Landmark EU digital rules face first legal challenge

The EU’s landmark law designed to force Big Tech to police content more aggressively on their platforms is facing its first legal challenge, after Europe’s largest online fashion retailer alleged it is being unfairly targeted by the new rules.

Germany’s Zalando on Tuesday filed a complaint before the EU’s general court in Luxembourg, arguing that the European Commission – the bloc’s executive arm – had unfairly labelled the company as a “very large platform” under the Digital Services Act (DSA) which imposes extra obligations to tackle disinformation online.

The move will be monitored by Big Tech companies, some of which are considering launching their own challenges against recent EU legislation designed to rein in how online giants such as Google, Amazon and Facebook operate in Europe.

Such legal action was expected to be led by Silicon Valley groups, rather than a rare European tech giant.

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“The DSA is the right thing to do but we are puzzled that we were designated as a very large online platform alongside 18 other companies,” said Robert Gentz, Zalando’s chief executive and co-founder. “We’re the only European company on that list.”

The act, which comes into force on August 25th, is part of a major overhaul of the bloc’s digital rules. It sets new standards for policing hate speech, disinformation and counterfeits online that all large digital platforms must comply with.

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In April the European Commission designated a total of 19 companies with special obligations under the law, including TikTok and Twitter. In its lawsuit, Zalando has argued that the commission’s methodology to include the German retailer on the list was faulty.

“As the brand that we are, we don’t want to be associated with this category,” said Mr Gentz. “These companies are talked about as bad actors and all of a sudden we are on the same list. This is bad for our brand.”

The German company argues that, while there are more than 83 million visits to its website each month, there are fewer than 31 million visitors likely to buy products from third-party sellers. That’s below the 45 million required by the commission to designate a company to be within the scope of the DSA.

“All the others were designated on the basis of users but we’re designated on the basis of visitors,” said Mr Gentz. “That’s unequal treatment.”

Mr Gentz said Brussels also misunderstood his company’s hybrid model. More than 60 per cent of sales are derived from products sold directly to online shoppers, while the remaining less than 40 per cent comes from other vendors through the Zalando site.

The DSA seeks to target intermediaries such as Zalando so that regulators can better police the safety and authenticity of products sold online.

Gentz held a meeting last week with Thierry Breton, the EU commissioner in charge of enforcing the digital rules, to discuss Zalando’s responsibilities in relation to the DSA.

Last week Mr Breton travelled to Silicon Valley where he oversaw a voluntary “stress test” of the rules at Twitter’s headquarters.

“Technology has been ‘stress testing’ our society. It is now time to turn the tables,” Mr Breton said.

The European Commission declined to comment. – Copyright The Financial Times Limited 2023