The European Union expanded its investigation into online marketplaces with a formal proceeding against the Chinese low-cost e-commerce platform, Temu, under the Digital Services Act, the Commission announced on Thursday.
The enforcers of the online governance framework will now dial up their oversight of Temu. Concerns on the sale of illicit products, such as toys and cosmetics that could be harmful to consumers because they do not meet EU standards; addictive design related to how the marketplace tries to gamify shoppers' engagement; the transparency of Temu's recommender systems, including the lack of a non-profiling-based option for users; issues with obligations related to researcher access to public data.

This can result in up to 6 percent fines on annual turnover when Pinduoduo, the parent of Temu, suffers a violation of the DSA.

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

They've said that safety on online marketplaces is one of their priorities for DSA, prompting them to start an investigation earlier this spring into the e-commerce giant AliXpress-an investigation that's still ongoing.
Widespread concerns
In a briefing with reporters ahead of the formal process being made public, Commission officials said that the probe into Temu, opened rapidly, reflects both how quickly the marketplace has taken off in the region-it was launched only last year-and how many concerns have been shared by others, including consumer protection agencies and Member State-level Digital Services Coordinators (DSCs), which enforce the DSA's general rules.

It says the DSCs, who had an oversight role on Temu since mid-February, are providing data used to build the first case of an investigatory kind.
Among the ones highlighted are the data provided to the EU by DSCs in Ireland and Germany.
Customs authorities and market surveillance bodies have also raised concerns, the Commission says.

Consumer protections from the EU went back in May headlining a series of coordinated complaints lodged against Temu which accused the firm of breach of general DSA guidelines. Since the confirmation from the EU about Temu being a very large online platform, its oversight over the company was taken away.
Among areas that would be probed by the Commission are its assessment of systemic risks as well as mitigation of same.

Digging deeper
Officials said they are concerned the risk assessment document Temu shared with the EU at the end of September is "far too generic".

The bloc said it is concerned about illegal products quick reappearing on the platform after being taken down and "rogue traders" also respawning. But it wants to conduct more systemic checks to find out how extensive a problem this might be.

The Commission opined that addictive design has a place under DSA obligations where platforms have a duty to prevent harmful influences on the mental health of their users. The system Temu uses, with its gamified reward schemes and features such as bottomless scrolling, deserves a closer look, the officials said.

On researcher access, it addresses public data that Temu should open up—through APIs or otherwise—to enable independent researchers, for example, to assess rates of take-down of non-compliant products.

Although the bloc already sent Temu a couple of information requests about the DSA compliance of that platform, including with regards to illegal products, that formal proceeding unlocks more of the Commission's enforcement powers, which will enable further investigation into the EU on this issue.

According to officials, they have a reason to believe that Temu might not comply, but they need more information to ascertain if there is a breach or not.

For example, the EU says that DSA investigations may be closed if a platform agrees to make commitments addressing the concerns. And the bloc is still thirsty to have the regulation perceived to start making a difference in the priority safety issues-hence the Commission accepting binding commitments from TikTok to address concerns over the addictive design of the TikTok Lite app earlier this year.

Temu takes its responsibilities under the DSA very seriously and continues to invest in efforts to further fortify our compliance system, protect consumers' interests on our platform, and provide a trusted marketplace for all. We will fully cooperate with the regulators in that pursuit.

The company added that it is in discussion to become a member of the Commission's Memorandum of Understanding on the sales of counterfeit goods over the internet — an effort, which is voluntary for its efforts to enhance the battle against the sales of counterfeits online.
"Together with our peers and partners, we recognize the challenge of counterfeiting in the industry and believe efforts in collaboration are key towards advancing our shared goals, which include protecting consumers and rights holders," said Temu.

Welcoming the development, a digital policy officer at the European Consumer Organisation, Fernando Hortal Foronda said, "There are many problems consumer groups have identified with Temu, such as many dangerous or illegal products on sale or the frequent use of design techniques to trick consumers.".

This is a promising step by the Commission, but only the first. Now, it's important that the Commission maintains the pressure on Temu and forces the company to comply with the law as soon as possible. It is neither fair to consumers, nor to the many businesses that do comply, that certain companies such as Temu get away with flouting the law.