The European Commission has initiated a formal investigation into Temu to assess whether it breached the Digital Services Act in areas linked to the sale of illegal products, presumably, counterfeit goods. The EU investigation will also focus on the “potentially addictive design of the service,” namely, Temu’s game-like reward program and its systems for recommending purchases to users of its app. The probe follow from Temu’s designation as a “Very Large Online Platform” (“VLOP”) under the DSA in May, and a subsequent complaint being lodged against it by an EU consumer interest-focused organization for “failing to protect consumers.”
A Bit of Regulatory Background: Enacted in 2022, the Digital Services Act (“DSA”) established comprehensive standards for VLOPs, like Temu, Shein, X, Meta and others, to ensure consumer protection and transparency. Temu, after reporting over 90 million monthly users, is under EU scrutiny to confirm adherence to these standards, according to the Commission.
The DSA mandates that platforms of Temu’s size comply with enhanced obligations that the EU has mandated for large platforms, including transparency in recommendation algorithms, control of illegal products and measures against addictive design. Thomas Regnier, a spokesperson for the Commission, told TFL that the DSA is the EU’s effort to “hold platforms, all online platforms, more accountable on what happens on their services,” explaining that platforms with over 45 million monthly EU users fall under direct Commission supervision rather than national authorities.
For Temu, the stakes could be high (and expensive), with potential fines reaching up to 6 percent of global revenue per violation – which could amount to 24 percent of the company’s revenue, Regnier said. “If we suspect a breach we could adopt a non-compliance decision, and this would typically be accompanied with a fine going up to 6 percent of the company’s global annual turnover for every single violation of the DSA,” he said, going on to note that “the Commission doesn’t have the reputation to go to the to max amount,” and also that every Commission decision can be challenged in court.
Key Areas of the Investigation
The Commission’s investigation into Temu centers on four main concerns: the sale of illegal products, addictive design practices, recommendation algorithm transparency, and researcher data access …
> Sale of Illegal Products and Rogue Traders: VLOPs are required to prevent the sale of illegal or non-compliant products within the EU. The Commission had already requested additional information from Temu on this issue on June 28 and again on October 11, asking the platform to “provide us with more information on how they actually tackle illegal products and how their recommended systems work,” according to Regnier. But following the platform’s designation as a VLOP and the subsequent information requests, Temu’s responses were deemed unsatisfactory, Regnier said, highlighting how, “[t]here were clear shortcomings in terms of obligation towards illegal products.”
The investigation will address a “quite a broad range” of these products, including “pharma products or toys,” and may employ “mystery shopping” techniques to test Temu’s controls.
> Addictive Design Practices: The investigation also examines whether Temu’s platform uses addictive design features, such as game-like rewards, to encourage prolonged user engagement. Regnier pointed out the Commission’s concern over “the risks linked to the addictive design of the service,” explaining that such features could have “negative consequences to a person’s physical and mental well-being.”
> Transparency of Recommendation Algorithms: Recommendation algorithms, which suggest products based on user profiles, are another key area of compliance under the DSA. Platforms are required to “disclose the main parameters used in [their] systems” and to offer users at least one option not based on profiling. Regnier said that the Commission’s investigation would closely examine Temu’s recommendation system to ensure it meets transparency standards, giving users more control over what content they encounter.
> Data Accessibility for Researchers: The DSA also requires VLOPs to provide researchers with access to publicly accessible platform data to foster independent oversight. Regnier explained that researcher data access is vital for holding large platforms accountable, enabling a better understanding of their societal impacts. Temu’s data policies for researcher access will be reviewed, and any deficiencies could lead to further regulatory action.
The launch of a formal investigation into Temu empowers the Commission to take further enforcement actions, including additional requests for information and monitoring actions. The DSA does not set a fixed timeline for these proceedings, as investigations depend on case complexity, company cooperation and the thoroughness of the legal review. Regnier clarified, “There is no deadline because we need to carry out a very careful analysis and in-depth investigation.” Even after the investigation is complete, Temu would have the opportunity to appeal the findings to the EU’s Court of Justice, which other companies have done.
The Bigger Picture
Temu has continued to face scrutiny over its data privacy and business practices, not just in the EU, but also in the U.S. and around the globe. For instance, Arkansas added itself to the pool of parties that have taken action against Temu, alleging in May that the the Boston-based, China-founded ecommerce giant is utilizing nefarious means to gain access to the private information of consumers who use its shopping app.
The state’s lawsuit comes less than a year after the filing of two federal class action complaints that make similar claims against Temu, alongside other consumer-focused lawsuits as well. The proposed class action cases, which were filed in the U.S. District Court for the Northern District of Illinois and the U.S. District Court for the Eastern District of New York in November and September 2023, respectively, allege that the retail titan failed to secure customers’ personal and financial data, and misled consumers about the scope and reach of its data access.
The Commission’s investigation stems from Temu’s risk assessment report, which the company submitted after its designation as a VLOP, as well as the company’s responses to Commission inquiries and information gathered from national authorities via the European Board of Digital Services Coordinators. As Regnier remarked, Temu has experienced “extremely fast” growth, reaching 92 million monthly users in just under a year, which raised concerns that the platform may not have adapted its systems to manage the associated risks effectively. “We are concerned that such a big growth was not properly calculated by Temu…you need to adapt your systems,” Regnier noted.
Other platforms, such as Shein and AliExpress, are under scrutiny, as well. Shein, for example, has received similar requests for information since the DSA was enacted, though the EU currently holds “a bit more evidence on Temu,” which prompted the formal proceedings in this case, Regnier said. So far, only nine formal DSA proceedings have been initiated since the act was created two years ago, primarily against social media platforms like Meta’s Facebook and Instagram, X and also TikTok.
Temu’s case, along with AliExpress’s ongoing investigation, are the only examples so far of ecommerce platforms that have received the attention of a formal EC investigation under the DSA, which Regnier said illustrates the bloc’s commitment to enforcing digital platform accountability. “More users means simply more responsibilities here in the EU.”
A spokesperson for Temu told TFL, “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.”
She continues, “In a separate development, we can confirm that we are in discussions to join the ‘Memorandum of Understanding (MoU) on the sale of counterfeit goods on the Internet,’ a voluntary agreement facilitated by the European Commission. Counterfeiting is an industrywide challenge, and we believe that collaborative efforts are essential to advancing our shared goals of protecting consumers and rights holders.”
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