Commission opens official DSA investigation into SHEIN

 While the announced Digital Fairness Act proposal remains so far at the announcement stage, the last few months have brought to light the DSA's potential - if yet to be tested - to contribute to consumer protection beyond content moderation practices. In this sense, it particularly interesting that this month the European Commission has announced an official investigation into Shein's practices concerning several potential violations, namely:

- potential failure to limit the sale of illegal products, "including content which could constitute child sexual abuse material, such as child-like sex dolls";

- potential failure to monitor systemic risks linked to addictive design "including giving consumers points or rewards for engagement", and adequacy measures that Shein has in place in order to mitigate negative effects on "users' wellbeing and consumer protection"; and 

- potential failure to achieve sufficient transparency of the recommender systems in the platform. 

The press release does not provide a detailed legal basis for the specific elements, so we did this for you. 

First, illegal content. Under the DSA, platforms do not have to actively monitor for the presence of illegal content (article 6), but they have have several obligations that are triggered once a notice is filed (article 16 para 4,5,6), and they are assumed to be legally aware of the illegal content once a valid notice has been filed (art 16 para 3). The commission has previously asked Shein to provide information about how they manage their notice & action systems to counter illegal content and the investigation is meant to obtain further insight. 

"rewards for engagement" from couponfollow.com

Second, as concerns the systemic risks, the Commission's framing seems to leverage the understanding of "risk" (assessment, art 34 and mitigation, art 35) referred to in recitals 81 and 83, namely that of addictive features of a platform's design or exploitation of weaknesses, in particular when it comes to children. The gamification mechanisms mentioned in the investigation announcement may structurally encourage consumers to over-spend or just spend more time in the app that normal usage would require. 

Finally, the Commission wants to know more about how Shein informs consumers about the criteria according to which product presentation is organised and selection is ranked. According to art 27 DSA, this information can be provided in the platforms T&Cs *but* "when several options are available" users must be given the a directly and easily accessible option to choose among these alternatives. The Commission here also indicates that users should be provided with *at least one easily accessible option that is not based on profiling* for each recommender system. This requirement does not follow directly from the DSA but seems in line with the requirements for consent under the GDPR (as it seems unlikely that a webshop would be able to rely on a different legal basis for the profiling). 

We do not know how long this investigation will take - the press release makes it clear that the Commission doesn't want to commit to a specific timeline. Of course, the outcome in this file may have broader implications for DSA enforcement and consumer protection, so we will be following (and sharing) any developments with great interest!

Dutch court upholds Fortnite fine for UCPD violations

 While the "Digital Fairness Act" may or may not become a thing in the near future, it is interesting to see how regulators have started to perhaps gain more confidence in the enforcement of existing rules in the digital context. A most recent example comes from a Dutch decision published today in Epic Game's case against the Dutch Authority for Consumer and Market's decision to fine the Fortnite producer for a number of prohibited practices embedded in the game. 

According to the ACM, Epic Games exposed children to advertisements which directly exhorted them to buy a product (a banned practice under the UCPD's annex) and put them under pressure to decide about a complex and unclear offer within a short time (para 1 decision).

Epic Games had earlier accepted parts of the ACM's decision, in so far as it concerned timers in the Item Shop that created the false impression that an item or offer may soon run out or disappear. They challenged, however, 1) the existence of exhortation to purchase directed at children, as well as 2) the ACM's claim that the game's Item Shop was designed in such a way to create artificial scarcity, putting players under pressure to decide within a short period of time whether to buy certain items. 

As to the first point, this hinged on the interpretation of the text in the annex. From the judgment it appears that Epic Games wanted the District Court to decide on the ACM's assumption that "children" in the UCPD's annex covers all minors, which was challenged on the basis that it failed to differentiate between young children and older teenagers. The court considers that this distinction may matter for the amount of the fine but not for the question of whether the finding of an infringement was justified and hence declines to examine the issue in detail since Epic Games has not challenged the entity of the fine. Even without a detailed examination, this element in the decision may in fact embolden authorities, which have found it tricky to claim that practices constituted direct exhortation to buy directed at children whenever a product was not exclusively marketed to very small children. There was otherwise relatively little in the decision that tried to suggest that the practices at stake (see picture, from decision) did not constitute direct exhortation to purchase.

As to the second point, the ACM (see decision para 17 and sub-paras) was relying not on a direct prohibition but on a savvy reading of the general prohibition of unfair practices which go against "professional diligence" and distort the average consumer's decision making (art 5 UCPD). In this respect, the Court says, the ACM has understood professional diligence through "the principles and international rules on ethical design such as transparency and the avoidance of damaging or misleading design". The ACM also claims that professional diligence requires abstaining from exploiting behavioural pitfalls of consumers through so-called "dark patterns".  In particular, lack of transparency about the offer was due to a mix of several elements:  items potentially disappearing from the item shop, lack of information about the items' significance within the game and their rarity (which all connected to their price), all combined with time pressure (because the Item Shop content was refreshed every 24 hours), made it difficult for consumers/children to decide without excessive pressure. The Court has accepted the ACM's analysis and characterisation of the practice, rejecting Epic Games' contention that the analysis relied on the wrong test. 

A final challenge concerned the burden of proof: did the ACM need to prove that the concerned practices had actually influenced the behaviour of children as a result of the factors that its analysis identified? The Court finds that no proof has to be provided of actual influence: it is sufficient that the analysis makes it sufficiently plausible (aannemelijk) that these effects would occur. Among other things, the court points to ACM relies on research reporting that 37% of the kids playing the concerned version of the game (namely, Battle Royale) do make in-game purchases and that significant numbers of children who make in-game purchases regret their choices afterwards (see decision para 21.1). 

The confirmed fine amounts to 1.1 million euros. It is clear from the points raised in the case that Epic Games was here seeking to establish a principled precedent against the ACM's interpretation of the UCPD and their recent steps in digital enforcement. This may suggest that the decision will be appealed - which we should know within a few weeks. Interesting case in any event!