Data Dilemma: The Hidden Costs Behind Temu’s Bargains

Littered among the commercials during Super Bowl LVIII were several ads for Temu, an online retailer based in China. Between the loud music, bright colors, and promises of “shopping like a billionaire,”¹[1]Temu, Temu’s Big Game Ad Encore TV Commercial 2024, YOUTUBE (Feb. 12, 2024), https://www.youtube.com/watch?v=5Od0aOse1wc Temu’s ads were hard to miss. These commercials, paired with the record-breaking 123.7 million Super Bowl viewers, resulted in a 34% increase in downloads of Temu’s app from the previous day.²[2]Kat Tenbarge, Chinese shopping app Temu and Microsoft’s AI chatbot top app charts after Super Bowl ads, NBC NEWS (Feb. 12, 2024), https://www.nbcnews.com/tech/tech-news/temu-copilot-app-download-super-bowl-commercial-ad-rcna138471.

Although the promotional promises seem exciting, Temu’s business and marketing model has raised questions. Temu spent at least $35 million on commercials and over $15 million in accompanying promotional offers and coupons over the course of the last two Super Bowls.³[3]Juliana Liu, Online superstore Temu doubles down on Super Bowl with Tv ad and $15 million in giveaways, CNN BUS. (Feb. 12, 2024). https://www.cnn.com/2024/02/12/tech/china-temu-super-bowl-ad-hnk-intl/index.html; see also Arjun Kharpal, China e-Commerce player Temu is about to run its second Super Bowl ad – and do $10 million in giveaways, CNBC (Feb. 9, 2024), https://www.cnbc.com/2024/02/09/super-bowl-2024-chinas-temu-to-run-second-ad-10-million-giveaway.html Can Temu really profit while spending this heavily on advertising? Temu further charges less than their competitors and offers a plethora of recruiting incentives and coupon codes to customers.⁴[4]Liu, supra note 3; see also Andrew R. Chow, The Truth About Temu, the Most Downloaded New App in America, TIME (Dec. 29, 2022) https://time.com/6243738/temu-app-complaints/. A deeper look into Temu’s meteoric rise shows that Temu may be too good to be true, and its path to success may not comply with legal and ethical standards. This article will provide relevant background information on Temu’s rise to prominence, its China-based parent company and sister app Pinduoduo, and the corners Temu has cut to become the eighth-most downloaded app globally.⁵[5]Liu, supra note 3.

What is Temu?

Temu is the latest in a line of online retailers engaged in fast-fashion, providing cheap and easy alternatives to traditional retailers.⁶[6]Bailey Schulz, What is Temu? What we know about the e-commerce company with multiple Super Bowl ads, USA TODAY (Feb. 12, 2024) https://www.usatoday.com/story/money/2024/02/12/what-is-temu-super-bowl/72573203007/. Temu differs from competitors, such as Amazon and Shein, by charging lower prices due to its direct-to-consumer supply model, saving money on shipping and logistical costs.⁷[7]Chow, supra note 4. Nevertheless, it is estimated that Temu loses roughly $30 per order.⁸[8]Alexander McLean, Chinese Marketplace Temu Faces Class Action Lawsuit for Spyware and Malicious Business Practices, THE CORP. L. J. (Dec. 22, 2023) https://www.thecorporatelawjournal.com/technology/chinese-marketplace-temu-faces-class-action-lawsuit-for-spyware-and-malicious-business-practices.

Temu can spend exorbitantly on advertising and lose money with every order because of its parent company. Temu is the sister app of Pinduoduo, a Chinese e-commerce company that caters to 870 million monthly active users and is valued at over $200 billion.⁹[9]Dan McCrum, The mysterious rise of the Chinese ecommerce giant behind Temu, FIN. TIMES (Mar. 5, 2024) https://www.ft.com/content/7062735d-43c5-4570-ac11-bc929ea0f297; see also Molly Loe, Is the Temu website a threat to governments in the West?, TECH HQ (Oct. 30, 2023), https://techhq.com/2023/10/why-is-us-government-watching-temu-website/. Both companies are owned by PDD Holdings, a multinational commercial group founded by former Google employee, Colin Huang.¹⁰[10]Id. In the last quarter of 2023 alone, PDD Holdings made $9.4 billion in sales, which allows PDD Holdings to spend over a billion dollars in advertising a year on Temu as it attempts to establish its share of the retail market.¹¹[11]Sabrina Escobar, Temu’s Super Bowl Ad Was Inescapable. What to Know About Its Parent Company—and Why It Is Spending So Much., BARRON’S (Feb. 12, 2024) https://www.barrons.com/articles/temu-pinduoduo-owner-super-bowl-ad-commercial-spend-1499d5fa; Escobar supra note 2.

Many of the questions about how Temu has achieved such a meteoric rise are explained by PDD Holdings’ wealth and its tried-and-true business strategy with Pinduoduo.¹²[12]Bill Chappell, Temu promises cheap goods. Here’s how the shopping app does it, NPR NEWS (Feb. 14, 2024) https://www.wwno.org/npr-news/2024-02-14/temu-promises-cheap-goods-heres-how-the-shopping-app-does-it. However, Temu’s ties to PDD Holdings open them up to questions regarding their explosion and the legal and ethical frameworks of their business practices.

Data Privacy Concerns with Temu

PDD Holdings has a history of unethical practices, including a string of employee deaths in 2021 and violations of the Uyghur Forced Labor Prevention Act (UFLPA), which requires products manufactured in the Xinjiang region of China to be verified to have been made without the use of slave labor.¹³[13]Vivian Wang, Worker Deaths Put Big Tech in China Under Scrutiny, THE N.Y. TIMES (Feb. 1, 2021) https://www.nytimes.com/2021/02/01/business/china-technology-worker-deaths.html; see also Haleluya Hadero, Congressional report says there’s an extremely high risk Temu’s supply chains have forced labor, AP NEWS (Jun. 22, 2023) https://apnews.com/article/temu-shein-forced-labor-china-de7b5398c76fda58404abc6ec5684972. Additionally, Pinduoduo’s app has breached data security and privacy protections on several occasions since it was launched in 2015.¹⁴[14]Clothilde Goujard, Booming Chinese shopping app faces Western scrutiny over data security, POLITICO (Jul. 24, 2023) https://www.politico.eu/article/booming-chinese-shopping-app-temu-faces-western-scrutiny-over-data-security-2/. Similar accusations have been made against Temu since its launch in 2022.¹⁵[15]Schulz, supra note 6. Pinduoduo was removed from the Google Play Store in March 2023 due to malicious software present in the application’s code designed to “exploit vulnerabilities” in the Android Operating System to access protected private data.¹⁶[16]McLean, supra note 8. The app also had a brief period in which it was in violation of the Apple App Store’s mandatory privacy rules.¹⁷[17]Goujard, supra note 14. The malicious software allowed Pinduoduo to access private messages, compile user data,¹⁸[18]McLean, supra note 8. manipulate internal settings, access data from other apps, and prevent uninstallation.¹⁹[19]Nicholas Kaufman, Shein, Temu and Chinese e-Commerce: Data Risks, Sourcing Violations, and Trade Loopholes, U.S.-CHINA ECON. & SECURITY REV. COMM’N (Apr. 14, 2023), https://www.uscc.gov/sites/default/files/2023-04/Issue_Brief-Shein_Temu_and_Chinese_E-Commerce.pdf.

PDD Holdings and Pinduoduo’s history of noncompliance with data privacy and security has raised suspicions of Temu.²⁰[20]Goujard, supra note 14. Lindsay Gorman, head of technology and geopolitics at the German Marshall Fund think tank, claims that Temu is a source of data privacy concerns simply by being in the Pinduoduo ecosystem.²¹[21]Id.

It should come as no surprise, then, that Temu has already been accused of breaching customers’ data privacy in the United States.²²[22]Pl. Compl., Ziboukh et al v. Whaleco Inc. et al, No. 1:23-cv-15653 (N.D. Ill. Nov 03, 2023). Several class-action lawsuits have been filed over the last year, alleging that Temu’s mobile application presents similar data privacy concerns as Pinduoduo, such as the app accessing data for which it does not have permission. One such class-action was filed by plaintiffs from Illinois, California, Massachusetts, and Virginia against PDD Holdings in the Northern District of Illinois.²³[23]Id. The complaint alleges that Temu’s app violates the Computer Fraud and Abuse Act, the Electronic Communications Privacy Act of 1986, as well as several state-specific privacy, fraud, computer crime, and information security laws.²⁴[24]Id. Specifically, the complaint alleges that expert reviews have revealed the app is “purposefully and intentionally loaded with tools to execute virulent and dangerous malware and spyware activities on user devices,” as well as misleading users about how their data is used.²⁵[25]Id. ¶ 4.

A similar class-action has been filed in the Eastern District of New York.²⁶[26]Pl. Compl. ¶ 2, Hu v. Whaleco Inc., No. 1:23-cv-06962 (E.D.N.Y. Sep 20, 2023). The plaintiffs allege that Temu fails to protect customers’ personal data such as contact information, financial and credit card information, and biometric data.²⁷[27]Id. ¶ 2. Further, they allege that Temu knowingly allowed these breaches to save on increased security measures, and has sold or leaked its customers’ information.²⁸[28]Id. ¶ 3. The complaint further alleges that Temu has “secretly and invasively amassed massive amounts of extremely private information and data,” and “unlawfully intercepted private and personally identifiable data and content from Temu users,” so that the company can generate revenue by using and selling the data.²⁹[29]Id. ¶ 9. This class action is also predicated primarily on violations of the Electronic Communications Privacy Act of 1986 and the Computer Fraud and Abuse Act.³⁰[30]Id. ¶ 92; see also Id. ¶ 107.

The Worry

Considering PDD Holdings’ past transgressions with Pinduoduo, there are several reasons for consumers to be wary of downloading Temu. In addition to the general worry of theft of private data, Chinese companies must share that data with the Chinese government under that country’s anti-espionage laws. Specifically, China’s 2017 National Intelligence Law requires “any organization [to] support, assist, and cooperate with state intelligence work in accordance with the law,” and its 2014 Counter-Espionage Law states that the “relevant organizations and individuals shall provide [information] truthfully and may not refuse,” when data is requested by the state.³¹[31]Arjun Kharpal, Huawei says it would never hand data to China’s government. Experts say it wouldn’t have a choice, CNBC (Mar. 4, 2019), https://www.cnbc.com/2019/03/05/huawei-would-have-to-give-data-to-china-government-if-asked-experts.html. Chinese officials have urged that the 2017 National Intelligence Law not be read “out of context,” and that its citizens’ “obligation to support, assist, and cooperate” with national intelligence should be carried out “according to the law and in a way that respects and protects human rights.”³²[32]Id. Similarly, Temu denies all allegations in the United States lawsuits and claims that privacy is of the utmost importance to the company.³³[33]Jason Law, Class action lawsuit accuses Temu of spying, reading users’ private messages, BOS. 25 NEWS (Feb. 27, 2024), https://www.boston25news.com/news/local/class-action-lawsuit-accuses-temu-spying-reading-users-private-messages/N7242XSV4ZCVPKG2IIRMCS3PI4/. However, China’s laws are fairly clear. In the words of European Parliament member and former cybersecurity expert at the Dutch Ministry of Defense, Bart Groothuis, “any company in China must comply with any requests from the intelligence community to advance China’s offensive espionage program.”³⁴[34]Goujard, supra note 14.

Pinduoduo’s former data privacy issues did not present as large of a concern for Americans as Temu does. Pinduoduo is a Chinese e-commerce platform with a large majority of its customer base in China,³⁵[35]Statista Research Department, Monthly active users of mobile shopping app Pinduoduo in China from 1st quarter 2021 to 1st quarter 2023, STATISTA (Feb. 27, 2024) https://www.statista.com/statistics/1399757/china-monthly-active-users-of-pinduoduo. rather than the West.³⁶[36]Statista Research Department, Number of monthly active users of Pinduoduo Inc. from 1st quarter 2019 to 1st quarter 2022, STATISTA (Feb. 27, 2024) https://www.statista.com/statistics/1006368/china-pinduoduo-monthly-active-users/. The 2017 National Intelligence Law and the 2014 Counter-Espionage Law become a much larger concern in the context of Temu, as Temu has been PDD Holdings’ way of breaking into the West, with a specific focus on the United States.³⁷[37]Chinese Learning, Pinduoduo Overseas Version TEMU: Crush Cross-Border E-commerce with Domestic Experience, CHINESE LEARNING (Dec. 6, 2022) https://www.chineselearning.com/blog/pinduoduo-overseas-version-temu-crush-cross-border-e-commerce-with-domestic-experience. Following its launch in the United States in 2022, Temu has already spread to over a dozen European countries and the United Kingdom.³⁸[38]Goujard, supra note 14. As of July 2023, Temu was either the first or second most downloaded app on the Apple App store in Belgium, France, Germany, Italy, the U.K., Poland, and Portugal, among others. Temu has already been downloaded over 50 million times from the Google Play Store,³⁹[39]Id. and was the number one downloaded free app from the Apple App Store in 2023.⁴⁰[40]Sarah Perez, Temu was the most-downloaded iPhone app in the US in 2023, TECH CRUNCH (Dec. 12, 2023), https://techcrunch.com/2023/12/12/temu-was-the-most-downloaded-iphone-app-in-the-u-s-in-2023/. Thus, millions of Americans and Europeans are downloading a shopping app from a company with a history of over-collecting user data and accessing private information outside of the app, data that it is required by law to hand over to the Chinese government.

Conclusion

Temu seems too good to be true—and there are signs that their excellent deals may come with more harm than they are worth. Not only does Temu consistently suffer negative customer reviews for often failing to deliver packages,⁴¹[41]Caitlin O’Kane, Is Temu legit? Customers are fearful of online scams, CBS NEWS, (Jul. 23, 2023), https://www.cbsnews.com/news/is-temu-legit-safe-bad-reviews-fears-over-online-scams/. but the business model is also wrought with intellectual property violations, as they have been accused of counterfeiting manufacturer designs.⁴²[42]Andrew R. Chow, Designers Are Accusing Temu of Selling Copies of Their Work, TIME (Jan. 16, 2024), https://time.com/6342387/temu-copy-work/. PDD Holdings, the parent company, has been dinged for human rights violations in the past surrounding the use of slave labor in China’s Muslim-dominated Xinjiang region. And lastly, PDD Holdings and Pinduoduo, Temu’s sister app, have been the subject of several cybersecurity investigations revealing their unethical code used to access and collect private user data. In the wake of other large data security investigations into other Chinese-based apps, such as the Justice Department’s all-out investigation of TikTok and its parent company ByteDance, these class-action lawsuits against Temu are worth monitoring.⁴³[43]Sapna Maheshwari & Glenn Thrush, Justice Department Investigating TikTok’s Owner Over Possible Spying on Journalists, THE N.Y. TIMES (Mar. 17, 2023), https://www.nytimes.com/2023/03/17/us/politics/tik-tok-spying-justice-dept.html.

Written by: Ryan Brown
Ryan is a 1L at Brooklyn Law School.