The European Commission has launched an investigation into online retailer Temu, over suspicions that the platform is in breach of EU regulations regarding the sale of illegal products, addictive design of the platform, purchase recommendations and data sharing.
The Commission confirmed that it has initiated formal proceedings under the Digital Services Act (DSA), which sets out rules for online platforms within the EU and came into effect early this year.
First launched in 2022, Temu is a global online marketplace operated by Chinese e-commerce company PDD Holdings. It offers cheap goods to consumers in the EU, US and elsewhere, mostly shipped directly from China.
Designated as a Very Large Online Platform (VLOP) by EU regulators in May, Temu is subject to the strictest level of regulation under the Digital Services Act (alongside other platforms such as retailers AliExpress, Amazon, Google Shopping, and Zalando).
Concerns that risks are not being tackled
Temu is required to assess and mitigate any "systemic risks" with its platform, which currently has 92 million monthly users in the EU.
The Chinese-owned platform submitted its first risk assessment to EU regulators in September. However, the Commission has now triggered an investigation under the DSA, on suspicions that Temu is not taking sufficient action to mitigate risks.
A primary concern is that Temu does not have sufficient systems in place to limit the sale of non-compliant products in the EU, or to limit the reappearance of previously removed illegal goods or suspended "rogue traders" who are known to sell non-compliant products.
The Commission will also investigate the addictive design of Temu's platform, including "game-like" reward programmes, as well as how Temu recommends content and products to users.
Finally, EU regulators will examine Temu's compliance with requirements to give independent researchers access to data that is publicly accessible on the platform.
EU Competition Commissioner Margrethe Vestager. Credit: European Commission
Making sure products don't harm EU consumers
"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," said EU Competition Commissioner Margarethe Vestager.
"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," she said.
If found to be in breach of the DSA, the Commission could order Temu to take measures to address the breach, or issue a hefty fine of up to 6% of global turnover. PDD Holdings, Temu's parent company, reported revenues of almost $35 billion last year.
Next steps
After announcing the launch of formal proceedings on Thursday, EU regulators can now carry out an in-depth investigation into Temu's practices, using powers under the DSA. This includes requesting information from Temu, accessing its data and algorithms, inspecting Temu's premises, and interviewing relevant people.
The duration of the in-depth investigation depends on several factors, including the complexity of the case, and the extent to which Temu cooperates with the Commission and exercises its rights to defence.
The Commission is empowered to take further enforcement steps on the basis of its investigation, including issuing a non-compliance decision with sufficient evidence. The Commission could also accept a committment from Temu to remedy the matters under investigation.
In March, EU regulators also opened an investigation into AliExpress under the DSA, which is still ongoing.
