Temu’s low cost marketplace faces formal probe in EU over raft of DSA compliance concerns

The European Union has expanded its scrutiny of online marketplaces by opening a formal proceeding on Chinese low cost ecommerce platform, Temu, under the Digital Services Act (DSA), the Commission announced Thursday.

Enforcers of the online governance framework will now dial up their oversight of Temu. The bloc’s suspicions are focused on concerns about the sale of illegal products, which may include things like toys and cosmetics that could potential harm consumers by not complying with EU standards; addictive design related to how the marketplace seeks to gamify shoppers’ engagement; the transparency of Temu’s recommender systems, including the lack of a non-profiling-based option for users; and issues with obligations related to researcher access to public data.

If the Commission confirms any breaches of the DSA Temu’s parent, Pinduoduo, could face fines of up to 6% of its annual global turnover.

The EU only designated Temu as subject to the DSA’s strictest set of rules — which apply transparency requirements on larger platforms as well a requiring they assess and mitigate systemic risks — back in May, with compliance for those rules expected from this month, so the bloc’s enforcers are moving quickly.

They’ve previously said online marketplace safety is one of their core priorities for DSA enforcement, opening an earlier investigation of the ecommerce giant AliXpress this spring (which remains ongoing).

Widespread concerns

In a briefing with journalists ahead of the formal proceeding being made public, Commission officials said the swiftly opened investigation on Temu reflects both how rapidly the marketplace has grown in the region (only launching last year) and how many concerns have been shared with it about aspects of the platform by others, including consumer protection agencies and Member State-level Digital Services Coordinators (DSCs), which enforce the DSA’s general rules.

The Commission noted this is the first time it’s building an investigatory case on the basis of data provided to it by DSCs who have an oversight role on Temu since mid February. DSCs in Ireland and Germany are among those that have provided data on Temu to the EU.

Customs authorities and market surveillance bodies have also raised concerns, per the Commission.

While, back in May, consumer protections from around the EU grabbed headlines after lodging a series of coordinated complaints against Temu — accusing the company of breaching the DSA’s general rules.

Since then the EU has taken over oversight of Temu after it was confirmed as a so-called very large online platform (VLOP) and became subject to the DSA’s algorithmic accountability obligations too.

Temu’s assessment and mitigation of systemic risks is one of the areas the Commission will now investigate.

Deeper look

Officials told journalists they are concerned its risk assessment document — which Temu shared with the EU at the end of September — was “far too generic”.

On illegal products the bloc said it’s worried about illegal products quickly reappearing on the platform after being taken down and “rogue traders” also respawning. But wants to do more systemic checks to find out how extensive a problem this might be.

The Commission’s concerns on addictive design relate to DSA obligations on platforms to prevent negative impacts on users mental well-being. Temu’s system of gamified reward programs and features like indefinite scrolling merit closer assessment, officials said.

The researcher access issue relates to public data that Temu should be making available (such as through APIs) so that independent researchers can study things like its rates of take downs of non-compliant products.

While the bloc had already sent Temu a couple of requests for information regarding its DSA compliance — including in relation to illegal products — the Commission’s formal proceeding unlocks more enforcement powers, meaning the EU will be able to deepen its investigation.

Officials stressed that while they have reason to suspect Temu could be non-compliant they need to gather more data to confirm whether or not there has been a breach.

The EU also points out that DSA investigations may be closed if a platform offers commitments that assuage concerns. And the bloc remains keen for the regulation to be seen moving the needle on priority safety issues — hence the Commission accepting binding commitments from TikTok to resolve concerns around addictive design of the TikTok Lite app earlier this year.

In a statement responding to the DSA investigation, Temu wrote: “Temu takes its obligations under the DSA seriously, continuously investing to strengthen our compliance system and safeguard consumer interests on our platform. We will cooperate fully with regulators to support our shared goal of a safe, trusted marketplace for consumers.”

The company also noted that it is in discussions to join the Commission’s “Memorandum of Understanding on the sale of counterfeit goods on the internet — a voluntary effort to boost efforts to combat the sale of counterfeit goods online.

“Counterfeiting is an industrywide challenge, and we believe that collaborative efforts are essential to advancing our shared goals of protecting consumers and rights holders,” Temu added.