Marketplaces Angle For Section 230 Reprieve As CA Law Sets Out To Crack Down On Sales Of Stolen Goods
UPDATE 6-30-25
In a joint status report filed with the court today, CA Attorney General Rob Bonta and Netchoice say they "have not reached any agreement regarding a stay of enforcement of Senate Bill 1144, and do not anticipate doing so by July 1, 2025."
That means for now, the law will be going into effect as planned - unless the judge issues an order to the contrary tomorrow.
Amazon, eBay, Facebook, Etsy and other online marketplaces are bracing for the impact of a new CA law aimed at curbing the sale of stolen goods online, while hoping for a last minute Section 230 reprieve.
CA SB1144, which passed in 2024 and is expected to go into effect July 1, 2025, expands beyond the requirements of the federal INFORM Consumers act, placing even stricter requirements on marketplaces to vet and verify "high volume sellers" of new condition consumer goods, with stiff penalties for non-compliance.
The bill intends to reduce the sale of stolen property online and facilitate the recovery of stolen goods by creating a statewide regulatory program for online marketplaces that allow the sale or resale of products to Californians.
Key Definitions & Revisions
High-volume third-party seller: Redefined as a seller who, in any continuous 12-month period over the past 24 months, has entered into 200 or more transactions using an online marketplace, resulting in at least $5,000 in gross revenue from sales to California buyers.
The bill removes the requirement that payment must be processed by the online marketplace, instead requiring only that the transaction utilizes the marketplace.
Online marketplace: Defined as a consumer-directed, electronically accessed platform that enables or facilitates third-party sales, but the bill removes the requirement that these features must be used by third-party sellers or that the platform must have a contractual relationship with consumers.
Verification and Certification: Online marketplaces must verify and certify that products in new condition advertised by high-volume third-party sellers were lawfully obtained. Certified sellers must be identified on the website as operating legally and ethically.
Prohibitions: Online marketplaces are prohibited from allowing any business or person suspected of selling stolen goods to use their platform. They must also alert California law enforcement if they suspect a seller is attempting to sell stolen goods to California residents.
COMAT System: The Department of Justice is required to create the California Online Market Anti-Theft (COMAT) system, a searchable database for law enforcement. This database will include information on online marketplaces, high-volume third-party sellers, and whether sellers are certified as operating legally.
Licensing and Fees: The Department of Justice will establish a licensing system for online marketplaces and high-volume sellers, assessing annual fees to cover the costs of developing and maintaining the COMAT system and the licensing program. Fees may be tiered based on annual revenue.
COMAT Fund: A dedicated fund is established to collect and manage licensing fees for the administration and maintenance of the COMAT system and licensing program.
Some marketplaces have already started making preparations for the new law to go into effect, such as Amazon's recent articulation of a new policy to reinforce their existing restrictions on the sale of stolen goods.
Effective June 30, 2025, we’ll implement a new, dedicated stolen goods policy that reinforces our commitment to combat the sale of stolen goods to help protect customers.
To comply with new government regulations, we’re required to create this as a standalone policy, but this new policy is consistent with our existing efforts to investigate and prevent the sale of stolen goods. This new policy is also consistent with sellers’ existing requirements not to engage in illegal activities.
The sale of stolen goods is illegal. To comply with the policy, you should continue to ensure the legitimacy of your supply chain as described in our existing policies, such as the Responsible Sourcing documentation request requirements.
As a reminder, the sale of stolen goods may result in removal of listings, immediate loss of selling privileges, ineligibility for fund disbursement, disposal of inventory in our fulfillment centers at your expense, and other legal consequences.
And eBay appears to be hoping that AI can help them solve their regulatory and compliance obligations.
Liz Morton
If successfully implemented, these laws could help curb not only traditional "smash and grab" organized retail crime but also more sophisticated digital shoplifting schemes like triangulation and other forms of online fraud that run rampant on Amazon, Walmart, eBay, Poshmark and many other online marketplaces.
Liz Morton
These multi-billion dollar corporations engage heavily in various lobbying campaigns at both the state and federal levels in effort to sway legislation toward solutions that would put less responsibility and accountability on marketplaces, often using sellers on their platforms as PR pawns to argue that small businesses would be harmed by "overly burdensome" vetting and reporting requirements.
Liz Morton
Unfortunately, legislative and regulatory efforts to rein in online crime and the resale of stolen goods often bump up against Section 230 of the Communications Decency Act of 1996, the so called "26 words that created the internet," which provides broad immunity to online platforms for content posted by their users.
eBay won the dismissal of a potential ~$2 Billion lawsuit filed by the EPA seeking to hold the company liable for the sale of dangerous and illegal goods through their site on Section 230 grounds last year.
Liz Morton
Walmart has also used the same argument as a defense for why they believe they shouldn't be liable for enabling and profiting from allowing massive amounts of fraud to proliferate across their platform.
Liz Morton
And as these marketplaces increasingly stuff AI into every part of the user experience for both buyers and sellers, Section 230 will continue to be an important "get out of liability free" card that they will fight hard to retain.
Liz Morton
Similarly, eBay and other marketplaces often lobby for legislation like the Combating Organized Retail Crime Act (CORCA) which would focus legal and regulatory scrutiny on brick and mortar shoplifting while ignoring much larger online fraud and digital theft problems that plague these marketplaces.
Liz Morton
But it's not just the spectre of direct fines or lawsuits that has these marketplaces clamoring to hold onto the Section 230 shield at all costs - if that protection went away, it could expose just how much of their publicly reported Gross Merchandise Volume/Sales comes from illegal activity, potentially impacting stock prices and leading to shareholder action and/or SEC investigations for the publicly traded companies like eBay and Etsy.
In theory, the federal INFORM Consumers Act should have helped curb fraud and crime with provisions requiring marketplace to vet and verify "high volume sellers" - but in practice, it hasn't really put a dent in it.
Liz Morton
Some legislators and regulatory agencies have recently been considering reworking or sunsetting Section 230 completely, indicating they are open to the idea that these very large tech companies should bear at least some liability for activity on their sites.
Liz Morton
The Trump administration could take steps to accelerate action on Section 230 with Federal Communications Commission, Brendan Carr already pushing for reforms, largely aimed at Big Tech battles over social media censorship.
Charles Gasparino
Carr, who wrote the Project 2025 chapter on the FCC, has said, “The FCC should work with Congress on more fundamental Section 230 reforms that go beyond interpreting its current terms. Congress should do so by ensuring that Internet companies no longer have carte blanche to censor protected speech while maintaining their Section 230 protections."
Unfortunately, corporations have very little incentive to do anything beyond Minimum Viable Compliance box checking exercises when they know they are legally insulated from liability and can afford to keep litigation tied up for years should anyone try to challenge the status quo.
And now, industry trade association Netchoice (which represents Big Tech companies like Amazon, Google, Meta, PayPal, eBay, and Etsy) may rack up another Section 230 win with a lawsuit challenging CA SB1144 and seeking to stop the law from going into effect as scheduled.
According to Courthouse News, a federal judge said on Thursday that she would likely block the enforcement of the law as she believes it conflicts with federal regulations and would likely be trumped by Section 230.
At a hearing, U.S. District Judge Beth Labson Freeman told attorneys that Senate Bill 1144 was likely trumped by Section 230 of the Communications Decency Act, which shields online businesses and social media platforms from liability for content posted by users.
But despite urging from the plaintiffs at NetChoice, a powerful tech lobbying group that represents companies like Amazon, Google, Lyft, Meta, PayPal, Snap, Waymo and X, the judge said she wouldn’t bring any First Amendment elements into her ruling.
“Courts are loath to jump into constitutional questions where they are not required to,” the Barack Obama appointee told attorneys.
The judge said the conflict with federal law was enough to grant a preliminary injunction barring the California Attorney General from enforcing the statute, but also admitted she was still deciding whether her order would block the entire law or just specific sections.
“It may be my role to apply Section 230 narrowly and only to the sections of the law that are preempted by federal law,” Freeman stated.
Freeman also said that a related ruling in NetChoice's favor, filed in the Northern District of Georgia, guided her thinking on the preliminary injunction, remarking that the judge in that case “nailed it.”
Liz Morton
But even with that tentative ruling laid out, the timing of a final decision could still impact whether the law goes into effect on July 1st or if the state will postpone enforcement.
Judge Freeman advised the attorneys that the injunction would take her between six and eight weeks to issue but that if California didn’t agree to stay enforcement, she would have “no choice” but to issue an order before the law takes effect, which she would modify later to include her reasoning.
The state is to to the court by Monday, June 30, as to whether it will agree to stay enforcement, so stay tuned for updates in this developing story.
The case is NetChoice v. Bonta, case # 5:25-cv-03178 in the Northern District of California.
