Trouble Ahead for the Commission as First Lawsuit Hits the Digital Services Act

The Digital Services Act’s implementation will be challenging unless the Commission steps up its game and revamps the designation criteria.

By Zsuzsa Detrekoi

German-owned online retailer Zalando has taken legal action against the European Commission, filing a lawsuit with the Court of Justice of the European Union (CJEU). The company is challenging the classification of the Commission as a Very Large Online Platform (VLOP), a designation that will subject these companies to specific legal obligations under the Digital Services Act (DSA), which was passed in November last year.

Zalando has criticized the Commission for failing to consider the predominant retail nature of its business model. The company strongly contends that it does not pose a “systemic risk” in terms of spreading harmful or illegal content from third parties. Zalando asserts its commitment to providing customers with a secure online platform, offering meticulously curated products from reputable brands and trusted partners.

The company has also criticized the Commission for its alleged failure to establish a transparent and standardized approach for assessing whether a company meets the criteria to be classified as a VLOP, leading to unequal treatment of various tech platforms. However, Zalando has refrained from disclosing specific user figures publicly, a crucial element in determining a company’s VLOP status. The Commission has assigned these designations based on data that companies were required to make public by February 2023.

In a recent statement, Zalando’s CEO, Robert Gentz, revealed that the company boasts a substantial user base of around 31 million individuals, with whom they engage in direct sales. However, Gentz expressed concern that this falls short of the 45 million benchmark required to be classified under the VLOP category, as outlined by the DSA. The CEO further asserted that the Commission has misconstrued their user data, erroneously factoring in Zalando’s retail operations in the overall calculation. According to Gentz, this particular cohort of users should be excluded from the DSA assessment.

In a contrasting scenario, the Commission opted for alternative calculations. Specifically, when dealing with Apple, the U.S.-based tech giant that manufactures the iconic iPhone, the Commission consented to solely incorporate the iOS App store on the VLOP list. This decision was made after thoroughly examining the information furnished by Apple regarding its diverse platforms.

According to the DSA, VLOPs will now be subject to more stringent obligations that align with their role, size, and impact. These new obligations encompass a range of measures aimed at protecting users, particularly minors, including restrictions on ad targeting through profiling. Additionally, transparency requirements such as risk assessment reports and transparency reports on content moderation decisions and risk management will also be imposed. Furthermore, VLOPs will be required to take action against the dissemination of illegal content, implementing user flagging systems.VLOPs must be prepared to comply with these regulations by August 2023.

This is the first lawsuit related to the Digital Services Act (DSA), and experts predict that more will follow. If Zalando, the plaintiff, is successful, it would mean the absence of any European company on the Commission’s VLOP list. However, this case highlights the challenge the Commission may face in enforcing the law due to such an anticipated increase in lawsuits. Additionally, the CJEU typically takes a considerable amount of time to reach a decision in such matters. Consequently, the Commission is now confronted with a complex legal situation that is likely to impact the effectiveness of the DSA.

In response, it is crucial for the Commission to act promptly by providing clearer guidelines on how to determine the audience of tech platforms subject to DSA regulations. Those guidelines can then be applied to the implementation of other EU laws and regulations.

Zsuzsa Detrekoi is a technology and law expert with the Media and Journalism Research Center.

Photo by Claudio Schwarz on Unsplash, Unsplash+ license