On Thursday, a landmark court hearing commenced in Luxembourg, focusing on the German fashion platform Zalando’s challenge against its classification as a Very Large Online Platform (VLOP) under the European Union’s Digital Services Act (DSA). This case raises pertinent questions regarding the criteria used by the European Commission to determine user numbers. With a deadline for a decision still pending, the outcomes could significantly impact how platforms are regulated in the EU.
| Article Subheadings |
|---|
| 1) Overview of the Digital Services Act |
| 2) Zalando’s Challenge: Details and Implications |
| 3) The Concept of a Hybrid Business Model |
| 4) Content Moderation Practices and Transparency Reporting |
| 5) Potential Impact on Other Online Platforms |
Overview of the Digital Services Act
The Digital Services Act (DSA), introduced by the European Union, aims to enforce stricter regulations on online platforms to combat disinformation and promote user safety across the digital landscape. Effective as of August 2023, the DSA categorizes platforms into different levels based on their user base, with Very Large Online Platforms (VLOPs) defined as those having over 45 million monthly active users. This legislation requires compliance with new safety and transparency norms specifically designed to manage harmful or illegal content dissemination.
Currently, 19 platforms, including major social networking sites such as Facebook and TikTok, fall under the DSA’s purview. While the DSA serves significant protective functions for users, it has also led to debates over user classification criteria and the methodology utilized to reach these conclusions. Defining what constitutes an “active user” remains a contentious point, accentuated by varying business models across platforms.
Zalando’s Challenge: Details and Implications
In July 2023, Zalando, recognized as the leading German online fashion retailer, contested its classification under the DSA, asserting that it was unfairly grouped with other platforms without a clear methodology.
“Zalando believes its user dynamics and business model differ significantly from that of traditional social media platforms,”
stated company officials. The appeal reflects broader concerns regarding how platforms are evaluated and the implications of their classification.
The General Court in Luxembourg convened to evaluate this significant hearing, which could reshape the framework within which platforms are analyzed. Zalando’s position is that it should not meet the criteria for a VLOP, arguing that the inconsistency in methodology leads to a misrepresentation of the actual user base and subsequent unfair regulatory treatment.
The Concept of a Hybrid Business Model
Zalando operates a “hybrid business model,” integrating both direct sales from its inventory and intermediation services for third-party vendors. This distinctive model complicates user classification since a significant percentage of its transactions involve products from various suppliers rather than Zalando’s owned inventory. The company asserts that this undermines the total number of users directly engaging with its own content.
According to Zalando, its retail segment represents 61% of its business, leading them to project significantly lower user numbers than traditionally reported. The controversy revolves around the commission’s assertion that they cannot differentiate the exposure users have to Zalando’s own retail versus third-party products on the platform, complicating the efforts to estimate active user metrics accurately.
Content Moderation Practices and Transparency Reporting
Zalando’s latest transparency report, covering the period from April 2024 to September 2024, underscores the company’s commitment to responsible content management. The report highlighted that Zalando received a total of 731 content-related notifications; however, only 111 of these resulted in content removals after thorough examination.
“We received zero orders from authorities,”
Zalando’s representatives noted, emphasizing their proactive stance on monitoring and moderating content.
While the DSA is primarily designed to enhance consumer safety and mitigate systemic risks associated with harmful content, Zalando argues that the nature of its platform renders it less susceptible to such risks. This assertion complicates the question of its designation under the DSA and raises doubts about the appropriateness of applying the same regulatory standards across diverse business models.
Potential Impact on Other Online Platforms
A favorable ruling for Zalando could herald a new era for other online platforms operating under similar multi-faceted business models. It may potentially encourage other platforms, including e-commerce giants like Amazon and adult content providers like Pornhub, Stripchat, and Xvideos, all of which are also appealing their DSA classification. If the General Court supports Zalando’s stance, it could set a notable precedent that alters the way VLOP designations are determined.
The European Commission has also designated six other platforms as VLOPs and continues to investigate major players such as Meta’s Facebook and Instagram, TikTok, and X. However, these probes remain ongoing, raising the stakes for companies classified under stringent criteria amid evolving legal frameworks. The outcomes of these investigations and the Zalando case may collectively reshape the operational landscape for VLOPs in the EU.
| No. | Key Points |
|---|---|
| 1 | The Digital Services Act (DSA) establishes a regulatory framework for Very Large Online Platforms (VLOPs). |
| 2 | Zalando is contesting its classification as a VLOP, arguing that its user metrics differ from other platforms. |
| 3 | The company’s hybrid business model complicates accurate user number computation. |
| 4 | Zalando’s content moderation metrics indicate a controlled approach to user safety on its platform. |
| 5 | A ruling in favor of Zalando could impact other platforms facing similar DSA categorizations. |
Summary
The ongoing legal proceedings regarding Zalando’s classification under the Digital Services Act hold significant implications not only for the company but for the wider landscape of online platforms in the EU. The eventual ruling could reshape how user metrics are calculated and the criteria that define VLOPs, potentially leading to a more equitable regulatory approach for diverse business models. As the court deliberates, all eyes will be on the ramifications this case may have for other online entities navigating similar challenges in a rapidly evolving digital environment.
Frequently Asked Questions
Question: What criteria does the Digital Services Act use to classify platforms as Very Large Online Platforms (VLOPs)?
The Digital Services Act categorizes platforms as Very Large Online Platforms (VLOPs) based primarily on their monthly active user count, specifically those exceeding 45 million users across the EU.
Question: How does Zalando define its hybrid business model?
Zalando describes its hybrid business model as one that includes both direct sales from its inventory and third-party sales through its intermediation services, complicating user engagement metrics.
Question: What are the implications if the court sides with Zalando?
Should the court favor Zalando, it could set a precedent for other platforms with similar business models, potentially influencing how the Digital Services Act is applied to diverse companies in the future.
