California law would force marketplaces to be more transparent – at a price

California Senate Chamber

On Tuesday, California Assembly Bill AB-1790 passed a major hurdle as the Senate Judiciary Committee approved the bill to move forward in a 7 to 1 vote.

There is still a way to go before the provisions in AB-1790 become law. But it is a bipartisan bill, therefore the chances are good and AB-1790 could eventually become law.

The key provisions of this bill are to force marketplaces such as Amazon, eBay, Etsy, and others to provide more transparency to marketplace sellers.

This bill is sponsored by Working Partnerships USA. It is supported by various labor groups and business associations. It is opposed by Amazon and various technology and business associations.

Here is the amended law in AB-1790 as it stands today

SECTION 1. Title 1.4C (commencing with Section 1749.7) is added to Part 4 of Division 3 of the Civil Code, to read:

TITLE 1.4C. Clarity of Marketplace Terms and Conditions and Dispute Resolution Minimum Fairness

1749.7. (a) Every marketplace shall ensure that their terms and conditions regarding commercial relationships with marketplace sellers meet all of the following requirements

  • (1) Are drafted in plain and intelligible language.
  • (2) Are easily available online for marketplace sellers at all stages of their commercial relationship with the marketplace, including, but not limited to, during the stage prior to the formation of a contract.
  • (3) Set out the grounds for decisions to retain, or refuse to disburse, funds in its possession belonging to a marketplace seller pending investigation or resolution of a dispute between the marketplace and the marketplace seller and the objective grounds for suspending or terminating a marketplace seller from participating in the marketplace.
  • (4) If the marketplace permits the possibility to influence ranking or preferential placement within the marketplace of tangible personal property or services sold by marketplace sellers through the marketplace, the terms and conditions shall include a description of those possibilities and of the effects of the ranking or preferential placement, whether ranking or preferential placement may be purchased, and the price of that ranking or preferential placement.

(b) If a marketplace decides to suspend or terminate, in whole or in part, a marketplace seller, the marketplace shall provide the marketplace seller, without undue delay, with a written statement of reasons for that decision. The written statement of reasons shall refer to the specific facts and circumstances that led to the decision and the terms or conditions that permit the suspension or termination.

(c) A marketplace shall not destroy products in its possession that are the property of a marketplace seller without offering the marketplace seller a reasonable opportunity to retrieve the marketplace seller’s property.

(d) A marketplace shall require marketplace sellers to purchase and maintain liability insurance to cover claims by customers related to the services or tangible personal property sold by the marketplace seller through the marketplace. A marketplace shall disclose the requirement in its terms and conditions consistent with subdivision (a) and shall establish reasonable and effective policies and practices to ensure that the requirement remains in effect.

(e) For purposes of this section, “marketplace” means a physical or electronic place, including, but not limited to, a store, booth, internet website, catalog, television or radio broadcast, or a dedicated sales software application, where a marketplace seller sells or offers for sale services or tangible personal property for delivery in this state, regardless of whether the tangible personal property or the marketplace has a physical presence in the state.

(f) For purposes of this section, “marketplace seller” means a person residing in the state who has an agreement with a marketplace and makes retail sales of services or tangible personal property through a marketplace owned, operated, or controlled by that marketplace.

(g) For purposes of this section, “ranking” means the relative prominence given to the tangible personal property or services offered to consumers through a marketplace, as organized or communicated to those consumers by the marketplace, irrespective of the technological means used for that organization or communication.

SEC. 2. The provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.

What AB-1790 means

From a layman’s point of view, it would seem this bill would apply to all marketplace sellers if the marketplace has a legal connection to the State of California or if the marketplace seller is a resident of the State of California.

However, in the Senate Judiciary Committee analysis of the bill, there is clarifying language that defines “marketplace seller” to mean:

“…a California resident who has an agreement with a marketplace and makes retail sales of services or tangible personal property through a marketplace owned, operated, or controlled by that marketplace.”

Therefore, the intent of the bill, and presumably the legal standing of any state’s law is limited to entities that reside in the state.

In other words, this bill will only cover sellers that reside in the state of California and will have no legal impact on sellers outside of California.

Liability insurance provision in AB-1790

Another interesting area of the bill is the requirement by marketplace sellers to have liability insurance. Again, going to the Senate Judiciary Committee analysis for clarification, it seems this provision is aimed at business sellers.

Marketplaces generally have definitive distinctions between personal sellers and business sellers. However, there are several groups of “business sellers” that may be negatively impacted by this insurance requirement.

  1. Retail arbitrage sellers – Often known as “Thrifters”, are sellers who search through close out racks at retail stores or flea markets for products they can sell at a profit on marketplaces may now become liable for the performance and safety of the products they sell on a marketplace.
  2. Dropshippers (arbitrage) – Sellers who set up seller accounts on marketplaces to sell products they purchase from other online retailers may also have to get liability insurance. While this seller is already being squeezed out by eBay and Amazon seller policies, there are still a fair amount of sellers that engage in dropshipping arbitrage. This could be the final nail in the coffin for California based arbitrage dropshippers.
  3. Small artists / homemakers / hobby sellers – For tiny sellers that use marketplaces to sell a few items they make at home or on the side, such as fashion jewelry or clothing, requiring liability insurance may not be worth the little profit they make on these items.

While the reasoning for requiring liability insurance in AB-1790 is sound, it could force smaller sellers or those operating on thin margins, to leave marketplaces.

There is already a war by marketplaces on dropshipping arbitrage sellers, so that won’t matter much to marketplaces as the liability insurance provision gives them another weapon to keep those sellers off their platform.

READ MORE: eBay aggressively banning drop shipping / arbitrage accounts

What about sellers outside California?

In theory, it would make sense for marketplaces to adopt a universal transparency policy and process for all sellers.

If this bill becomes law, it is plausible other states may consider similar laws. Before there are 50 different laws about marketplace transparency, marketplaces may decide they are better off just following this one law and make it universal for all sellers in the US.


What is your thought on AB-1790 going through the California legislature? Please use the comments section below or head over to our Facebook Group for Small Business Sellers and interact with other small business owners.
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