EU vs Temu: Digital tactics under fire

The EU-Temu standoff intensifies as the European Commission launches a formal probe into the e-commerce platform’s marketing practices and user engagement tactics.

The probe, launched on October 31, targets everything from the platform’s addictive reward systems to its product recommendation algorithms.

For Temu, whose EU user base exploded to 92 million monthly active users by September 2024, the investigation spotlights the growing tension between rapid digital scaling and regulatory compliance. Since its European launch in April 2023, the platform’s marketing playbook has helped it surge past the 45 million user threshold, earning it Very Large Online Platform (VLOP) status this May.

Brussels’ investigation specifically questions Temu’s digital engagement strategies, including its gamified shopping experience and AI-powered recommendation engines – core elements of the platform’s viral growth in the European market.

The investigation also marks a critical test of the EU’s Digital Services Act (DSA), a comprehensive regulatory framework designed to ensure digital platforms operate safely and transparently in the European market. 

Key areas of investigation

The Commission’s investigation will focus on four primary concerns:

1. Product compliance and seller verification

The investigation focuses on Temu’s system for preventing the sale of non-compliant products in the EU. Regulators are concerned about the platform’s ability to prevent suspended rogue traders from returning to the marketplace and stop the reappearance of previously identified non-compliant goods.

2. Addictive design features

The Commission scrutinises Temu’s game-like reward programs and other potentially addictive design elements. There are concerns that these features could negatively impact users’ physical and mental well-being, raising questions about the platform’s responsibility to protect consumer interests.

3. Recommendation systems

The investigation will examine how Temu recommends content and products to its users. Under the DSA, platforms must be transparent about their recommendation algorithms and provide users with at least one easily accessible option that isn’t based on personal profiling.

4. Research data access

The Commission is also investigating whether Temu has met its obligations to provide researchers access to publicly available platform data, an essential requirement for transparency under the DSA.

Regulatory framework and potential consequences

If the Commission’s suspicions are confirmed, Temu could face significant consequences for violating Articles 27, 34, 35, 38, and 40 of the DSA. Executive VP for Europe Fit for the Digital Age, Margrethe Vestager, emphasised the importance of compliance, stating: “We want to ensure that Temu is complying with the Digital Services Act. Particularly in ensuring that products sold on their platform meet EU standards and do not harm consumers. Our enforcement will guarantee a level playing field and that every platform, including Temu, fully respects the laws that keep our European market safe and fair for all.”

The road ahead

The Commission’s investigation follows preliminary analyses of Temu’s risk assessment report from September 2024 and responses to formal information requests made in June and October 2024. While the investigation has no set deadline, the Commission has indicated it will be treated as a priority.

The probe doesn’t automatically indicate guilt, and Temu will have the opportunity to address the concerns through commitments to remedy the issues. The investigation will involve gathering additional evidence through information requests, monitoring actions, and interviews.

Overall, this investigation represents a significant test of the DSA’s enforcement capabilities and could set important precedents for other online marketplaces operating in the EU. It’s worth noting that the Commission’s action doesn’t preclude separate enforcement measures by national consumer protection authorities or market surveillance bodies, particularly under the upcoming General Product Safety Regulation, which takes effect on December 13, 2024.

The case against Temu demonstrates the EU’s commitment to enforcing its digital regulations and ensuring that rapid business growth doesn’t come at the expense of consumer safety and platform responsibility. As the investigation unfolds, it will likely serve as a benchmark for how the DSA can be used to regulate large online platforms and protect European consumers in the digital marketplace.

(Photo by Christian Lue )

See also: EU cracks down on Temu and Shein: Compliance with DSA under scrutiny