24/11/2024
Temu Tangled in EU’s Regulatory Web
This week’s key terms/concepts:
• Digital Services Act (DSA): An EU regulation aimed at protecting digital users and imposing restrictions on digital platforms.
• Very Large Online Platform (VLOP): A designation under the DSA, in which an online platform with over 45 million active monthly users within the EU becomes subject to stricter legal and regulatory obligations.
• In-house legal counsel: A company or organisation’s direct legal team, employed exclusively to provide the organisation legal services and advice.
The European Commission has launched a formal investigation into Chinese e-commerce company Temu after it was alleged that various practices of the company infringed EU consumer protection laws. Initial cause for inquiry had arisen at the end of May this year, when Temu had qualified as a Very Large Online Platform (or VLOP) under the EU’s Digital Services Act, which aims to prevent and regulate online activity.
What is the significance of this?
VLOPs fall under a special category of online platform under the Digital Services Act, where Temu – from the time of their VLOP designation – had to comply with the Act’s stricter obligations within four months. The basis of the EU Commission’s investigation stems from assessing whether Temu had complied with these obligations.
The key violations that are under investigation include Temu using fake discounts, pressuring customers with false scarcity claims about stock levels, forcing users to play games to access the marketplace, and displaying potentially fake reviews. These practices, if proven, can mislead consumers and distort fair competition within the digital economy. The EU have given Temu one month to address these concerns, or the company could face large financial fines.
The Commission’s proceedings against Temu will relay a strong message to businesses operating in the EU, showing that they are stern on enforcing punitive measures only 28 months on from incorporating VLOP obligations into EU law.
How does this affect the legal sector?
The investigation underscores the critical role of compliance advisory services– law firms specialising in EU regulations will likely see increased demand from digital marketplaces and e-commerce platforms seeking to pre-emptively align their practices with stringent consumer protection laws.
Additionally, law firms advising Temu or similar businesses will need to navigate complex challenges, balancing regulatory compliance with operational efficiency. Law firms may advise Temu on its alleged breach of EU protection laws– this could include helping the company align its operations and systems with EU regulations while maintaining their business efficiency. Meanwhile, Temu’s in-house legal counsel will be trying to prove to the EU Commission that Temu is facing its problems and addressing the concerns made.
Temu’s deadline to address these violations is set for early December, where it will then be found whether the company can prove their compliance to the EU Commission.
Lex Weekly 