EU Takes Action Against Temu for Alleged Digital Services Act Breaches

The European Union (EU) has launched a formal investigation into the practices of the e-commerce platform Temu, marking a significant step under the recently enacted Digital Services Act (DSA). The proceedings, announced on October 31, 2024, underscore the EU's commitment to maintaining a secure and fair digital environment, especially on large platforms.

Are you Familiar with Temu?

Temu is an online marketplace known for its extensive selection of goods and highly competitive pricing, similar to platforms like AliExpress and Shein. The company, originating from China and part of PDD Holdings, offers a range of low-cost products to global consumers. However, this model has attracted scrutiny, especially in the EU, as regulators examine the platform’s compliance with rules concerning product safety, ethical sourcing, and consumer protection.

Temu faces challenges related to product compliance, particularly within the EU, where standards for product quality, consumer rights, and digital transparency are high. Ensuring that all products meet these standards is crucial for sustainability, as it reduces waste and enhances consumer trust.

Scope of the Investigation

The European Commission's investigation centers around several key areas of Temu's operations:

• Sale of Illegal Products: The Commission is assessing whether Temu has effective systems to prevent the sale of non-compliant products. The inquiry includes reviewing methods designed to identify and remove banned or potentially harmful products from its platform, particularly those that may resurface from previously suspended sellers.
• Addictive Platform Design: Temu’s platform design incorporates game-like reward programs, which may encourage addictive behaviors. The EU is scrutinizing these design elements, evaluating if they could pose risks to users' mental and physical well-being. Under the DSA, platforms must minimize such risks, particularly in systems that could lead to compulsive behavior.
• Content and Product Recommendations: In line with DSA requirements, Temu must disclose how its algorithms recommend content and products to users. The EU is examining if Temu provides an accessible option for users to engage with content recommendations not based on profiling, as stipulated under the DSA.
• Researcher Data Access: Finally, the Commission is investigating if Temu is meeting its obligations to make publicly accessible data available to vetted researchers. This requirement is designed to increase transparency and support research into the broader societal impacts of large digital platforms.

Implications Under the Digital Services Act

Designated as a Very Large Online Platform (VLOP) due to its substantial user base of over 45 million monthly EU users, Temu faces heightened compliance standards under the DSA. According to the EU, Temu recently reported 92 million monthly active users in the EU, underscoring its significant market presence. The DSA mandates that VLOPs conduct risk assessments and mitigate any systemic risks associated with their services.

If the Commission finds that Temu violated DSA obligations, the platform could face penalties of up to 6% of its global revenue and potential operational restrictions within the EU. This investigation also opens the possibility for Temu to submit compliance commitments as a means to avoid further sanctions, though the outcome remains open pending the in-depth investigation.

Next Steps in the Investigation

With the proceedings formally underway, the Commission will continue to collect evidence and potentially conduct monitoring actions and interviews. Although the DSA does not impose a specific timeframe for concluding such investigations, the priority given to this case highlights the EU’s determination to hold digital giants accountable. The Commission has indicated that it will work closely with national authorities and other stakeholders to ensure a thorough and comprehensive review.

The EU’s Regulatory Landscape and Sustainability Goals

Through policies like the European Green Deal and frameworks such as the Circular Economy Action Plan, the EU aims to make Europe the first climate-neutral continent by 2050. These sustainability efforts focus on reducing waste, promoting resource efficiency, and enforcing strict environmental standards.

The DSA aligns with sustainability goals by mandating that digital platforms like Temu manage content responsibly, offer transparency in product recommendations, and restrict the sale of illegal or harmful products. Compliance with the DSA means platforms must avoid promoting non-compliant goods, which can contribute to a more sustainable digital marketplace.

The investigation into Temu represents a pivotal moment for the DSA’s implementation, marking a test case for how the EU intends to enforce digital regulations and maintain consumer protection standards. As Margrethe Vestager, Executive Vice-President for a Europe Fit for the Digital Age, noted, “We want to ensure that Temu is complying with the Digital Services Act. Particularly in ensuring that products sold on their platform meet EU standards and do not harm consumers.”