Temu to face EU probe over handling of illegal product sales

European regulators have been cracking down on Big Tech companies as part of an effort to curb online harms.

The European Union is set to launch an investigation into Temu over concerns it is failing to curb the sale of illegal products online, in a probe that could lead to hefty fines for the e-commerce service.

The European Commission will open formal proceedings against the platform — run by Chinese-owned PDD Holdings — to probe whether it is in breach of rules against illicit online activities, according to people familiar with the matter, who asked not to be identified discussing confidential conversations.

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The investigation could be announced imminently, but the timing could also slip, as the Brussels-based executive body prepares for a changeover of its political leaders, the people said.

European regulators have been cracking down on Big Tech companies as part of an effort to curb online harms. Under the EU’s Digital Services Act, internet platforms with more than 45 million users in the region must take measures to stop the spread of disinformation and illegal content — including the offering of products that are illegal in the EU — or risk fines of as much as 6% of their global annual revenue.

A representative for Temu didn’t immediately respond to a request seeking comment. Following the EU’s formal probe, Temu has the right to propose the adoption of countermeasures to address the commission’s concerns and stave off potential penalties.

The probe follows the EU’s October 11 request that Temu share data on how it tackles counterfeit or unsafe products on its marketplace. At the time, the commission said it had demanded “detailed information and internal documents on the mitigation measures taken against the presence and reappearance of traders selling illegal products” on Temu.

The information Temu has provided so far was unsatisfactory and did not allay the EU’s concerns, the people said.

PDD’s American depositary receipts fell 2.6% to $121.95 at 11:05 a.m. in New York after earlier dropping as much as 4.6%. The stock has declined 17% this year.

Temu has grown explosively since PDD introduced the service to expand in global markets, including a “Shop Like a Billionaire” Super Bowl ad in 2023 that quickly made it one of the most downloaded apps in the US. Its flash sales, game-like features and low prices pulled in consumers in dozens of countries around the world.

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More recently though, PDD has warned that struggles could be ahead for the e-commerce giant, at a time competitors such as ByteDance’s TikTok and Alibaba Group Holding are vying for budget-conscious shoppers, and Amazon is also plotting to rival Temu’s offerings.

PDD reported revenue of 97.1 billion yuan ($13.6 billion) for the June quarter, missing the average estimate of 100 billion yuan. Net income came to 32 billion yuan, compared to a projected 27.5 billion yuan.   

In Brussels, EU regulators are wielding their online content rules against platform giants aggressively. The commission is currently carrying out DSA probes into Meta Platforms, Alibaba Group Holding’s AliExpress, Bytedance’s TikTok and Elon Musk’s X Corp.

© 2024 Bloomberg

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