:
   1. The full name of the high-volume third party seller, as specified.
   2. The high-volume third-party seller’s physical address and contact information for the high-volume third-party seller, including a current working telephone, email address, or other means of direct electronic messaging, to allow users to have direct and unhindered communication with the seller. In the event that a seller certifies that they do not have a physical address or telephone number other than their residential address or personal number, the online marketplace shall direct consumers to use other methods of contact, as specified.
   3. Whether or not another party is responsible for supplying the product to the consumer upon purchase; and upon request from an authenticated purchaser, the high-volume third-party seller shall provide contact information for the party who is responsible for supplying the product. (Section 1749.8.2 (a).)
5. Requires an online marketplace to disclose to consumers, in a clear or conspicuous manner on the product listing of a high-volume third-party seller, a reporting mechanism that allows for electronic and telephonic reporting of suspicious activity by the high-volume third-party seller to the online marketplace. (Section 1749.8.2 (b).)
6. Provides for the suspension of a high-volume third-party seller by an online marketplace, as follows:
   1. The online marketplace must suspend the high-volume third-party seller if the high-volume third-party seller is not in compliance with the requirements of 4), made a false representation to the online marketplace about its lack of a business address or phone number, or made a false representation to a consumer.
   2. The online marketplace may suspend the high-volume third-party seller if the high-volume third-party seller has not answered consumer inquiries within a reasonable time.
   3. Before suspending a high-volume third-party seller, the online marketplace must provide notice and an opportunity to comply, as specified; if the high-volume third-party seller comes into compliance following the suspension, the online marketplace shall restore the seller, as specified. (Section 1749.8.2 (c).)
7. Requires an online marketplace to retain the information provided to comply with the above requirements for no fewer than two years, using reasonable security procedures and practices to protect the information, as specified. (Section 1749.8.3.)
8. Provides that a person or entity who violates any of the above provisions shall be liable for a civil penalty of up to $10,000 for each violation, which may be assessed and recovered only in a civil action brought in the name of the people of the State of California by the Attorney General. If the Attorney General prevails in such an action, it may recover reasonable attorney fees and costs and preventive relief, including a permanent or temporary injunction against any person responsible for the conduct. (Section 1749.8.4.)
9. Provides that the above provisions do not apply to or affect the liability of an entity, including an entity that meets the definition of a high-volume third-party seller, for damages caused by a consumer product that is sold online. (Section 1749.8.5 (a).)
10. Establishes the INFORM Consumers Act, under federal law, which imposes largely the same obligations on online marketplaces and high-volume third-party sellers as the state law set forth above. (15 U.S.C. 45f.)
11. Authorizes the Federal Trade Commission (FTC), State Attorneys General, or other state officers authorized by state law to investigate and prosecute violations of the INFORM Consumers Act; however, a state officer may not bring a separate action for a violation while an action brought by the FTC is pending. (15 U.S.C. 45f (c), (d).)
12. Provides that no state or political subdivision of a state, or territory of the United States, may establish or continue in effect any law, regulation, rule, requirement, or standard that conflicts with the requirements of the INFORM Consumers Act. (15 U.S.C. 15f (g).)

FISCAL EFFECT: As currently in print this bill is keyed fiscal.

COMMENTS: This bill, sponsored by the Prosecutor’s Alliance of California, revises the state’s current online marketplace high-volume sales reporting law in several ways. The bill proposes to close an “offline loophole,” increase civil enforcement authority so that local prosecutors can enforce the law, require online marketplaces to alert law enforcement if they know or should know that a seller is selling stolen goods, and require online marketplaces to create policies and mechanisms related to the sale of stolen goods on their platforms in order to prevent, deter, and punish the online sale of stolen goods. In doing so, the bill would target the problem of organized retail theft in a proactive manner. According to the author:

In 2022, I introduced SB 301 to address the increasing use of online marketplaces as the mechanism to resell stolen goods. Regulations under SB 301 required inline marketplaces to ensure that high volume third party sellers on their platforms were operating legally. While SB 301 made great strides in combating the sale of stolen goods on online marketplaces, there is still more work to be done. This bill strengthens SB 301 by auditing additional regulations on those high volume third party sellers that use online marketplaces to advertise goods, but then collect the money from buyers in “offline” transactions — transactions that make it much more difficult to track whether the goods sold were stolen.

Background about the problem of retail theft in California. In 2022, the National Retail Federation (NRF) claimed that “nearly half” of the shopping industry’s $94.5 billion in losses due to “shrink” in 2021 were caused by “organized retail theft.” (Helmore, U.S. retail group retracts claim that half of $94.5bn inventory loss was from theft (Dec. 11, 2023), The Guardian, available at https://www.theguardian.com/business/2023/dec/07/retail-theft-losses-inventory-nrf.) This claim was reported widely and cited in connection with stories about retail theft incidents. Store owners said that the prevalence of retail theft led them to raise prices. (Stark, Are you spending more because of retail theft? Can California workers chase shoplifters?, Sacramento Bee (Nov. 9, 2023), available at https://www.sacbee.com/news/california/article281619043.html.) Large companies like Walmart, Home Depot, and CVS agreed that the rate of retail theft was increasing. (Fonrogue, et al., America’s biggest companies say retail crime is an epidemic, but just how big is it?, CNBC (Mar. 18, 2023; updated Mar. 20, 2023), available at https://www.cnbc.com/2023/03/18/organized-retail-crime-debate.html.)

But in 2023, the NRF retracted its claim about organized theft because they lacked evidence to support it. (America’s biggest companies say retail crime is an epidemic, but just how big is it? supra.) There are increasing questions about whether the scope of retail theft is as high as the NRF and other sources have claimed. (Ibid.) A PPIC study found that while misdemeanor crime (under $950) has remained below pre-pandemic levels, commercial burglary (over $950) has seen a 28.7% uptick since the pandemic. (Lofstrom and Martin, Retail Theft and Robbery Rates Have Risen across California, Public Policy Institute of California (Sept. 7, 2023) available at https://www.ppic.org/blog/retail-theft-and-robbery-rates-have-risen-across-california/.) Regardless of the lack of definitive data about the scope of the retail theft problem in California, however, the issue continues to be the focus of media attention, legislative interest, and public concern.

Informational hearings about organized retail theft. There have been a series of informational hearings related to organized retail theft. After more than 60 legislators, Democrats and Republicans, sent a letter to the Little Hoover Commission (Commission) in June of 2023 to request a study of the issue, commissioners set out to determine the scope and various responses of shoplifting and organized retail theft in California. (La, “Catch up on California politics and policy in 2023; What’s to blame for retail theft surge?, CalMatters (Dec. 15, ,2023), available at https://calmatters.org/newsletter/california-2023/#wm-story-1.) The Commission held informational hearings on November 16, 2023, December 14, 2023, and January 25, 2024 to discuss retail theft and Proposition 47. The Commission’s first briefing discussed Proposition 47 and its effectiveness in targeting repeat offenders from the perspective of law enforcement. The second briefing further discussed this topic by reaching out to Asset protection and California Retailers where they discussed retail inventory lost from theft or “shrinkage” due to the retail theft issues post-pandemic. Finally, the Commission’s last briefing discussed how initial reports from retailers were inaccurate, and that shrinkage is at lower rates than pre-pandemic, and that Prop. 47 has worked to target misdemeanor crime. (Ibid.)

In October of 2023, Speaker Rivas announced the formation of a new Select Committee on Retail Crime. The Select Committee is comprised of bipartisan members from across the state, including from areas most impacted by retail crime. (See https://a51.asmdc.org/sites/a51.asmdc.org/files/2023-11/Press-Release-Select-Committee-on-Retail-Crime.pdf.) The Select Committee’s first hearing was on December 19, 2023, and the second was held on February 9, 2024. In the aftermath of these hearings, seven bipartisan measures authored by Members of the Assembly were introduced to address the problem of organized retail theft. (See https://speaker.asmdc.org/press-releases/20240409-speaker-robert-rivas-assembly-lawmakers-announce-comprehensive-bipartisan.) The California Senate has its own set of legislative measures that are designed to address organized retail theft. The “Safer California Plan” consists of 15 bills: 10 bills that focus on evidence-based prevention and treatment solutions aimed at the fentanyl crisis and five bills that are directed at preventing, deterring, and prosecuting retail theft and community-based crimes. This bill is part of the Senate’s Safer California Plan. (See https://sd02.senate.ca.gov/news/bipartisan-safer-california-plan-bills-pass-senate-momentum-builds.)

Commitments of online retailers to detect and prevent the sale of stolen goods. In June of 2023, Attorney General Rob Bonta, retailers and online marketplaces representing some of the largest share of retail and online business in the nation, signed a first-of-its-kind agreement committing to specific actions aimed at helping address the growing issue of organized retail crime. The signatories, including major brick and mortar retailers and online marketplaces, including Home Depot, eBay, and Amazon, agreed to cooperate to deter, detect, and prosecute retail theft in their stores and on their online marketplaces. (Attorney General Rob Bonta Press Release (June 20, 2023, Attorney General Bonta, Retailers, Online Marketplaces Sign Collaborative Agreement to Better Combat Organized Retail Crime, available at https://oag.ca.gov/news/press-releases/attorney-general-bonta-retailers-online-marketplaces-sign-collaborative.) As part of the agreement, the retailers who facilitate the online sale of goods via online marketplaces (Marketplaces) agreed to do the following:

• Marketplaces will maintain staff responsible for addressing reports from law enforcement, retailers, and the public of organized retail crime (ORC) on their platforms.
• Maintain a dedicated webpage, online portal, or point of contact to ensure timely replies to law enforcement requests, including warrants, subpoenas, and other legal process.
• Maintain internal written policies, systems, and staff to monitor listings in order to affirmatively prevent and detect ORC.
• Maintain external policies defining marketplace rules and the consequences of violations. These policies should clearly prohibit the sale of stolen goods and violators should be penalized up to and including removal from future use of the marketplaces.
• Maintain internal written policies that guide collaboration and information-sharing with retailers and other marketplaces, facilitated through a webpage, online portal, or dedicated point of contact, in order to collectively combat ORC.
• Communicate with Retailers to stay updated on trends in ORC. Such communication should focus on sharing general intelligence gathered by retailers, online marketplaces, and law enforcement on how to detect and prevent common methods of ORC. This information should be shared through the establishment of regular industry meetings, either facilitated by Regional Organized Retail Crime Associations, by prosecutors and law enforcement, or independently.
• Maintain internal polices relating to referring identified ORC to the appropriate law enforcement agency. (Agreement available at https://oag.ca.gov/system/files/attachments/press-docs/Final%20ORC%20Mark-Up%5B2%5D.pdf.)

Regulation of high-volume sellers on online marketplaces. In 2022, the Legislature passed SB 301 (Skinner, Stats. 857, Ch. 2022), which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult for unscrupulous third-party sellers to profit from retail theft and, hopefully, reducing the market for the sale of stolen property, and therefore discouraging such theft to begin with. SB 301 took effect on July 1, 2023.

At the end of 2022, the United States Congress passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act—a.k.a. the INFORM Consumers Act—which imposes, on a nationwide basis, largely the same requirements as SB 301. The INFORM Consumers Act took effect a few days before SB 301. Since then, reports have been mixed about whether retail theft (and the online resale of stolen goods) is continuing to increase, is leveling out, or was overstated in the first place. It also is unclear whether SB 301 and the federal bill have had any effect on the problem. According to the author, however, both SB 301 and the INFORM Consumers Act have gaps or loopholes that allow certain large online platforms to avoid complying with those laws (and some high-volume third-party sellers to avoid detection and prosecution).

This bill seeks to revise the state’s current online marketplace high-volume sales reporting law in several ways to make it more difficult for stolen goods to be sold online. Specifically, the bill proposes to: (1) close an “offline loophole;” (2) increase civil enforcement authority so that local prosecutors can enforce the law; (3) require online marketplaces to alert law enforcement if they know or should know that a seller is selling stolen goods; and (4) require online marketplaces to create policies and mechanisms related to the sale of stolen goods on their platforms in order to prevent, deter, and punish the online sale of stolen goods.

(1) Closing the “offline loophole.” Offline transactions refer to transactions that are not completed through online platforms and may include person-to-person sales of goods that occur after a party offering goods for sale connects with a party wishing to purchase goods on an online platform. Payments can be made by means of phone applications, cash, or wire transfers. Some online marketplaces do not require transactions to be processed on the platform of the online marketplace and therefore are not subject to the verification process in current law, therefore circumventing the detection and prevention mechanisms that current law is intended to provide. According to the author, this “offline loophole” effectively allows these transactions to bypass security measures for high-volume third-party sellers in existing law, which only track transactions made on the platforms of online marketplaces. Because of this, the author asserts that sellers may be selling goods at rates that would qualify them for the “high volume third party seller” threshold, but are operating under the radar of the online marketplaces (and law enforcement). Without addressing this issue, the author argues, online marketplaces will be unable to effectively track the legitimacy of goods being sold on their platforms.

The bill addresses this issue by modifying the definition of “high-volume third party seller” so that all of the seller’s transactions utilizing the online marketplace are counted towards the 200-transaction floor, rather than only the transactions processed by the online marketplace directly or through its payment processor. Arguably this may encompass more transactions that occur on a person-to-person basis, such as the sale of goods between neighbors on online marketplaces such as Facebook Marketplace and Nextdoor. However, the bill (and existing law) specifies that the only transactions of “new or used consumer products” count towards the number of transactions conducted in a continuous 12-month period that qualify a seller as a “high-volume third-party seller.”

The bill also redefines “online marketplace” to eliminate the requirements that (1) the enumerated features made available to third-party sellers are used by third-party sellers, and (2) the platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

(2) Increasing civil enforcement authority so that local prosecutors can enforce the law. Currently, only the Department of Justice can charge the civil penalty of a high volume third party seller found to be selling stolen goods. This bill will expand prosecuting authority to the offices of local civil prosecutors: district attorneys, city attorneys, and city counsels. This expansion is critical to assist in charging a high volume third party seller, considering that local law enforcement have developed taskforces related to the online sale of stolen goods.

(3) Requiring online marketplaces to alert law enforcement if they know or should know that a seller is selling stolen goods. Existing law requires all high-volume third-party sellers, upon reaching a minimum threshold of goods being sold in a specific period of time (200 transactions amounting to at least $5000 worth of goods sold in any continuous 12-month period during the previous 24 months) to share the specified information with the marketplace, including their bank account number, name, business tax identification number and valid contact information.

The bill builds on these requirements by requiring an online marketplace to alert local, regional, or state law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, unless the online marketplace has received a notice from the law enforcement agency that a third-party seller is selling or attempting to sell stolen goods to a California resident. With the information about online sellers that online marketplaces are required to obtain under current law, law enforcement should have a significant head start on the investigation of organized online sale of stolen goods.

(4) Requiring online marketplaces to create policies and mechanism related to the sale of stolen goods on their platforms in order to prevent, deter, and punish the online sale of stolen goods.

While current law requires online marketplaces to take certain actions in relation to high-volume third-party sellers that have the goal of reducing the sale of stolen goods on their platforms, it does not require that online marketplaces have specific policies to achieve that goal. The bill requires an online marketplace to do all of the following:

• Establish and maintain a policy prohibiting the sale of stolen goods on the online marketplace, which shall include consequences for knowingly selling stolen goods on the online marketplace, including, but not limited to, suspension or termination of the seller’s account.
• Provide a mechanism on the online marketplace that allows any individual to notify the online marketplace that a seller is or may be selling stolen goods.
• Provide a mechanism on the online marketplace that allows the online marketplace and law enforcement to communicate in a timely and confidential manner, including a link to a dedicated web page, online portal, or point of contact and ensure timely replies to law enforcement requests, including warrants, subpoenas, and other legal processes.
• Maintain internal written policies, systems, and staff to monitor listings in order to affirmatively prevent and detect organized retail crime.
• The policy and mechanism required by this subdivision shall be publicly posted and readily accessible to users.

Taken together, these enhancements to existing law should help to address the problem of organized retail theft, specifically the sale of stolen goods on online marketplaces, in a proactive manner.

Federal preemption concerns? The Supremacy Clause provides that the laws of the United States take precedence over state laws. (U.S. Const., art. VI, cl. 2.) Federal law may preempt state laws regulating the same subject matter in several ways: by saying so in express language, or “[w]hen Congress intends federal law to ‘occupy the field,’ state law in that area is preempted.” (Crosby v. National Foreign Trade Council (2000) 530 U.S. 363, 372.) Further-more, “even if Congress has not occupied the field, state law is naturally preempted to the extent of any conflict with a federal statute.” (Ibid.) Such “conflict preemption” may arise “where it is impossible for a private party to comply with both state and federal law,” and “where under the circumstances of a particular case, the challenged state law stands as an obstacle to the full purposes and objectives of Congress.” (Id. at pp. 372-373.)

As discussed above, Congress passed the INFORM Consumers Act in 2022, which took effect in 2023. The INFORM Consumers Act regulates online marketplaces and high-volume third-party sellers under largely, but not entirely, the same terms as SB 301. The INFORM Consumers Act also states that no state may establish “any law, regulation, rule, requirement, or standard that conflicts with the requirements of” the INFORM Consumers Act.

As the Supreme Court has noted, the categories of preemption “are not ‘rigidly distinct’.” (Crosby, supra, p. 372, fn. 6.) The INFORM Consumers Act’s preemption clause appears to be a hybrid express/conflict statement of preemption. The clause is express insofar as it is written into the statute itself, but the clause does not explicitly prohibit state legislation to regulate online marketplaces and high-volume third-party sellers. Instead, the clause prohibits any conflicting state laws. Given that this prohibition already is baked into the Supremacy Clause, it is difficult to discern what, if any, additional meaning should be given to this provision. Committee staff has been unable to locate any court decision interpreting this particular preemption clause or this law that analyzes the preemption question. In any case, SB 301 remains in effect and has not been found by a court to be preempted by federal law. Therefore, the bill presumably also is not preempted by federal law. But naturally it could be challenged and a court could find that it conflicts with the INFORM Consumers Act and therefore—at least for purposes of any provisions found to be in conflict with the Act—is preempted by federal law.

Additional clarifying amendments requested by several stakeholders. In a joint letter dated April 2, 2024, the Toy Association, American Apparel & Footwear Association, TIC Council Americas, and Transnational Alliance to Combat Illicit Trade write that they “believe this bill is an excellent next step to follow the passage of the INFORM Act; however, SB 1144 has the opportunity to be even stronger by including illicit counterfeit items to protect consumers, businesses, and workers.” The letter concludes that, “the organizations below could support SB 1144 (Skinner) and respectfully request consideration of the increased protection for consumers that adding “counterfeits goods” would provide.” (Confusingly, the Toy Association submitted a separate letter, also dated April 2, 2024, saying that it is “pleased to support” the bill.)

While the bill does not explicitly mention counterfeit goods, it nevertheless should apply to such goods, just as existing law does, so long as the goods are “new or unused.” (See Section 1749.8 (b)(1).)

Additional minor clarifying amendments that should be made for the bill to be more clear and effective when it becomes law. The bill is not as clear as it could be regarding several important points.

1. First, the current wording of the bill, authorizing local public prosecutors to enforce the provisions of the bill appears to have inadvertently omitted San Francisco (which is both a city and a county), arguable preventing San Francisco’s city attorney from enforcing the changes to the law that are proposed by the bill.

Suggested amendment (beginning at Page 4, lines 3-4): “a district attorney in any county, a city attorney in any city or city and county, or a county counsel in any county.”

1. Second, the current wording of Civil Code 1749.8.9 (a) regarding the online marketplace’s obligation to notify law enforcement does not make it clear when the notice from law enforcement must have been received by the online marketplace (or whom and what the notice was about) in order to relieve the online marketplace of the obligation to report suspected activity that is occurring on its internet website to law enforcement. In fact, by using “a” rather than “the” the current language is not clear that the prior notice from law enforcement must have been about the same third-party seller. Would one prior notice in the past from law enforcement about one online seller relieve the online marketplace of all future compliance with the reporting requirement?

Suggested amendment (at Page 4, lines 19-25):

1749.8.9. (a) An online marketplace shall alert local, regional, or state law enforcement agencies in California if it knows or should know that a third-party seller is selling or attempting to sell stolen goods to a California resident, unless the online marketplace has received a notice from the law enforcement agency that a the same third-party seller is suspected of selling or attempting to sell the same stolen goods on the online marketplace to a California resident.

1. Finally, the current language of the bill does not appear to provide a reasonable ramp-up period prior to civil suits to be filed by local prosecutors in order to enforce the bill’s changes to existing law. However, in the meantime, the law should still be enforceable by the Attorney General.

Suggested amendment (beginning at Page 3, line 35) to read something like the following:

1749.8.4. (a) (1) A Prior to July 1, 2025, a person or entity who violates any provision of this title as it read prior to the effective date of [this bill] shall be liable for a civil penalty not to exceed ten thousand dollars ($10,000) for each violation, which may be assessed and recovered only in a civil action brought in the name of the people of the State of California by the Attorney General.

(2) A person or entity who violates any provision of this title on or after July 1, 2025 shall be liable for a civil penalty not to exceed ten thousand dollars ($10,000) for each violation, which may be assessed and recovered only in a civil action brought in the name of the people of the State of California by the Attorney General, a district attorney in any county, a city attorney in any city or city and county, or a county counsel in any county.

The bill will be heard by the Committee on Privacy and Consumer Protection on the afternoon of the same day when the Committee is scheduled to hear the bill in the morning. Although several clarifying amendments ideally should be made to the bill in order to address these issues, given the compressed hearing schedule for the bill, the author has agreed to amend the bill at some point in the future (after the bill passes out of the Committee if it is approved by the Committee), if possible.

ARGUMENTS IN SUPPORT: The Prosecutors Alliance of California, sponsor of the bill, writes that it “is proud to sponsor SB 1144 (Skinner), to curtail organized retail theft and to reduce online fencing of stolen good through careful regulation of online marketplaces. SB 1144 is a part of the Senate Leadership package to reduce retail and community theft.”

The Prosecutors Alliance of California (PAC) is a membership organization of more than 4,000 prosecutors, victim advocates and allies committed to reforming California's criminal justice system through smart, safe, and modern solutions that advance public safety, human dignity and community well-being.

SB 1144 will be a powerful crime prevention and investigatory tool, reducing the opportunity to resell stolen goods, and therefore discouraging those who would profit from breaking the law. For these reasons, PAC strongly supports and sponsors SB 1144.

ARGUMENTS IN OPPOSITION: OfferUp writes that it is strongly opposed to the bill for the following reasons, mostly related to the bill’s removal of the provision in current law that only the number of transactions that a third-party seller conducts online are considered in the determination of whether the seller qualifies as a “high-volume third-party seller”:

Ostensibly, this bill aims to minimize crime and fraud that occurs on online marketplaces by excluding the payment processing term from the INFORM Consumers Act, but the actual effect would contradict preemptive federal law and force local classifieds marketplaces, like OfferUp, to choose between (1) ceasing operations in California, (2) facing significant ambiguity in how to implement the requirements of the bill, or (3) collecting significant amounts of highly personal private information of millions of citizens of the state of California.

SB 1144 broadens the definition of ‘high-volume third-party sellers’ from the INFORM

Consumers Act to apply to any purchase made in connection with an online marketplace, regardless of whether that payment was processed by the online marketplace or through a third party.

. . .

OfferUp is an classifieds marketplace that connects buyers and sellers within the local community to make peer-to-peer transactions possible, which ultimately means that OfferUp is not always privy to when users meet up, how much they sell an item for, or whether they completed a transaction at all. Therefore, every user on the platform will potentially need to be considered a ‘high-volume third-party seller’ for OfferUp to ensure compliance. . . . However, because in-person platforms like OfferUp cannot know whether a transaction actually occurred, we may be forced to collect information on EVERY seller. The practical effects of the removal of “and for which payment was processed by the online marketplace or through a third party” is that OfferUp and other classifieds marketplaces will be required to collect sensitive personal information (including social security numbers, bank account numbers, driver’s licenses, and tax forms) from every Californian that wants to sell an item on an online marketplace, or ultimately the online marketplace will be unable to operate in your state.

REGISTERED SUPPORT / OPPOSITION:

Support

Prosecutors Alliance of California (sponsor)

California Business Properties Association

California District Attorneys Association

California Public Defenders Association

California Retailers Association

California State Association of Counties

Californians for Safety and Justice

Californians United for a Responsible Budget

City of Agoura Hills

City of Alameda

City of Artesia

City of Buena Park

City of Citrus Heights

City of Cypress

City of El Cerrito

City of Emeryville

City of Fontana

City of Fountain Valley

City of Fullerton

City of Grand Terrace

City of Hidden Hills

City of Jackson

City of La Mirada

City of Lakeport

City of Lakewood CA

City of Los Alamitos

City of Manteca

City of Mission Viejo

City of Norwalk

City of Oakdale

City of Oakland

City of Oakland, City Attorney's Office

City of Oakland Mayor Sheng Thao

City of Oakley

City of Paramount

City of Patterson

City of Port Hueneme

City of Rocklin

City of Rohnert Park

City of Rolling Hills Estates

City of Rosemead

City of San Luis Obispo

City of Stanton

Friends Committee on Legislation of California

League of California Cities

Los Angeles Area Chamber of Commerce

Los Angeles County District Attorney's Office

Los Angeles County Sheriff's Department

Mayor Todd Gloria, City of San Diego

Prosecutors Alliance Action

San Diego City Attorney's Office

San Diego County District Attorney's Office

San Francisco City Attorney’s Office

Smart Justice California, a Project of Tides Advocacy

Target Corporation

The Home Depot

Town of Apple Valley

Uncommon Law

United Food and Commercial Workers, Western States Council

Valley Industry and Commerce Association (VICA)

Vera Institute of Justice

Support (if amended)

American Apparel & Footwear Association

TIC Council Americas

The Toy Association

Transnational Alliance to Combat Illicit Trade

Opposition

Computer & Communications Industry Association
Offerup, Inc.
Technet

Analysis Prepared by: Alison Merrilees / JUD. / (916) 319-2334

 THIRD READING  

Bill No: SB 1144

Author: Skinner (D), et al.

Amended: 5/16/24

Vote: 21

SENATE JUDICIARY COMMITTEE: 10-1, 4/2/24

AYES: Umberg, Allen, Ashby, Caballero, Durazo, Laird, Min, Niello, Stern, Wahab

NOES: Wilk

SENATE PUBLIC SAFETY COMMITTEE: 4-0, 4/23/24

AYES: Wahab, Bradford, Skinner, Wiener

NO VOTE RECORDED: Seyarto

SENATE APPROPRIATIONS COMMITTEE: 5-2, 5/16/24

AYES: Caballero, Ashby, Becker, Bradford, Wahab

NOES: Jones, Seyarto

SUBJECT: Marketplaces: online marketplaces

SOURCE: Prosecutors Alliance of California

DIGEST:

This bill expands existing requirements for online marketplaces, as defined, to collect certain information from high-volume third-party sellers on those platforms, as defined, and permits a district attorney, city attorney, or county counsel to enforce the requirements.

ANALYSIS:

Existing federal law:

1. Establishes the INFORM Consumers Act, which imposes largely the same obligations on online marketplaces and high-volume third-party sellers as the state law set forth above. (15 U.S.C. § 45f.)
2. Provides that no state or political subdivision of a state, or territory of the United States, may establish or continue in effect any law, regulation, rule, requirement, or standard that conflicts with the requirements of the INFORM Consumers Act. (15 U.S.C. § 15f(g).)

Existing state law:

1. Establishes, within Title 1.d of Part 4 of Division 3 of the Civil Code (Title 1.4d), requirements for online marketplaces that facilitate sales transactions between third-party sellers and consumers, and on certain third-party sellers on those online marketplaces, as set forth below.
2. Defines the following terms:
   1. “Consumer product” is tangible personal property that is distributed in commerce and normally used for personal, family, or household purposes, including property intended to be attached to or installed in real property regardless of whether it is actually installed or attached.
   2. “High-volume third-party seller” is a third-party seller who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete transactions through an online marketplace for the sale of new or unused consumer products to buyers located in California, resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues. For purposes of this definition, only transactions for which payment is processed by the online marketplace directly or through its payment processor are counted.
   3. “Online marketplace” is a consumer-directed, electronically accessed platform for which all of the following are true:
      1. The platform 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 state, and these features are used by third-party sellers.
      2. The platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.
   4. “Third-party seller” is a person or entity, independent of an online marketplace, who sells, offers to sell, or contracts with an online marketplace to sell a consumer product in the state by or through an online marketplace.
   5. “Verify” is to confirm that information provided to an online marketplace pursuant to the requirements below is accurate. Methods of confirmation include the use of one or more methods that enable the online marketplace to reliably determine that the information and documents are valid, correspond to the seller or an individual acting on the seller’s behalf, are not misappropriated, and are not falsified. (Civ. Code, § 1749.8.)
3. Requires an online marketplace to require each high-volume third-party seller on the online marketplace to provide, not 10 days later after qualifying as a high-volume third-party seller, all of the following information to the online marketplace:
   1. A bank account number or, if the high-volume third-party seller does not have a bank account, the name of the payee for payments issued by the online marketplace to the seller.
   2. The high-volume third party seller’s name, if they are an individual; if they are not an individual, a copy of a valid government-issued identification of an individual who has legal authority to act on behalf of the high-volume third-party seller, or a government document that includes the business name and address of the high-volume third-party seller.
   3. A business or tax identification number for the business or taxpayer.
   4. A valid email address and telephone number for the high-volume third-party seller. (Civ. Code, § 1749.8.1(a).)
4. Requires an online marketplace to verify the information provided under 3) within 10 days and, on an annual basis, notify each high-volume third-party seller of the requirement to update any information within 10 days of the notification and certify that the information provided is accurate. If the high-volume third-party seller does not provide the information or certification as required, the online marketplace shall, after providing notice and opportunity to provide the information or certification, suspend any future sales activity until the information or certification is provided. (Civ. Code, § 1749.8.1(b), (c).)
5. Requires an online marketplace to require a high-volume third-party seller with at least $20,000 of gross annual revenues from transactions with buyers in California through the online marketplace in either of the prior two calendar years to provide, in addition to the information required in 3), the following to the online marketplace and disclose it to consumers in a clear and conspicuous manner, as specified:
   1. The full name of the high-volume third party seller, as specified.
   2. The high-volume third-party seller’s physical address and contact information for the high-volume third-party seller, including a current working telephone, email address, or other means of direct electronic messaging, to allow users to have direct and unhindered communication with the seller. In the event that a seller certifies that they do not have a physical address or telephone number other than their residential address or personal number, the online marketplace shall direct consumers to use other methods of contact, as specified.
   3. Whether or not another party is responsible for supplying the product to the consumer upon purchase; and upon request from an authenticated purchaser, the high-volume third-party seller shall provide contact information for the party who is responsible for supplying the product. (Civ. Code, § 1749.8.2(a).)
6. Requires an online marketplace to disclose to consumers, in a clear or conspicuous manner on the product listing of a high-volume third-party seller, a reporting mechanism that allows for electronic and telephonic reporting of suspicious activity by the high-volume third-party seller to the online marketplace. (Civ. Code, § 1749.8.2.(b).)
7. Provides for the suspension of a high-volume third-party seller by an online marketplace for failure to comply with the disclosure requirements; before suspending a high-volume third-party seller, the online marketplace must provide notice and an opportunity to comply, as specified; if the high-volume third-party seller comes into compliance following the suspension, the online marketplace shall restore the seller, as specified. (Civ. Code, § 1749.8.2(c).)
8. Provides that a person or entity who violates any provision of 3)-7) shall be liable for a civil penalty of up to $10,000 for each violation, which may be assessed and recovered only in a civil action brought in the name of the people of the State of California by the Attorney General. If the Attorney General prevails in such an action, it may recover reasonable attorney fees and costs and preventive relief, including a permanent or temporary injunction against any person responsible for the conduct. (Civ. Code, § 1749.8.4.)

This bill:

1. States that the Legislature finds and declares that it is the intent of the Legislature to stop theft from retail stores and community theft by curtailing the sale of stolen property on online marketplaces.
2. Modifies the definition of “high-volume third-party seller” so that all of the seller’s transactions utilizing the online marketplace are counted towards the 200-transaction floor to qualify as a high-volume third-party seller on that platform, rather than only the transactions processed by the online marketplace directly or through its payment processor.
3. Modifies the definition of “online marketplace” to eliminate the requirements that: (a) the enumerated features made available to third-party sellers are used by third-party sellers; and (b) the platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.
4. Permits, in addition to the Attorney General, a district attorney in any county, a city attorney in any city, or a county counsel in any county to commence a civil action for violations of Title 1.4d.
5. Requires an online marketplace to disclose to consumers whether a high-volume third-party seller has complied with its obligation to provide the payment and identifying information set forth in item 3) of the “Existing state law” section.
6. Requires an online marketplace to alert local, regional, or state law enforcement agencies in California if it reasonably believes that a third-party seller is selling or attempting to sell stolen goods to a California resident.
7. Requires an online marketplace to do both of the following:
   1. Establish and maintain a policy prohibiting the sale of stolen goods on the online marketplace, which shall include consequences for knowingly selling stolen goods on the online marketplace, including, but not limited to, suspension or termination of the seller’s account.
   2. Provide a mechanism on the online marketplace that allows any individual to notify the online marketplace that the seller is or may be selling stolen goods.
8. Requires an online marketplace to publicly post, and make readily accessible to users, the policy and mechanism required in 7).

Comments

In 2022, the Legislature passed SB 301 (Skinner, Statutes 857, Chapter of 2022), which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult to profit from retail theft and, hopefully, disincentivizing such thefts. At the end of 2022, the United States Congress passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act—a.k.a. the INFORM Consumers Act—which imposes, on a nationwide basis, largely the same requirements as SB 301.

SB 301 took effect on July 1, 2023, and the INFORM Consumers Act took effect a few days earlier. Since then, there have been mixed reports on whether retail theft is continuing to increase, is leveling out, or was overstated in the first place, and it is unclear whether there are data showing whether SB 301 and the federal bill have had any effect. According to the author, however, SB 301 and the INFORM Consumers Act have gaps that allow certain large online platforms to avoid those bills’ requirements.

This bill is intended to expand the scope of SB 301 and make other changes to the SB 301 regime to make it more difficult for stolen goods to be sold online. This bill modifies certain definitions within current law so that all platforms that connect buyers and sellers are covered, even if the sale is not conducted through the platform’s payment processor. This bill also allows district attorneys, county counsel, and city attorneys to enforce violations of this bill; currently only the Attorney General is permitted to bring an enforcement action, which may be leading to under-enforcement. Finally, this bill requires online marketplaces to take a few additional steps, including disclosing to consumers that sellers are in compliance with existing requirements and reporting sellers to law enforcement where there is reason to believe the seller is offering stolen goods for sale.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, this bill presents unknown, potentially significant workload cost pressures to the courts (Trial Court Trust Fund, General Fund) to adjudicate alleged violations of this bill.

SUPPORT: (Verified 5/16/24)

Prosecutors Alliance of California (source)

Barbara J. Parker, City of Attorney, City of Oakland

California Business Properties Association

California District Attorneys Association

California Retailers Association

Californians for Safety and Justice

City of Agoura Hills

City of Alameda

City of Buena Park

City of Cypress

City of El Cerrito

City of Emeryville

City of Fontana

City of Fountain Valley

City of Fullerton

City of Grand Terrace

City of Hidden Hills

City of La Mirada

City of Lakewood

City of Los Alamitos

City of Manteca

City of Mission Viejo

City of Oakdale

City of Oakley

City of Patterson

City of Rohnert Park

City of Rolling Hills Estates

City of Rosemead

City of San Luis Obispo

City of Stanton

David Chu, City Attorney, City and County of San Diego

Friends Committee on Legislation of California

Jesse Arreguín, Mayor, City of Berkeley

League of California Cities
League of California Cities – Central Valley Division

Los Angeles Area Chamber of Commerce

Los Angeles County Business Federation

Los Angeles County Sheriff’s Department

Mara W. Elliott, City Attorney, City of San Diego

Smart Justice California

Target Corporation

The Home Depot

The Toy Association

Town of Apple Valley

UnCommon Law

United Food and Commercial Food Workers Western States Council

Valley Industry & Commerce Association

Vera Institute of Justice

OPPOSITION: (Verified 5/16/24)

CalChamber

CCIA

Chamber of Progress

Internet.Works California

OfferUp

TechNet

ARGUMENTS IN SUPPORT: According to the Prosecutors Alliance of California:

The bill strengthens existing law by mandating that all high volume third party sellers who utilize an online marketplace to sell goods must comply with the recently enacted SB 301 (Skinner 2022), by providing to the online marketplace their name, physical location, banking information, a valid tax document or record that demonstrates that they are a lawfully authorized business, and other key information. The information mandated by SB 301 allowed the California Attorney General, working in concert with federal, state and local law enforcement and online marketplaces to identify individuals directing criminal enterprises and to shut them down, charging them for grand theft and other felonies.

SB 1144 will mandate that online marketplaces create a consumer friendly means of identifying which online sellers are in compliance with California law. Further, the bill will also local prosecutors and city and county counsels to enforce the law, a power that is currently limited to the California Attorney General…

SB 1144 will be a powerful crime prevention and investigatory tool, reducing the opportunity to resell stolen goods, and therefore discouraging those who would profit from breaking the law. For these reasons, PAC strongly supports SB 1144 (Skinner).

ARGUMENTS IN OPPOSITION: According to CalChamber, CCIA, and TechNet:

In 2022, online marketplaces and retailers came together to negotiate the federal INFORM Consumers Act, which went into effect just this past summer…

Now, based on an alleged “loophole” in a brand new law, SB 1144 attempts to change the approach to online marketplaces and would make California operate under a different and more onerous law than the rest of the United States. This means that legitimate businesses using online marketplaces located anywhere in the nation would have to comport with California’s unique laws, something that small businesses are not equipped to do…

In addition to the INFORM Act, in California, brick-and-mortar retailers, online marketplaces, and the Attorney General agreed to a Statement of Principles in June 2023 that laid out additional commitments that are focused on identifying and addressing ORC. In the handful of months that have followed the effective date of the INFORM Act and the agreement to the Statement of Principles, there has been no evidence that there is a loophole that must be closed.

Prepared by: Allison Whitt Meredith / JUD. / (916) 651-4113

5/18/24 16:20:53

**** END ****

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 1144 (Skinner) - Marketplaces: online marketplaces

Bill Summary:

SB 1144 expands existing provisions requiring online marketplaces to collect certain information from high-volume third-party sellers and extends the authority to enforce these provisions to the district attorney in any county, a city attorney in any city, or a county counsel in any county.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 16, 2024

Fiscal Impact:

Unknown, potentially significant workload cost pressures to the courts (Trial Court Trust Fund, General Fund) to adjudicate alleged violations of this bill.

Committee Amendments:

Add a coauthor.

-- END --

SENATE COMMITTEE ON

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

SB 1144 (Skinner) - Marketplaces: online marketplaces

Bill Summary:

SB 1144 expands existing provisions requiring online marketplaces to collect certain information from high-volume third-party sellers and extends the authority to enforce these provisions to the district attorney in any county, a city attorney in any city, or a county counsel in any county.

Fiscal Impact:

Unknown, potentially significant workload cost pressures to the courts (Trial Court Trust Fund, General Fund) to adjudicate alleged violations of this bill. While the superior courts are not funded on a workload basis, an increase in workload could result in delayed court services and would put pressure on the General Fund to increase the amount appropriated to backfill for trial court operations. The Governor’s 2024-25 state budget proposes $83.1 million ongoing General Fund to continue to backfill the Trial Court Trust Fund for expected revenue declines.

Background:

In 2022, the Legislature passed SB 301 (Skinner, Chapter 857), which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms.

SB 301 required online marketplaces—defined as online platforms that facilitate the sale of consumer goods by third-party sellers to consumers in California, processed through the platform’s payment mechanism —to collect certain information about high-volume third-party sellers—defined as sellers with a minimum of 200 annual transactions on the platform of at least $5,000. All high-volume third-party sellers must provide the platform with information about their bank account or the payee accepting payments from the platform, as well as identifying and contact information for the seller. SB 301 also imposed additional requirements for high-volume third-party sellers with at least $20,000 in sales on a platform, such as providing customers with contact information and informing a customer if their order will be fulfilled by another party. The online marketplace is required to take certain steps to ensure that the covered third-party sellers comply and to suspend noncompliant sellers. The Attorney General (AG) is authorized to seek civil penalties, as well as injunctive or other preventive relief, from any person or entity that violates any of these provisions.

These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult to profit from retail theft and, hopefully, deterring such thefts. At the end of 2022, the United States Congress passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act—a.k.a. the INFORM Consumers Act—which imposes, on a nationwide basis, largely the same requirements as SB 301. SB 301 took effect on July 1, 2023, and the INFORM Consumers Act took effect a few days earlier. Proponents of this bill contend that SB 301 and the INFORM Consumers Act have gaps that allow certain large online platforms to avoid compliance.

Proposed Law:

This bill would expand the scope of existing provisions to include “online marketplaces.” Specifically, this bill would:

• Revise the existing definition of “online marketplace” to mean a consumer-directed, electronically accessed platform that includes features that allow for, facilitate, or enable third-party sellers to engage in the sale, purchase, payment, storage, shipment, or delivery of a consumer product.
• Extend existing provisions allowing a civil enforcement action for violations of these provisions to be brought AG to additionally be brought by district attorneys, city attorneys, or county counsels.
• Require an online marketplace to disclose to consumers whether a high-volume third-party seller has complied with specified provisions including, among others, providing information to the online marketplace.
• Provide that an online marketplace shall alert local, regional, or state law enforcement if it reasonably believes that a third-party seller is selling or attempting to sell stolen goods.
• Provide that an online marketplace shall establish and maintain and publically post a policy prohibiting the sale of stolen goods on the online marketplace, which shall include consequences for knowingly selling stolen goods on the online marketplace, including, but not limited to, suspension or termination of the seller’s account.
• Provide that an online marketplace shall provide a mechanism on the online marketplace that allows any individual to notify the online marketplace that a seller is or may be selling stolen goods.

Related Legislation:

SB 301 (Skinner, Chapter 857, Statutes of 2022) requires online marketplaces to require qualified high-volume third-party sellers to provide specified tax, payment, and contact information to the platform and consumers, as specified.

AB 1700 (Maienschein, Chapter 855, Statutes of 2022), requires the DOJ to establish on its website a reporting location for a person to report stolen items located in online marketplaces and notify law enforcement of possible stolen goods.

Staff Comments:

This bill would authorize more agencies to enforce the provisions related to online marketplaces, which would lead to more cases being filed. The fiscal impact of this bill to the courts will depend on many unknown factors, including the numbers of violations alleged to have occurred, if parties settle the matter before the filing of an action, and the factors unique to each case. While it is not known how many actions for alleged violations ultimately would be filed, it generally costs about $8,300 to operate a courtroom for one eight-hour day. If this bill results in 50 additional hours of court time the amount would be sufficient to meet the Suspense threshold. As indicated above, while courts are not funded on a workload basis, an increase in workload could result in delayed services and would create pressure to increase the backfill amount appropriated from the General Fund for trial court operations.

-- END --

SENATE COMMITTEE ON PUBLIC SAFETY

Senator Aisha Wahab, Chair

2023 - 2024 Regular

Bill No: SB 1144 Hearing Date: April 23, 2024

Subject: Marketplaces: online marketplaces

HISTORY

Source: Prosecutors Alliance California

Prior Legislation: SB 301 (Skinner), Ch. 857, Stats. of 2022

AB 1700 (Maienschein), Ch. 855

Support: California District Attorneys Association; California Public Defenders Association; Californians for Safety and Justice; Californians United for a Responsible Budget; City of Berkeley; City of Oakland; Friends Committee on Legislation of California; Home Depot; League of California Cities; Los Angeles Area Chamber of Commerce; Los Angeles County Sheriff's Department; San Diego County District Attorneys Office; Smart Justice California; The Toy Association (if amended); Uncommon Law; United Food and Commercial Workers, Western States Council; Valley Industry and Commerce Association (VICA); Vera Institute of Justice

Opposition: California Chamber of Commerce; Chamber of Progress; Computer & Communications Industry Association; Internet.Works; Offerup INC.; TechNet

PURPOSE

The purpose of this bill is to

1. Modify existing statutory definitions of “online marketplace” and “high-volume third party seller” to apply to a broader range of buyers and sellers.
2. Impose disclosure, reporting and corporate policy requirements on online marketplaces related to high-volume third party sellers.
3. Authorize district attorneys, county counsel and city attorneys to enforce existing laws related to online marketplaces.

Existing law contains the following definitions:

• “Consumer product” means tangible personal property that is distributed in commerce and normally used for personal, family, or household purposes, including property intended to be attached to or installed in real property regardless of whether it is actually attached or installed.
• “High-volume third-party seller” means a third-party seller who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete transactions through an online marketplace for the sale of new or unused consumer products to buyers located in California resulting in the accumulation of an aggregate total of five thousand dollars ($5,000) or more in gross revenues. The number of discrete transactions includes only those transactions through the online marketplace for which payment is processed by the online marketplace directly or through its payment processor.
• “Online marketplace” means a consumer-directed, electronically accessed platform for which all of the following are true:
  • The platform 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 state, and these features are used by third-party sellers.
  • The platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.
• “Third-party seller” is a person or entity, independent of an online marketplace, who sells, offers to sell, or contracts with an online marketplace to sell a consumer product in the state by or through an online marketplace.
• “Verify” is to confirm that information provided to an online marketplace pursuant to the requirements below is accurate. Methods of confirmation include the use of one or more methods that enable the online marketplace to reliably determine that the information and documents are valid, correspond to the seller or an individual acting on the seller’s behalf, are not misappropriated, and are not falsified. (Civ. Code, § 1749.8.)

Existing law requires an online marketplace to require each high-volume third-party seller on the online marketplace to provide, not 10 days later after qualifying as a high-volume third-party seller, specified information to the online marketplace, including bank information, identifying information and contact information. (Civ. Code, § 1749.8.1(a).)

Existing law requires an online marketplace to verify the information provided under the above provision within 10 days and, on an annual basis, notify each high-volume third-party seller of the requirement to update any information within 10 days of the notification and certify that the information provided is accurate. If the high-volume third-party seller does not provide the information or certification as required, the online marketplace shall, after providing notice and opportunity to provide the information or certification, suspend any future sales activity until the information or certification is provided. (Civ. Code, § 1749.8.1(b), (c).)

Existing law requires an online marketplace to require a high-volume third-party seller with at least $20,000 of gross annual revenues from transactions with buyers in California through the online marketplace in either of the prior two calendar years to provide, in addition to the information required in 3), the following to the online marketplace and disclose it to consumers in a clear and conspicuous manner, as specified:

• The full name of the high-volume third party seller, as specified.
• The high-volume third-party seller’s physical address and contact information for the high-volume third-party seller, including a current working telephone, email address, or other means of direct electronic messaging, to allow users to have direct and unhindered communication with the seller. In the event that a seller certifies that they do not have a physical address or telephone number other than their residential address or personal number, the online marketplace shall direct consumers to use other methods of contact, as specified.
• Whether or not another party is responsible for supplying the product to the consumer upon purchase; and upon request from an authenticated purchaser, the high-volume third-party seller shall provide contact information for the party who is responsible for supplying the product. (Civ. Code, § 1749.8.2(a).)

Existing law requires an online marketplace to disclose to consumers, in a clear or conspicuous manner on the product listing of a high-volume third-party seller, a reporting mechanism that allows for electronic and telephonic reporting of suspicious activity by the high-volume third-party seller to the online marketplace. (Civ. Code, § 1749.8.2.(b).)

Existing law provides for the suspension of a high-volume third-party seller by an online marketplace in specified scenarios involving the seller’s noncompliance with existing law, false representations made by the seller, and the seller’s non-responsiveness to consumer inquiries in a reasonable time, as specified. (Civ. Code, § 1749.8.2.(c).)

Existing law requires an online marketplace to retain the information provided to comply with the above provisions for no fewer than two years, using reasonable security procedures and practices to protect the information, as specified. (Civ. Code, § 1749.8.4.)

Existing law provides that a person or entity who violates any of the above provisions regarding online marketplaces shall be liable for a civil penalty of up to $10,000 for each violation, which may be assessed and recovered only in a civil action brought in the name of the people of the State of California by the Attorney General. If the Attorney General prevails in such an action, it may recover reasonable attorney fees and costs and preventive relief, including a permanent or temporary injunction against any person responsible for the conduct. (Civ. Code, § 1749.8.4.)

This bill modifies the definition “high-volume third-party seller” to count all of the seller’s transactions via the online marketplace toward the 200 discrete transaction threshold, rather than counting only transactions processed by the online marketplace directly or through its payment processor.

This bill modifies the definition of “online marketplace” by eliminating requirements that specified features made available to third party sellers are used by them and that the platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.

This bill requires that online marketplaces disclose to consumers whether a high volume third party seller has complied with the provision above requiring them to provide payment and identification information.

This bill requires online marketplaces to alert local, regional or state law enforcement agencies in California if it reasonably believes that a third-party seller is selling or attempting to sell stolen goods to a California resident.

This bill requires online marketplaces to establish and maintain a policy prohibiting the sale of stolen goods on the online marketplace, as specified, and provide a mechanism on the online marketplace that allows any individual to notify the online marketplace that a seller is or may be selling stolen goods, both of which must be publicly posted and readily accessible to users.

This bill authorizes, in addition to the Attorney General, a district attorney in any county, a city attorney in any city, or a county counsel in any county to commence a civil action for violations of the provision above related to online marketplaces.

This bill contains a statement of legislative intent to stop theft from retail stores and community theft by curtailing the sale of stolen property on online marketplaces.

COMMENTS

1. Need for This Bill

According to the Author:

In 2022, I introduced SB 301 to address the increasing use of online marketplaces as the mechanism to resell stolen goods. Regulations under SB 301 required inline marketplaces to ensure that high volume third party sellers on their platforms were operating legally. While SB 301 made great strides in combating the sale of stolen goods on online marketplaces, there is still more work to be done. This bill strengthens SB 301 by auditing additional regulations on those high volume third party sellers that use online marketplaces to advertise goods, but then collect the money from buyers in “offline” transactions — transactions that make it much more difficult to track whether the goods sold were stolen. 

1. Retail Theft and Recent Legislation Regarding Online Marketplaces

Online marketplaces are rapidly replacing brick and mortar retail stores as the source of goods for consumers, especially because the COVID-19 pandemic drove consumers to shop online and forced many small businesses to close. Over the past 10 years, online sales of consumer goods have increased from less than five percent of retail sales to more than 20 percent of retail sales in the United States.^[1] While online shopping has provided consumers with a speedy, convenient, and necessary way to obtain goods without leaving home, it has also become a major pipeline for the sale of stolen goods, including goods stolen by means of organized retail theft. In 2022, the National Retail Federation (NRF) claimed that “nearly half” of the shopping industry’s $94.5 billion in losses due to “shrink” in 2021 were caused by “organized retail theft.”^[2] Large companies like Walmart, Home Depot, and CVS agreed that the rate of retail theft was increasing.^[3] More recently, however, it has come to light that many claims about the prevalence and impact of organized retail theft may have been overstated. In 2023, the NRF retracted its statement above and other companies walked back similar comments, often citing lack of data.^[4] While some cities may have seen spikes in retail theft, what data there is does not bear out a nationwide increase in such thefts. In any event, many experts and researchers in this area agree that the data available regarding organized retail theft is generally difficult to interpret. ^[5]

In 2022, the Legislature passed SB 301 (Skinner, Ch. 857, 2022), which imposed requirements on online marketplaces and third-party sellers aimed at curbing the resale of stolen goods, and established definitions of those terms that are the subject of this bill. “Online marketplaces” are defined as online platforms that facilitate the sale of consumer goods by third-party sellers to consumers in California, processed through the platform’s payment mechanism,” while “high-volume third-party sellers” are defined as a seller who “has entered into 200 or more discrete transactions through an online marketplace for the sale of new or unused consumer products to buyers located in California resulting in the accumulation of an aggregate total of five thousand dollars ($5,000) or more in gross revenues.” Generally, SB 301 required online marketplaces to collect specified data from high-volume third-party sellers, and required third-party sellers with at least $20,000 in sales to provides additional information that the marketplaces must disclose to consumers. The bill required online marketplaces to take certain steps to remedy noncompliance by a seller, and also authorized the Attorney General to seek civil penalties and injunctive relief for any violations.^[6]

Another measure passed in 2022, AB 1700 (Maienschein, Ch. 855, Stats of 2022), while more limited in scope, also aimed to curb resale of stolen goods on online marketplaces by third party sellers. Specifically, that bill required the Attorney General to establish a reporting mechanism on its website for the public to report suspected stolen items on online marketplaces and share any information collected with local law enforcement. The bill also required online marketplaces to provide a link on their websites connecting the public to the Attorney General’s suspected stolen goods reporting mechanism.^[7]

On January 9, 2024, Governor Newsom called for legislation to crack down on large scale property crimes committed by organized groups who profit from resale of stolen goods.^[8] The proposals include: 1) creating new penalties targeting those engaged in retail theft to resell, and those that resell the stolen property; 2) clarifying existing arrest authority so that police can arrest suspects of retail theft, even if they didn’t witness the crime in progress; 3) clarifying that theft amounts may be aggregated to reach the grand theft threshold; 4) creating new penalties for professional auto burglary, increasing penalties for the possession of items stolen from a vehicle with intent to resell, regardless of whether the vehicle was locked; 5) eliminating the sunset date for the organized retail crime statute; and 6) increasing penalties for large-scale resellers of stolen goods. Both houses of the Legislature have announced legislative packages that include parts of the Governor’s proposals.^[9]

1. Online Marketplace Enforcement Authority and Law Enforcement Notifications

Only two enforcement-related provisions of this bill fall within the jurisdiction of this committee. As referenced above, existing law established by SB 301 provides that a person or entity who violates any provision set forth by that measure^[10] shall be liable for a civil penalty not to exceed $10,000, which may be assessed and recovered only in a civil action brought by the Attorney General of California. This bill modifies that provision and grants concurrent enforcement authority to a district attorney in any county, a city attorney in any city, or a county counsel in any county. Given the sheer volume of transactions that occur via an online marketplace, and the often highly localized nature of those transactions (i.e. when parties in the same geographic area connect via the platform but complete the transaction off the platform), expanding enforcement authority to these local agencies is likely to improve the efficacy of and compliance with existing requirements enacted by SB 301.

On June 20, 2023, the Attorney General, several “brick and mortar” retailers (such as Rite Aid, Walgreens and Home Depot), and several online marketplaces (such as Etsy, Meta, and eBay) signed a Joint Statement of Principles in which both the retailers and online marketplaces made specific commitments to cooperate with state law enforcement in combating organized retail theft.^[11] In that signed agreement, the online marketplaces made the following commitments:

• Marketplaces will maintain staff responsible for addressing reports from law enforcement, retailers, and the public of ORC on their platforms.
• Marketplaces will maintain a dedicated webpage, online portal, or point of contact to ensure timely replies to law enforcement requests, including warrants, subpoenas, and other legal process.
• Marketplaces will maintain internal written policies, systems, and staff to monitor listings in order to affirmatively prevent and detect ORC.
• Marketplaces will maintain external policies defining marketplace rules and the consequences of violations. These policies should clearly prohibit the sale of stolen goods and violators should be penalized up to and including removal from future use of the marketplaces.
• Marketplaces will maintain internal written policies that guide collaboration and information-sharing with retailers and other marketplaces, facilitated through a webpage, online portal, or dedicated point of contact, in order to collectively combat ORC.
• Marketplaces will communicate with Retailers to stay updated on trends in ORC. Such communication should focus on sharing general intelligence gathered by retailers, online marketplaces, and law enforcement on how to detect and prevent common methods of ORC. This information should be shared through the establishment of regular industry meetings, either facilitated by Regional Organized Retail Crime Associations, by prosecutors and law enforcement, or independently.
• Marketplaces will maintain internal polices relating to referring identified ORC to the appropriate law enforcement agency.

While these commitments make several references to receiving information and from law enforcement, only the last commitment makes mention of providing information to law enforcement. Moreover, that commitment only ensures the maintenance of a policy relating to referring retail crime to law enforcement, not the affirmative delivery of that information in all relevant cases. Notwithstanding that commitment, online marketplaces currently have no formal obligation to report the sale of suspected stolen goods to law enforcement with any consistency or regularity. Accordingly, this bill requires an online marketplace to alert local, regional or state law enforcement agencies in California if it reasonably believes that a third-party seller is selling or attempting to sell stolen goods to a California resident. However, this requirement may benefit from greater clarity with regard to the terms “alert” and “reasonably believes,” which, in their current form, provide little guidance to online marketplaces as to when and how to communicate this information.

1. Prior Committee

On April 2, this bill passed out of Senate Judiciary with a vote of 10-1. For an analysis of the provisions of this bill outside this committee’s jurisdiction and therefore not analyzed above, see the analysis prepared by the Senate Judiciary Committee.

1. Argument in Support

According to the San Diego District Attorney’s Office:

This bill will help combat the sale of stolen goods on online marketplaces by requiring them to collect certain information from high-volume sellers. Higher standards of accountability and verification of third party-sellers will serve to prevent the online marketplace from being used as a market for stolen merchandise. We welcome any support from the Legislature on this pressing issue. This bill would address the major loophole that organized retail crime bad actors utilize which is to use the platform to conduct the illicit sales but not have the monetary transaction go through the platform. This bill would bring uniformity and close those major loopholes. In addition, placing a duty on platforms to report persons who do not comply with the regulations is essential.

Current law only authorizes the Attorney General to bring an enforcement action. However, SB 1144 expands the scope of enforcement by allowing district attorneys, county counsel and city attorneys to bring enforcement actions, thereby greatly increasing the likelihood of enforcement. As District Attorney for San Diego County, I have made prosecuting and preventing organized retail crime a priority. My office formed a specialized team of prosecutors and investigators to combat ORT and to work with local businesses to build stronger cases. Recently, I testified in

Washington, D.C. before the House Sub-Committee on Counterterrorism, Law Enforcement, and Intelligence where I told committee members about three (3) key challenges facing prosecutors across the nation who are working to fight organized retail theft:

• The evolution of more sophisticated criminal networks. Organized retail theft has evolved into highly sophisticated operations, often conducted by well-organized networks, and coordinated across multiple locations. The resale of stolen goods utilizing online markets that are essentially anonymous are major drivers for increased criminal activity. Unlike the pawnshops of the past where regulation allowed law enforcement to track stolen goods and conduct investigations into theft rings, the online marketplaces allow for high profit that fuels additional thefts while escaping any detection or accountability.
• An inadequate legal framework. Existing laws and penalties in many states are not sufficient to support professional investigations into the higher-level organizers of retail theft of small and large businesses. Therefore, the lower-level thieves can be investigated and brought to justice, but the higher level “fences” or resellers of stolen goods can escape detection and accountability. SB 1144 is the type of law desperately needed to address the harms of organized retail theft.
• The need for better coordination. In the past, the lack of coordination and information sharing among retailers, law enforcement agencies, and other stakeholders has hindered the ability to combat organized retail theft effectively. A continued collaborative and multi-faceted approach is necessary to address this issue comprehensively. This bill would also allow the ability to better partner and collaborate with the online marketplaces and with various level of prosecutors and investigators.

Our office has taken a tough stance against organized retail theft and is continuing to explore additional ways to hold individuals accountable amid the most recent high-profile ‘smash and grab’ robberies across California. Last year, our team met with retailers, business association representatives, retail industry employee representatives, law enforcement and others to discuss the scope of the problem in San Diego County, steps law enforcement is taking to stop and prosecute these crimes, and to strategize on future prevention tactics. SB 1144 addresses some of these key challenges in the fight against organized retail theft. SB 1144 will make it more difficult for stolen goods to be sold online because all platforms that connect buyers and sellers will be covered rather than just those that have a contractual relationship.

1. Argument in Opposition

According to the California Chamber of Commerce:

SB 1144 hurts small businesses by layering on new requirements that assume that any seller on an online marketplace is engaged in criminal activity. First, existing law states that high volume sellers are determined on a platform-by-platform basis. But this bill would now re-define high volume sellers in a way that requires aggregating sales across multiple platforms by removing language referring to payment processing through a platform. It is impossible for any individual platform to determine whether any given seller is “high volume” under this definition, since they have no way to know what activity is occurring on other platforms. In a similar vein, the expansion of this definition aims to include transactions that occur off of the platform. By definition, this is something that cannot be tracked by a platform since it has no access to any information regarding the ultimate transaction. This difficulty was known and heavily negotiated in the state and federal INFORM act. The only way to comply with the law would be to assume every single seller is “high-volume,” and subject every business to the heightened requirements in INFORM and those proposed in SB 1144.

The verification requirements in SB 1144 will also hurt small businesses, and not only because of the level of effort required to comply with these requirements as a seller. These provisions are duplicative of existing requirements in INFORM that govern a seller’s ability to even access the marketplace platform and list items for sale. A separate verification of the same information gains nothing but creates customer confusion. If only high-volume sellers are “verified,” then consumers may think that unverified small businesses are less legitimate and may choose another vendor. Any new verification requirement must be tailored to protect small businesses. In addition, these requirements create incentives for hybrid stores (those that source their own products directly as well as provide a space for third-party sellers to access customers) to source products directly to avoid costs associated with ensuring third-party compliance. This would dry up market opportunities for small businesses. Requiring online marketplaces to take action against sellers based upon allegations by other parties that a given seller is selling stolen goods also creates an environment that could result in anticompetitive behavior. That outcome is bad for small businesses and consumers alike.

-- END –

1. (Brewster, Mayumi, Annual Retail Trade Survey Shows Impact of Online Shopping on Retail Sales During COVID-19 Pandemic (April 22, 2022), https://www.census.gov/library/stories/2022/04/ecommerce-sales-surged-during-pandemic.html.) ↑

2. Helmore, US retail group retracts claim that half of $94.5bn inventory loss was from theft (Dec. 11, 2023), The Guardian, https://www.theguardian.com/business/2023/dec/07/retail-theft-losses-inventory-nrf. ↑

3. Fonrogue, et al., America’s biggest companies say retail crime is an epidemic, but just how big is it?, CNBC (Mar. 18, 2023; updated Mar. 20, 2023), https://www.cnbc.com/2023/03/18/organized-retail-crime-debate.html. ↑

4. Walgreens Executive Says Shoplifting Threat Was Overstated, New York Times, (Jan. 6, 2023) https://www.nytimes.com/2023/01/06/business/walgreens-shoplifting.html; Retail Group Retracts Startling Claim About ‘Organized’ Shoplifting; New York Times, (8 Dec 2023). Retail Group Retracts Startling Claim About ‘Organized’ Shoplifting - The New York Times (nytimes.com) ↑

5. Myth v. Reality: Trends in Retail Theft. Brennan Center for Justice. 7 March 2024. Myth vs. Reality: Trends in Retail Theft | Brennan Center for Justice ↑

6. See 1749.8 et. seq. ↑

7. Gov. Code, §7599.110 et. seq. ↑

8. Governor Newsom Calls for Legislation Cracking Down on Property Crime. 9 January 2024. Governor Newsom Calls for Legislation Cracking Down on Property Crime | California Governor ↑

9. See State senators respond to fentanyl and retail theft crises with new legislation, Los Angeles Times. 26 February 2024, State senators respond to fentanyl, retail theft with legislation - Los Angeles Times (latimes.com) ↑

10. Title 1.4D. of the Civil Code, commencing with Section 1749.8 ↑

11. Joint Statement of Principles. Office of the Attorney General. 20 June 2023. Final ORC Mark-Up[2].pdf (ca.gov) ↑

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: SB 1144 (Author:Skinner)

Version: March 19, 2024

Hearing Date: April 2, 2024

Fiscal: Yes

Urgency: No

Consultant:AWM

SUBJECT

Marketplaces: online marketplaces

DIGEST

This bill modifies existing law requiring online marketplaces, as defined, to collect certain information from high-volume third-party sellers, as defined, and permits a district attorney, city attorney, or county counsel to enforce the requirements.

EXECUTIVE SUMMARY

In 2022, the Legislature passed SB 301 (Skinner, Stats. 857, Ch. 2022), which requires online marketplaces—platforms that enable third-party sellers to sell consumer goods directly to consumers—to collect certain information from certain high-volume third-party sellers who sell to California residents on their platforms. These requirements were intended to make it more difficult to sell stolen goods on online marketplaces, thereby making it more difficult to profit from retail theft and, hopefully, disincentivizing such thefts. At the end of 2022, the United States Congress passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act—a.k.a. the INFORM Consumers Act—which imposes, on a nationwide basis, largely the same requirements as SB 301.

SB 301 took effect on July 1, 2023, and the INFORM Consumers Act took effect a few days earlier. Since then, there have been mixed reports on whether retail theft is continuing to increase, is leveling out, or was overstated in the first place, and it is unclear whether there are data showing whether SB 301 and the federal bill have had any effect. According to the author, however, SB 301 and the INFORM Consumers Act have gaps that allow certain large online platforms to avoid those bills’ requirements.

This bill is intended to expand the scope of SB 301 and make other changes to the SB 301 regime to make it more difficult for stolen goods to be sold online. The bill modifies certain definitions within current law so that all platforms that connect buyers and sellers are covered, even if the sale is not conducted through the platform’s payment processor. The bill also allows district attorneys, county counsel, and city attorneys to enforce violations of the bill; currently only the Attorney General is permitted to bring an enforcement action, which may be leading to under-enforcement. Finally, the bill requires online marketplaces to take a few additional steps, including certifying to consumers that sellers are in compliance with existing requirements, reporting suspected stolen goods to law enforcement. The author has agreed to amendments to clarify the new definition of “high-volume third-party seller,” clarify the new verification requirement, and require a reporting mechanism for users to report the sale of stolen goods.

This bill is sponsored by the author and is supported by the Friends Committee on Legislation California, the Los Angeles County Sheriff’s Department, the Prosecutors Alliance of California, Smart Justice California, The Home Depot, the United Food and Commercial Food Workers Western States Council, and the Valley Industry and Commerce Association. This bill is opposed by CalChamber, Chamber of Progress, the Computer & Communications Industry Association, OfferUp, and TechNet. If the Committee passes this bill, it will then be heard by the Senate Public Safety Committee.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Establishes, within Title 1.d of Part 4 of Division 3 of the Civil Code (Title 1.4d), requirements for online marketplaces that facilitate sales transactions between third-party sellers and consumers, and on certain third-party sellers on those online marketplaces, as set forth below.
2. Defines the following terms:
   1. “Consumer product” is tangible personal property that is distributed in commerce and normally used for personal, family, or household purposes, including property intended to be attached to or installed in real property regardless of whether it is actually installed or attached.
   2. “High-volume third-party seller” is a third-party seller who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete transactions through an online marketplace for the sale of new or unused consumer products to buyers located in California, resulting in the accumulation of an aggregate total of $5,000 or more in gross revenues. For purposes of this definition, only transactions for which payment is processed by the online marketplace directly or through its payment processor are counted.
   3. “Online marketplace” is a consumer-directed, electronically accessed platform for which all of the following are true:
      1. The platform 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 state, and these features are used by third-party sellers.
      2. The platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.
   4. “Third-party seller” is a person or entity, independent of an online marketplace, who sells, offers to sell, or contracts with an online marketplace to sell a consumer product in the state by or through an online marketplace.
   5. “Verify” is to confirm that information provided to an online marketplace pursuant to the requirements below is accurate. Methods of confirmation include the use of one or more methods that enable the online marketplace to reliably determine that the information and documents are valid, correspond to the seller or an individual acting on the seller’s behalf, are not misappropriated, and are not falsified. (Civ. Code, § 1749.8.)
3. Requires an online marketplace to require each high-volume third-party seller on the online marketplace to provide, not 10 days later after qualifying as a high-volume third-party seller, all of the following information to the online marketplace:
   1. A bank account number or, if the high-volume third-party seller does not have a bank account, the name of the payee for payments issued by the online marketplace to the seller.
   2. The high-volume third party seller’s name, if they are an individual; if they are not an individual, a copy of a valid government-issued identification of an individual who has legal authority to act on behalf of the high-volume third-party seller, or a government document that includes the business name and address of the high-volume third-party seller.
   3. A business or tax identification number for the business or taxpayer.
   4. A valid email address and telephone number for the high-volume third-party seller. (Civ. Code, § 1749.8.1(a).)
4. Requires an online marketplace to verify the information provided under 3) within 10 days and, on an annual basis, notify each high-volume third-party seller of the requirement to update any information within 10 days of the notification and certify that the information provided is accurate. If the high-volume third-party seller does not provide the information or certification as required, the online marketplace shall, after providing notice and opportunity to provide the information or certification, suspend any future sales activity until the information or certification is provided. (Civ. Code, § 1749.8.1(b), (c).)
5. Requires an online marketplace to require a high-volume third-party seller with at least $20,000 of gross annual revenues from transactions with buyers in California through the online marketplace in either of the prior two calendar years to provide, in addition to the information required in 3), the following to the online marketplace and disclose it to consumers in a clear and conspicuous manner, as specified:
   1. The full name of the high-volume third party seller, as specified.
   2. The high-volume third-party seller’s physical address and contact information for the high-volume third-party seller, including a current working telephone, email address, or other means of direct electronic messaging, to allow users to have direct and unhindered communication with the seller. In the event that a seller certifies that they do not have a physical address or telephone number other than their residential address or personal number, the online marketplace shall direct consumers to use other methods of contact, as specified.
   3. Whether or not another party is responsible for supplying the product to the consumer upon purchase; and upon request from an authenticated purchaser, the high-volume third-party seller shall provide contact information for the party who is responsible for supplying the product. (Civ. Code, § 1749.8.2(a).)
6. Requires an online marketplace to disclose to consumers, in a clear or conspicuous manner on the product listing of a high-volume third-party seller, a reporting mechanism that allows for electronic and telephonic reporting of suspicious activity by the high-volume third-party seller to the online marketplace. (Civ. Code, § 1749.8.2.(b).)
7. Provides for the suspension of a high-volume third-party seller by an online marketplace, as follows:
   1. The online marketplace must suspend the high-volume third-party seller if the high-volume third-party seller is not in compliance with the requirements of 4), made a false representation to the online marketplace about its lack of a business address or phone number, or made a false representation to a consumer.
   2. The online marketplace may suspend the high-volume third-party seller if the high-volume third-party seller has not answered consumer inquiries within a reasonable time.
   3. Before suspending a high-volume third-party seller, the online marketplace must provide notice and an opportunity to comply, as specified; if the high-volume third-party seller comes into compliance following the suspension, the online marketplace shall restore the seller, as specified. (Civ. Code, § 1749.8.2(c).)
8. Requires an online marketplace to retain the information provided to comply with 3)-7) for no fewer than two years, using reasonable security procedures and practices to protect the information, as specified. (Civ. Code, § 1749.8.3.)
9. Provides that a person or entity who violates any provision of 3)-8) shall be liable for a civil penalty of up to $10,000 for each violation, which may be assessed and recovered only in a civil action brought in the name of the people of the State of California by the Attorney General. If the Attorney General prevails in such an action, it may recover reasonable attorney fees and costs and preventive relief, including a permanent or temporary injunction against any person responsible for the conduct. (Civ. Code, § 1749.8.4.)
10. Provides that 3)-9) do not apply to or affect the liability of an entity, including an entity that meets the definition of a high-volume third-party seller, for damages caused by a consumer product that is sold online. (Civ. Code, § 1749.8.5(a).)
11. Provides that 1)-10) became operative on July 1, 2023. (Civ. Code, § 1749.5(b).)

Existing federal law:

1. Establishes the INFORM Consumers Act, which imposes largely the same obligations on online marketplaces and high-volume third-party sellers as the state law set forth above. (15 U.S.C. § 45f.)
2. Authorizes the Federal Trade Commission (FTC), State Attorneys General, or other state officers authorized by state law to investigate and prosecute violations of the INFORM Consumers Act; however, a state officer may not bring a separate action for a violation while an action brought by the FTC is pending. (15 U.S.C. 45f(c) & (d).)
3. Provides that no state or political subdivision of a state, or territory of the United States, may establish or continue in effect any law, regulation, rule, requirement, or standard that conflicts with the requirements of the INFORM Consumers Act. (15 U.S.C. § 15f(g).)

This bill:

1. States that the Legislature finds and declares that it is the intent of the Legislature to stop theft from retail stores and community theft by curtailing the sale of stolen property on online marketplaces.
2. Modifies the definition of “high-volume third-party seller” so that all of the seller’s transactions utilizing the online marketplace are counted towards the 200-transaction floor, rather than only the transactions processed by the online marketplace directly or through its payment processor.
3. Modifies the definition of “online marketplace” to eliminate the requirements that (1) the enumerated features made available to third-party sellers are used by third-party sellers, and (2) the platform has a contractual relationship with consumers governing their use of the platform to purchase consumer products.
4. Permits, in addition to the Attorney General, a district attorney in any county, a city attorney in any city, or a county counsel in any county to commence a civil action for violations of Title 1.4d.
5. Requires an online marketplace to verify and identify to consumers that each high-volume third-party seller has complied with its obligation to provide the payment and identifying information set forth in item 3) of the “Existing law” section.
6. Requires an online marketplace to alert local, regional, or state law enforcement agencies in California if it suspects that a third-party seller is selling or attempting to sell stolen goods to a California resident.
7. Prohibits an online marketplace from allowing a business or person to utilize its platform or other services if it suspects that business or person is selling stolen goods.

COMMENTS

1. Author’s comment

According to the author:

In 2022, I introduced SB 301 to address the increasing use of online marketplaces as the mechanism to resell stolen goods. Regulations under SB 301 required online marketplaces to ensure that high volume third party sellers on their platforms were operating legally. While SB 301 made great strides in combating the sale of stolen goods on online marketplaces, there is still more work to be done. This bill strengthens SB 301 by auditing additional regulations on those high volume third party sellers that use online marketplaces to advertise goods, but then collect the money from buyers in “offline” transactions — transactions that make it much more difficult to track whether the goods sold were stolen. SB 1144 also gives law enforcement tools to work together to track large-scale online operations, helping combat organized retail theft rings from using online marketplaces to fence stolen goods, and making such marketplaces safer for consumers and sellers alike.

2. The problem of retail theft

In 2022, the National Retail Federation (NRF) claimed that “nearly half” of the shopping industry’s $94.5 billion in losses due to “shrink” in 2021 were caused by “organized retail theft.”^[1] This claim was reported widely and cited in connection with stories about retail theft incidents. Store owners said that the prevalence of retail theft led them to raise prices.^[2] Large companies like Walmart, Home Depot, and CVS agreed that the rate of retail theft was increasing.^[3]

But then in 2023, the NRF retracted its claim about organized theft because they lacked evidence to support it.^[4] There are increasing questions about whether the scope of retail theft is as high as the NRF and other sources claim.^[5] Accepting the NRF’s claim that retailers lost $112 billion to shrink in 2022, the rate of retail theft as a percentage of overall sales is the same as it was in 2020 and 2019.^[6] More fundamentally, however, there is a debate over whether the data on retail theft are reliable at all.^[7] Reported numbers can vary wildly; for example, one study showed that monthly shoplifting incidents in Los Angeles were between 200-300 per month in the latter half of 2022, while another reported 500-700 monthly shoplifting incidents in the same time frame.^[8] There is also a debate over whether retailers are under-reporting retail theft—making it difficult to track stolen products—or actually reporting more incidents of retail theft than in the past—giving rise to the appearance of higher retail theft rates.^[9]

The problem with missing data, of course, is that they are missing, so there is no reliable way to determine how many incidents are not being counted.^[10] Some have suggested that retailers could provide more accurate information, both with respect to the number of retail thefts and the responses of law enforcement (or whether law enforcement were notified), to help the Legislature craft policy solutions.^[11]

In the last few months, retailers have been more neutral about the threat of retail theft.^[12] According to retailers, the reduced threat is due to some changed behavior on their part—such as cutting back on self-checkout and locking up certain merchandise—as well as state and federal legislation targeted at retail theft.^[13]

3. SB 301 and the INFORM Consumers Act

In 2021, the Legislature passed, and the Governor signed, SB 301 (Skinner, Ch. 857, Stats. 2022). SB 301 added Title 1.4d to the Civil Code, which sets forth requirements for online marketplaces and the third-party sellers on those marketplaces.^[14] As explained by the author in connection with the bill, SB 301 was intended to:

[H]elp combat the sale of stolen goods on online marketplaces by providing higher standards of accountability and verification for third-party-sellers on online platforms, helping online marketplaces identify and take action against sellers of stolen goods.^[15]

Broadly speaking, the bill requires online marketplaces—defined as online platforms that facilitate the sale of consumer goods by third-party sellers to consumers in California, processed through the platform’s payment mechanism^[16]—to collect certain information about high-volume third-party sellers—defined as sellers with a minimum of 200 annual transactions on the platform of at least $5,000.^[17] All high-volume third-party sellers must provide the platform with information about their bank account or the payee accepting payments from the platform, as well as identifying and contact information for the seller.^[18] SB 301 also imposes additional requirements for high-volume third-party sellers with at least $20,000 in sales on a platform, such as providing customers with contact information and informing a customer if their order will be fulfilled by another party.^[19] The online marketplace is required to take certain steps to ensure that the covered third-party sellers comply and to suspend noncompliant sellers.^[20] The Attorney General is authorized to seek civil penalties, as well as injunctive or other preventive relief, from any person or entity that violates any of the provisions of SB 301.^[21] SB 301 took effect on July 1, 2023.^[22]

At the end of 2021, Congress passed the INFORM Consumers Act as part of the Consolidated Appropriations Act of 2023.^[23] The INFORM Consumers Act is nearly identical to SB 301, except that it applies to the United States as a whole and gives the Federal Trade Commission (FTC) first crack at enforcement.^[24] State Attorneys General are also entitled to bring INFORM Consumers Act suits, but they may not commence such an action while an FTC action is pending, and the FTC may intervene in a pending state suit.^[25] The INFORM Consumers Act further states that “[n]o State or political subdivision of a State, or territory of the United States, may establish or continue in effect any law, regulation, rule, requirement, or standard that conflicts with the requirements of this section.”^[26] The INFORM Consumers Act took effect on June 27, 2023.^[27]

4. This bill expands SB 301’s scope and permits enforcement by certain public prosecutors

This bill builds on SB 301 by extending its application to online marketplaces and third-party sellers not currently covered by SB 301, by allowing specified local actors to enforce violations, and by adding additional obligations on covered platforms.

First, the bill modifies the definitions of “online marketplace,” “high-volume third-party seller” and “third party seller.” Title 1.4d currently applies only to marketplaces in which the online marketplace and the consumer have a contractual relationship relating to the sale^[28] (such as eBay or Amazon), and to third-party sellers who use the online marketplace’s payment processor.^[29] According to the author, these definitions are a loophole that exclude online marketplaces like Facebook Marketplace and Craigslist on which stolen goods may be sold. The bill, therefore, removes the requirements (1) that the online marketplace have a contract with the consumer, and (2) that the sales transaction be conducted through the platform’s payment processor.

Opponents of the bill have raised the concern that the amended language would require online marketplaces to track a seller’s sales across all online marketplaces, which they say would be difficult, if not impossible. The author has agreed to amendments to clarify that a seller’s status is determined on a marketplace-by-marketplace basis, based on the number of sales on each particular platform. The amendments are set forth in Part 6 of this analysis.

Second, the bill expands the scope of who may commence a civil action to enforce Title 1.4d’s provisions. Currently, only the Attorney General may bring such a civil action.^[30] This bill would additionally authorize a district attorney in any county, a city attorney in any city, or a county counsel in any county to bring an enforcement suit, lessening the burden on the Attorney General to conduct enforcement.

Third, the bill adds new requirements for online platforms. Specifically, the bill (1) requires an online marketplace to verify that the high-volume third-party sellers are in compliance with their disclosure requirements; (2) requires an online marketplace to alert law enforcement if it reasonably believes that a third-party seller is attempting to sell stolen goods to a California resident; and (3) prohibits an online marketplace from allowing a business or person to utilize its platform or other services if it has reason to believe the business or person is selling stolen goods.

Item (2) is within the jurisdiction of the Public Safety Committee, to which the bill is referred after this Committee. Item (1), as currently in print, is slightly unclear; the author has agreed to amendments to clarify the requirement. Opponents of the bill have raised the concern that this requirement is redundant—existing law already requires an online marketplace to suspend a seller that is not in compliance with its obligations—and that the verification mechanism may cause confusion about why smaller sellers are not verified, leading consumers to favor larger sellers. The author may wish to continue working with the stakeholders to ensure that smaller sellers are not prejudiced.

Item (3) raises concerns because it sets an extremely low bar for kicking a person off of an online marketplace due to suspicions about selling stolen goods—even if they were not aware the goods might be stolen—and provides no right of redress for persons wrongfully accused. Given that some persons make their livelihoods off of online marketplace sales, a false positive could be ruinous for a person incorrectly believed to be selling stolen goods, or kicked off of a platform because they sold goods they legitimately did not know were stolen. Opponents of the bill also note that requiring online marketplaces to take action against sellers suspected of stolen goods could give rise to anticompetitive behavior, e.g., competitors filing false reports against each other.

To avoid these concerns, the author has agreed to amendments that instead require an online marketplace to establish and maintain a policy prohibiting the sale of stolen goods, including consequences for knowingly selling stolen goods, including, but not limited to, suspension or termination of the seller’s account; to require an online marketplace to post this policy publicly; and to have a mechanism to allow users to report suspected stolen goods on the platform. The amendments are set forth in greater detail in Part 6 of this analysis.

5. The federal INFORM Consumers Act does not appear to preempt this bill

The Supremacy Clause provides that the laws of the United States take precedence over state laws.^[31] Accordingly, federal law may specify whether, and to what extent, it preempts state laws regulating the same subject matter; and even where a law does not contain an express preemption clause, “state law must yield to a congressional Act in at least two circumstances.”^[32] First, “[w]hen Congress intends federal law to ‘occupy the field,’ state law in that area is preempted.”^[33] Second, “even if Congress has not occupied the field, state law is naturally preempted to the extent of any conflict with a federal statute.”^[34] This “conflict preemption” may arise “where it is impossible for a private party to comply with both state and federal law,” and “where under the circumstances of a particular case, the challenged state law stands as an obstacle to the full purposes and objectives of Congress.”^[35] The Supreme Court has made clear that “[i]nvoking some brooding federal interest or appealing to a judicial policy preference should never be enough to win preemption of a state law; a litigant must point specifically to a ‘constitutional text or a federal statute’ that does the displacing or conflicts with state law.”^[36]

As discussed above in Part 2, Congress passed the INFORM Consumers Act in 2022, and the bill took effect in 2023.^[37] The INFORM Consumers Act regulates online marketplaces and high-volume third-party sellers under largely, but not entirely, the same terms as SB 301. The INFORM Consumers Act also states that no state may establish “any law, regulation, rule, requirement, or standard that conflicts with the requirements of” the INFORM Consumers Act.^[38] Some of the bill’s opponents have argued that the INFORM Consumers Act therefore preempts this bill. This does not appear to be the case.

As the Supreme Court has noted, the categories of preemption “are not ‘rigidly distinct.’ ”^[39] The INFORM Consumers Act’s preemption clause appears to be a hybrid express/conflict statement of preemption. The clause is express insofar as it is written into the statute itself, but the clause does not explicitly prohibit state legislation to regulate online marketplaces and high-volume third-party sellers. Instead, the clause prohibits any conflicting state laws. Given that this prohibition is baked into the Supremacy Clause anyway,^[40] it is difficult to discern what, if any, additional meaning should be given to this provision; Committee staff were unable to locate any court decision interpreting this particular preemption clause that could provide guidance on how to proceed.

What is clear, however, is that Congress knows how to draft a preemption clause when it intends to occupy the field. The Federal Meat Inspection Act (FMIA), for example, states that requirements relating to the premises, facilities, and operations of any establishment covered by the act “which are in addition to, or different than those made under [the FMIA] may not be imposed by any State or Territory or the District of Columbia” except for certain exempted recordkeeping requirements.^[41] The Supreme Court interpreted the FMIA’s preemption clause to “prevent[] a State from imposing any different—even if non-conflicting—requirements that fall within the scope of the [FMIA] and concern a slaughterhouse’s facilities or operations.”^[42]

Congress did not sweep so broadly with the INFORM Consumers Act. The INFORM Consumers Act’s preemption clause prohibits conflicting prohibitions only, and is silent on whether a state may add additional, non-conflicting requirements. Under the expressio unius est exclusion alterius principle—which holds that “the expression of one thing in a statute ordinarily implies the exclusion of other things”^[43]—it may be appropriate to infer that Congress intended only to preempt conflicting requirements and not to preempt additional, non-conflicting requirements. As the bill’s opponents note, the bill creates obligations in addition to the INFORM Consumers Act, but it does not appear (nor does anyone argue) that the new obligations create a conflict between the two legal frameworks. Accordingly, it does not appear that this bill would be preempted by federal law.

6. Amendments

As noted in Part 3, the author has agreed to clarifying amendments, as well as amendments to require an online marketplace to have a policy prohibiting the sale of stolen goods on the platform. The amendments are set forth below, with deletions in strikethrough and additions in bold/underline, subject to any nonsubstantive changes the Office of Legislative Counsel may make:

Amendment 1

At page 2, modify Civil Code section 1749.8(b) as follows:

(b) “High-volume third-party seller” means a third-party seller on an online marketplace who, in any continuous 12-month period during the previous 24 months, has entered into 200 or more discrete transactions utilizing an the online marketplace for the sale of new or unused consumer products to buyers located in California resulting in the accumulation of an aggregate total of five thousand dollars ($5,000) or more in gross revenues.

Amendment 2

At page 6, modify Civil Code section 1749.8.9(a) to read:

(a) An online marketplace shall verify and identify disclose to consumers that each whether a high-volume third-party seller has complied with Section 1749.8.1 lawfully.

Amendment 3

At page 7, delete the existing Civil Code section 1749.8.9(c) and insert:

(c) An online marketplace shall do both of the following:

(1) Establish and maintain a policy prohibiting the sale of stolen goods on the platform, which must include consequences for knowingly selling stolen goods on the platform, including, but not limited to, suspension or termination of the seller’s account. This policy shall be posted and readily accessible to users.

(2) Provide a mechanism on the platform that allows any individual to notify the online marketplace that a seller is or may be selling stolen goods. The reporting mechanism shall be publicly posted and readily accessible to users.

7. Arguments in support

According to the Prosecutors Alliance:

The bill strengthens existing law by mandating that all high volume third party sellers who utilize an online marketplace to sell goods must comply with the recently enacted SB 301 (Skinner 2022), by providing to the online marketplace their name, physical location, banking information, a valid tax document or record that demonstrates that they are a lawfully authorized business, and other key information. The information mandated by SB 301 allowed the California Attorney General, working in concert with federal, state and local law enforcement and online marketplaces to identify individuals directing criminal enterprises and to shut them down, charging them for grand theft and other felonies.

SB 1144 will mandate that online marketplaces create a consumer friendly means of identifying which online sellers are in compliance with California law. Further, the bill will also local prosecutors and city and county counsels to enforce the law, a power that is currently limited to the California Attorney General…

SB 1144 will be a powerful crime prevention and investigatory tool, reducing the opportunity to resell stolen goods, and therefore discouraging those who would profit from breaking the law. For these reasons, PAC strongly supports SB 1144 (Skinner).

8. Arguments in opposition

According to CalChamber, CCIA, and TechNet:

In 2022, online marketplaces and retailers came together to negotiate the federal INFORM Consumers Act, which went into effect just this past summer. These negotiations resulted in legislation that was supported by brick-and mortar retailers and online marketplaces alike. It also created an important federal framework at a time when multiple states were considering their own legislation on the issue of addressing the use of online marketplaces to move stolen goods. This included California, and the California law that passed in 2022 conformed to the language set forth in the federal law.

Now, based on an alleged “loophole” in a brand new law, SB 1144 attempts to change the approach to online marketplaces and would make California operate under a different and more onerous law than the rest of the United States. This means that legitimate businesses using online marketplaces located anywhere in the nation would have to comport with California’s unique laws, something that small businesses are not equipped to do. This outcome is exactly the reason that the federal INFORM act included preemption language – the reality of online commerce necessitates consistency across state lines.

In addition to the INFORM Act, in California, brick-and-mortar retailers, online marketplaces, and the Attorney General agreed to a Statement of Principles in June 2023 that laid out additional commitments that are focused on identifying and addressing ORC. In the handful of months that have followed the effective date of the INFORM Act and the agreement to the Statement of Principles, there has been no evidence that there is a loophole that must be closed.

SUPPORT

Friends Committee on Legislation of California

Los Angeles County Sheriff’s Department

Prosecutors Alliance

Smart Justice California

The Home Depot

United Food and Commercial Food Workers Western States Council

Valley Industry & Commerce Association

OPPOSITION

CalChamber

CCIA

Chamber of Progress

OfferUp

TechNet

RELATED LEGISLATION

Pending Legislation:

AB 2943 (Zbur, 2024) among other things, states that it is the intent of the Legislature to enact legislation to prevent the sale of unlawfully acquired products by requiring sellers of specified products to maintain a chain of custody of the products to demonstrate their lawful provenance and by addressing the use of online platforms to advertise and sell unlawfully acquired products; and to require retail businesses of a certain size to periodically report specified data related to thefts and to strengthen laws to prevent stolen goods from being sold via online marketplaces. AB 2943 is pending before the Assembly Public Safety Committee.

AB 1845 (Alanis, 2024) would create the Identifying, Apprehending, and Prosecuting Resale of Stolen Property Grant Program, until January 1, 2030, to be administered by the Board of State and Community Corrections, for awarding grants to county district attorneys’ offices and law enforcement agencies acting jointly to investigate and prosecute receiving stolen goods crimes and criminal profiteering. AB 1845 is pending before the Assembly Public Safety Committee.

Prior Legislation:

SB 301 (Skinner, Ch. 857, Stats. 2022) see Part 3 of this analysis.

AB 1700 (Maienschein, Ch. 855, Stats. 2022) required the Attorney General to include on its website a feature for reporting suspected stolen goods being sold on an online marketplace, as defined.

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1. Helmore, US retail group retracts claim that half of $94.5bn inventory loss was from theft (Dec. 11, 2023), The Guardian, https://www.theguardian.com/business/2023/dec/07/retail-theft-losses-inventory-nrf. All links in this analysis are current as of March 29, 2024. ↑

2. Stark, Are you spending more because of retail theft? Can California workers chase shoplifters?, Sacramento Bee (Nov. 9, 2023), available at https://www.sacbee.com/news/california/article281619043.html. ↑

3. Fonrogue, et al., America’s biggest companies say retail crime is an epidemic, but just how big is it?, CNBC (Mar. 18, 2023; updated Mar. 20, 2023), https://www.cnbc.com/2023/03/18/organized-retail-crime-debate.html. ↑

4. E.g., Helmore, supra. ↑

5. E.g., Fonrogue, supra. ↑

6. Selyukh, Retailers Howled About Retail Theft Last Year. Why Not Now?, KQED (Mar. 12, 2024), https://www.kqed.org/news/11978954/retailers-howled-about-theft-last-year-why-not-now. ↑

7. Fonrouge, supra. ↑

8. Compare Lofstrom, Presentation, Crime Data on Retail Theft and Robberies in California (Dec. 19, 2023), p. 8, presented to the Assem. Select Com. on Retail Theft, hg. on Retail Crime: Community Impacts and Solutions (Dec. 19, 2023) (relying on Department of Justice data) available at https://www.assembly.ca.gov/committees/selectcommitteeonretailtheft, with id. at p. 9 (relying on Council on Criminal Justice, Shoplifting Trends: What You Need to Know (Nov. 2023), fig 2 (selected for Los Angeles), https://counciloncj.org/shoplifting-trends-what-you-need-to-know/). ↑

9. Compare, e.g., Selyukh, supra (some retailers are not reporting retail thefts to the police), with Council on Criminal Justice, Shoplifting Trends: What You Need to Know (Nov. 2023), supra (discussing data suggesting that retailers in some cities are reporting shoplifting at a greater rate). ↑

10. Assem. Select Com. on Retail Theft, hg. on Retain Crime: Community Impacts and Solutions (Dec. 19, 2023), testimony of Magnus Lofstrom. ↑

11. Ibid. ↑

12. Sulyukh, supra. ↑

13. Ibid. ↑

14. See Civ. Code, §§ 1749.8-1749.8.5. ↑

15. Sen. Com. on Judiciary, Analysis of Sen. Bill No. 301 (2021-2022 Reg. Sess.) as introduced. ↑

16. Civ. Code, § 1749.8(c). ↑

17. Id., § 1748.8(b). ↑

18. Id., § 1749.8.1. ↑

19. Id., § 1749.8.2. ↑

20. Id., § 1749.8.3. ↑

21. Id., § 1749.8.4. ↑

22. Id., § 1749.8.5(b). ↑

23. See Pub. L. No. 117-328 (Dec. 29, 2022) 136 Stat. 4459, div. BB, § 301; 15 U.S.C. § 45f. ↑

24. 15 U.S.C. § 45f. ↑

25. Id., § 45f(d). ↑

26. Id., § 45f(g). ↑

27. Id., § 45f(h). ↑

28. Civ. Code, § 1749.8(c). ↑

29. Id., § 1749.8(b). ↑

30. Id., § 1749.8.4. ↑

31. U.S. Const., art. VI, cl. 2. ↑

32. Crosby v. National Foreign Trade Council (2000) 530 U.S. 363, 372. ↑

33. Ibid. ↑

34. Ibid. ↑

35. Id. at p. 372-373 (cleaned up). ↑

36. Virginia Uranium, Inc. v Warren (2019) 587 U.S. —, 139 S.Ct. 1894, 1901. ↑

37. 15 U.S.C. § 45f(h). ↑

38. Id., § 45f(g). ↑

39. Crosby, supra, p. 372, fn. 6. ↑

40. See id. at pp. 372 ↑

41. 21 U.S.C. § 678. ↑

42. National Meat Ass’n v. Harris (2012) 565 U.S. 453, 459-460. ↑

43. In re J.W. (2002) 29 Cal.4th 200, 209. ↑