EU retailers get online platforms regulation clarification

The EU’s General Court considered how ‘online platforms’ are defined under the EU’s Digital Services Act (DSA) in a case involving Berlin-based online fashion retailer Zalando.

A tiered system of regulation applies under the DSA, applying obligations on ‘intermediary service’ providers over how they manage illegal and harmful content published, and goods and services sold, via their services.

Under the DSA, there are various categories of intermediary service, with obligations of varying stringency depending on the nature and size of the services provided. Pinsent Masons has published a guide to help businesses determine whether services they provide fall into any of the categories of in-scope services. One such category is ‘online platform’.

In 2023, Zalando was designated by the European Commission as being a ‘very large online platform’ (VLOP) for the purposes of the DSA. VLOPs are among the businesses subject to the strictest requirements under the DSA, including an obligation to identify, and then address, systemic risks associated with their services.

Zalando’s main claim before the General Court was that the Commission was wrong to consider it an online platform at all, let alone a VLOP.

A factor in whether a service constitutes an ‘online platform’ under the DSA is whether the service provider not only stores information but disseminates it too. Moreover, the categorisation as VLOP is based on the number of active users per month and how to determine this number. The General Court was asked to look into both – i.e. the criteria defining an online platform and the methodology of calculating the number of active users.

On its online marketplace, Zalando sells goods of its own as well as those provided by third party businesses that participate in its ‘partner program’. The General Court made clear that in the present case the focus must be on the partner program only. The reason for this is that Zalando does not store information provided by a recipient of the service in the context of direct sales. Therefore, its own retail service is considered not to constitute an online platform for the purposes of the DSA.

In respect to its partner program, Zalando had argued that because it verifies, modifies and supplements the information partner program companies provide about their products, this meant it could only be said to be disseminating information from those third parties to the public. This meant, it argued, that part of its service should also be considered to fall outside the scope of how an online platform is defined under the DSA. The General Court disagreed.

The court said: “In the context of the partner program, [Zalando] uses information from third-party sellers to market their products. In the application, it explains that those sellers provide it with images of the products concerned and that they themselves write the description of those products. The fact that it subsequently verifies that those images and descriptions comply with its commercial requirements and modifies or supplements them accordingly merely implies that it is likely, first, to modify the way in which the information from third-party sellers is presented and, secondly, to disseminate its own information in addition to that from third-party sellers. However, such a circumstance does not call into question the fact that that information comes, at least in part, from those sellers.”

In the course of considering that the Zalando platform “must be regarded as storing and disseminating information provided by recipients of the service at their request in the context of the partner program”, the General Court assessed wording in the predecessor to the DSA, the EU E-Commerce Directive from 2000, as well as EU case law.

The E-Commerce Directive also applied to intermediaries and there is a general principle in EU law that the same terms when used in different legislative contexts will be considered to mean the same thing. However, there are exceptions to this, and the General Court considered that how the concept of intermediary under the E-Commerce Directive had been interpreted by the EU courts does not predefine how the concept of intermediary in the DSA is to be interpreted.

The CJEU had ruled in 2011 that an internet service provider was not an intermediary provider for the purposes of the E-Commerce Directive if – instead of limiting itself to the neutral provision of that service by means of purely technical and automatic processing of the data supplied by its customers – it played an active role such as to confer on it knowledge or control of that data. With its current ruling, the General Court clarifies that a provider exercising some control over what third party content is uploaded to its platform can still be considered an intermediary under the DSA. As a result, the same terminology can be said to have a differing meaning in exceptional cases, depending on the legislative context.

While Zalando was unsuccessful with its main argument, it ran a further argument regarding the application of criteria relevant to VLOP designation by the Commission.

VLOPs are simply online platforms that have a number of average monthly active recipients (AMARs) for their service in the EU “equal to or higher than 45 million”, calculated as an average over a period of six months, and where those platforms have been designated as VLOPs by the Commission.

Providers of online platforms had to disclose the number of AMARs of their services by the mid-February 2023. Zalando met this legal obligation, publishing two AMAR numbers on its website – one for its entire platform and one it had calculated as for the part of its platform linked to the partner program offering.

Because Zalando displays third party goods alongside those it sells itself, it could not easily determine the number of AMARs specifically linked to its partner program, so it took the overall AMAR figure for its whole platform – around 83.3 million – and considered the proportion of sales stemming from the partner program offering, 37%, to arrive at a figure of around 30.8 million AMAR for its partner program offering. However, the Commission considered that this was the wrong approach so it used the 83.3 million figure as the basis for designating Zalando as a VLOP. Zalando challenged this before the General Court.

In its ruling, the General Court sided with the Commission’s approach. It confirmed that whether or not a user has transacted with a service is not singularly determinative of whether they are an ‘active recipient’ of that service, under the DSA.

The court said: “In order to be classified as an active recipient of an online platform, the recipient of the service must only have been engaged with that platform, in particular by being exposed to the information hosted by the online platform and disseminated via its online interface. Thus, it follows from that provision that the concept of ‘active recipient of an online platform’ is not limited to persons who have concluded a transaction on the Zalando platform. On the contrary, it includes all persons who have been ‘exposed’ to the information provided by third-party sellers, including by becoming aware of the name of the products marketed by them, their manufacturer, their description and their photograph.”

Technology law expert Nils Rauer of Pinsent Masons said: “Of particular significance is the court’s clarification that, in order to be classified as an active recipient of an online platform, the recipient of the service must only have been engaged with that platform, in particular by being exposed to the information hosted by the online platform and disseminated via its online interface. Thus, it is not necessary that the recipient actually concluded a transaction on the platform. This is why sales figures are deemed to have no relevance in the calculation process.”