Senate Hears how Criminals Infiltrate Online Sales with Stolen or Fake Goods
WASHINGTON — While toy makers warn Christmas shoppers to beware counterfeit or stolen toys in online purchases, a Senate panel on Tuesday examined options for stopping them.
The Senate Judiciary Committee also heard about how knockoff online sales are moving from small-time illegal enterprises to organized crime.
“Retailers lose $45 billion each year from schemes,” said Sen. Dick Durbin, D-Ill., chairman of the Senate Judiciary Committee.
The illegal sales have included unsanitary baby formula, sometimes stored beyond the expiration dates and at high, unsafe temperatures.
For third-party Internet sales, often originating in foreign countries among sellers who cannot be traced, “You’re really rolling the dice” on health and safety, Durbin said.
The Senate committee held its hearing on cleaning up online marketplaces a day after the trade group The Toy Association announced the risk of buying unsafe counterfeit toys is greater this year than in the past.
The COVID-19 pandemic contributed to a global supply chain bottleneck, making some shoppers desperate to purchase products anywhere they can get them inexpensively, according to The Toy Association. Some of the sellers are disreputable.
“Illicit online sellers are out there, duping consumers into thinking they are buying the real thing or enticing them with much lower prices or the promise of getting a ‘hot toy’ of the holiday season,” said Steve Pasierb, president of The Toy Association. “In fact, their fake, noncompliant products have the potential to be dangerous and should be avoided at all costs.”
Like witnesses at the Senate hearing, The Toy Association urged online shoppers to carefully scrutinize online listings to ensure products come from reputable sellers and known brands.
The Senate is considering legislation called the INFORM Consumers Act that would give law enforcement a bigger role in halting suspicious online sales. The House recently passed its own version of the bill.
The INFORM (Integrity, Notification, and Fairness in Online Retail Marketplaces) Consumers Act would set standards for online retail marketplaces to authenticate the identity of “high-volume third-party sellers.”
Internet platforms like Amazon, eBay and Etsy would be required to acquire each seller’s government ID, tax ID, bank account information and contact information. High-volume third-party sellers would need to disclose to consumers their names, business addresses, email addresses and phone numbers.
Online marketplaces would need to post hotline phone numbers that allow customers to report sales of products they suspect are stolen, counterfeit or dangerous.
Sen. Charles Grassley, R-Iowa., said the rising tide of illicit sales is overwhelming the ability of Internet marketplaces and their customers to find and stop all of them.
“Law enforcement also is overwhelmed,” Grassley said.
Courts that try to catch and punish the culprits generally follow the case law from the 2010 federal court ruling of Tiffany, Inc. v. eBay.
The luxury item retailer sued eBay for trademark infringement and false advertising when counterfeiters sold fake Tiffany jewelry through the online market. EBay won the case when an appellate court in New York ruled online marketers could not be liable when counterfeiters slip through their security net to defraud customers.
“It’s clear that voluntary efforts by big tech companies, while a good first step, are not enough,” Grassley said.
Dane Snowden, president of the trade group Internet Association, said Congress should develop a national “framework” for tracking illegitimate online sellers. He cautioned against a confusing mix of state and local laws that could burden small businesses.
Amazon, eBay and Etsy are members of the Internet Association. They recently endorsed the INFORM Consumers Act, which Snowden said shows their good faith in trying to clean up online sales.
“When they find something that violates their terms of service, they take it down,” he said.
Ben Dugan, director of the organized retail crime team at CVS Health, said the pharmacy chain has seen an uptick in thefts at the stores in the past year that he attributed to organized crime. He said criminals steal goods from retailers like CVS to sell on online marketplaces like Amazon.
“These products go from the hands of criminals to the hands of families,” Dugan said.
Tom can be reached at [email protected]