Whaleco Technology Limited – the retail giant that does business as Temu – is the latest company to be designated as a Very Large Online Platform (“VLOP”) under the Digital Services Act (“DSA”), a European Union law that aims to counter the sale of illegal products and services on online marketplaces and combat illegal and harmful content on and practices by online platforms. The European Commission said in a statement on Friday that the online marketplace has an average of more than 45 million monthly users in the European Union, a number that Temu “has communicated to the Commission” and that is “above the DSA threshold for designation as a VLOP.”
According to the Commission, “Following today’s designation as a VLOP, Temu will have to comply with the most stringent rules under the DSA within four months of its notification (i.e. by the end of September 2024), such as the obligation to duly assess and mitigate any systemic risks stemming from their services, including the listing and sale of counterfeit goods, unsafe or illegal products, and items that infringe intellectual property rights.”
A spokesperson for Temu told TFL on Friday, “Temu acknowledges the European Commission’s designation of our platform as a Very Large Online Platform (VLOP) under the Digital Services Act (DSA). We are fully committed to adhering to the rules and regulations outlined by the DSA to ensure the safety, transparency, and protection of our users within the European Union.”
Specifically, the Commission stated that among the additional obligations that will apply to Temu as a result of the 75 million average monthly active users that it caters to in the EU and its corresponding designation as a VLOP are …
(1) More diligent surveillance of illegal products
– Temu needs to diligently analyse the specific systemic risks with regard to the dissemination of illegal content and products and from the design or functioning of its service and its related systems. Risk assessment reports will have to be provided to the Commission 4 months after the notification of the formal designation and thereafter one a year;
– Temu must put in place mitigation measures to address risks, such as the listing and sale of counterfeit goods, unsafe products, and items that infringe on IP rights. These measures can include adapting the terms of service, enhancing user interface design for better reporting and detection of suspicious listings, improving moderation processes to swiftly remove illegal items, and refining its algorithms to prevent the promotion and sale of prohibited goods; and
– Temu must reinforce its internal processes, resources, testing, documentation, and supervision of any of the activities linked to the detection of systemic risks.
(2) Enhanced Consumer Protection Measures
– The yearly risk assessment reports by Temu must specifically evaluate any potential adverse effects on consumer health and safety, with an emphasis on the physical and mental well-being of underage users; and
– Temu is required to structure its platform, including user interfaces, recommendation algorithms, and terms of service, to mitigate and prevent risks to consumer safety and well-being. Measures must be implemented to protect consumers from purchasing unsafe or illegal goods, with particular focus on preventing the sale and distribution of products that could be harmful to minors. This includes incorporating robust age assurance systems to restrict the purchase of age-restricted items.
(3) More transparency and accountability
– Temu needs to ensure that its risk assessments and compliance with all the DSA obligations are externally and independently audited every year;
– Temu needs to publish repositories of all the ads served on its interface;
– Temu will have to give access to publicly available data to researchers, including to vetted researchers designated by Digital Services Coordinators;
– Temu needs to comply with transparency requirements, including the publication of transparency reports on content moderation decisions and risk management every six months, in addition to reports on the systemic risks and audit results once a year; and
– Temu has to appoint a compliance function and be subject to an external independent audit every year.
Not without impetus, the European Commission’s designation of Temu as a VLOP comes shortly after EU consumer interest-focused organization Bureau Européen des Unions de Consommateurs (“BEUC”) lodged a complaint with the Commission earlier this month, in which it claimed that the “booming Chinese online marketplace … is failing to protect consumers” and “using manipulative practices that are illegal” under the DSA.
In addition to calling on the relevant Digital Services Coordinators to implement formal proceedings to assess whether Temu has breached the DSA, BEUC requested that the Commission “urgently designate” Temu as a VLOP and monitor Temu’s compliance (or lack thereof) with its obligations once it is designated as a VLOP.
Temu joins the likes of certain Apple, Amazon, Google, LinkedIn, Meta, Microsoft, Pinterest, TikTok, and Twitter entities, among others, bringing the total number of very large online platforms and search engines under the DSA to 24, according to the Commission. The designation of Temu as a VLOP “illustrates how the Commission continues to closely monitor the market developments.” It also seems to indicate that the Commission is not focused exclusively on tech titans, particularly given that it designated fashion e-commerce retailer Zalando as a VLOP in April 2023 and more recently, it put ultra-fast fashion giant Shein in this camp, as well, due to its 108 million average monthly active users in the EU.
As such, large online platforms (i.e., those that meet or exceed the 45 million monthly EU users metric) that are operating in the e-commerce space should likely anticipate attention from the Commission and assume that compliance with the DSA very well may become an inevitability.
No shortage of companies in this segment of the market are closely monitoring developments associated with the DSA not only because of the growing list of VLOP designations but also thanks to the potential ramifications of non-compliance following such a designation. In addition to fines of up to 6 percent of global annual turnover, companies face real risks from a brand image/reputation standpoint if found (or even accused) of violating the tenets of the DSA.
> Against that background, Latham & Watkins has encouraged providers of intermediary services to recipients who are located or established in the EU that are looking for a place to start when it comes to compliance to “consider how the DSA could apply to their specific service(s), and should orientate their future strategy in order to ensure compliance,” and to “review existing notices and processes that may require uplift, or prepare to implement new notices and processes, to cover the following DSA requirements: notice and take down, user terms and conditions, “know your business customer” requirements for online marketplaces, and transparency reporting.”