Classification as VLOP: EU court rejects Zalando's appeal

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Setback for Zalando: The General Court of the European Union (General Court) has dismissed Zalando's complaint against its classification as a "very large online platform" under the Digital Services Act (DSA). Such operators are obliged to manage "systemic risks" and must prepare reports on the remedial measures taken. Zalando must therefore also continue to adhere to the stricter rules.

In April 2023, the EU Commission designated the Berlin-based online retailer, which primarily sells fashion and beauty products, as a very large platform within the meaning of the Digital Services Act. It was of the opinion that the average monthly number of active users of Zalando in the EU amounted to more than 83 million and was therefore above the threshold of 45 million or 10 percent of the population in the EU.

Zalando was the first affected company to file a complaint against the Commission's decision in mid-2023. The German e-commerce giant accused the Commission of failing to take into account that the online retailer has a "predominantly retail character" and that there is no "systemic risk" of the distribution of harmful or illegal content from third parties.

Zalando offers customers "a secure online environment with carefully selected and tested products from leading brands and established partners", the company explained in court. The DSA is intended to contain completely different business models.

Counted incorrectly?

Zalando also claims that the Commission miscalculated the number of users: only users who buy products from third-party providers via the so-called partner program should be counted. Direct sales to own customers should not be counted because they do not fall under the definition of an online platform. According to the company's own calculations, only around 30 million users would have been relevant.

The Luxembourg judges did not accept this view in their ruling in case T-348/23 on Wednesday and confirmed the Commission's decision. They clarified that the entire platform must be considered. The Commission had no possibility of counting the users of the partner program separately. It was therefore entitled to assume that all 83 million users are or were potentially exposed to the content of third-party providers.

The EGC also rejected Zalando's arguments that the classification as a very large online platform was unfair or unlawful. The plaintiff had argued that the rules violated the principles of legal certainty, equal treatment and proportionality, according to which measures must also be proportionate. The court justified its different assessment by stating that online marketplaces with more than 45 million users represented a high risk: They could be used to distribute dangerous or illegal products to a large population in the EU. The stricter requirements for such platforms are therefore justified.

Zalando takes case to the ECJ

Zalando was disappointed with the ruling. The court had not adequately taken into account the fact that the company "exclusively offers curated, high-quality products from established and trustworthy brand partners" on its platform. The latter had to follow "strict and thorough vetting procedures" to ensure that their goods met predetermined high quality and ethical standards.

This curated business model does not pose a "systemic risk", Zalando emphasized to heise online. The decision also solidifies the uncertainty regarding user numbers ("active recipients of a service"), as the current lack of a common methodology "leads to an incoherent, inconsistent application of the law". Against this background, Zalando intends to appeal against the decision, which would then have to be decided by the European Court of Justice (ECJ).

Things are not looking good for Amazon

Amazon is also appealing against its classification as a very large platform under the DSA. The US company also does not see any systemic risks for the distribution of dangerous or illegal content from third parties on its own platform. In contrast, the online retailer Shein from China, which specializes in clothing and fashion, is cooperating with the Commission: it wants to comply with the strictest DSA regulations.

The DSA establishes EU-wide due diligence obligations for all digital services that provide consumers with goods, services, or content. This includes new rules on the removal of illegal content, for example. Particularly strict requirements apply to very large online platforms that reach more than 10 percent of the EU population, or over 45 million citizens in the member states.

These so-called VLOPs (Very Large Online Platforms) must carry out risk assessments and minimize identified threats to democracy, public safety, fundamental rights and the protection of minors. Relevant operators share in the financial burden of their supervision with fees of up to 0.05 percent of their global annual turnover.

(mki)