The Italian regulatory Authorities’ actions against TikTok

The last two-years have been quite intense for TikTok from an Italian regulatory compliance standpoint. After the Italian DPA (“Garante”), back in 2021, took interest in TikTok’s approach to data protection and age verification system and requested the platform to put in place effective measures aimed at ensuring that only users over 13 years old would be allowed to use the platform, the Italian Competition and Consumer Authority (AGCM)?too started to investigate TikTok. More particularly, the AGCM wanted to establish if the platform was compliant with Italian consumer protection legislation. The AGCM initiated three separate proceedings, concluded in 2022, which deal with three sets of conducts potentially infringing the Consumer Code: (i) misleading omissions relating to in-app purchases constituting unfair commercial practices; (ii) unfairness of consumer facing terms; and (iii) hidden advertising.

Also, this year TikTok has faced further proceedings initiated by the Garante on the basis that TikTok intended to start a campaign of ‘personalized’ ads based on legitimate interest vs. on users’ consent. ?

It all started with the sad story of a 10-year-old girl holding a TikTok account, who reportedly took part int the so-called "blackout challenge" and chocked herself to death. This tragic event seems to have put the Chinese media platform under the spotlight from a regulatory compliance perspective, which lead first the Garante and then the AGCM to thoroughly investigate certain features of TikTok’s business model.

AGCM - MISLEADING OMISSIONS / UNFAIR COMMERCIAL PRACTICES CONNECTED TO IN-APP PURCHASES (Decision issued on July 5, 2022)

The facts of the case

The case revolves around the information TikTok provided to its users around the in-app purchases offered within its platform. TikTok users are allowed to offer ‘virtual gifts’ to content creators to express their support/appreciation. These gifts can be purchased using virtual currency (which may be purchased with real money). Creators receiving these ‘virtual gifts’ are rewarded by TikTok with virtual objects called 'diamonds' which can be converted into monetary compensation according to certain calculation criteria set forth by the platform.

The AGCM considered that the information offered by TikTok was not sufficient to adequately inform consumers (especially minors) offering and/or receiving ‘virtual gifts’ to allow them to make informed decisions. In other words, TikTok was, according to AGCM, engaging in unfair commercial practices (misleading omissions).

TikTok commitments / implemented measures

In response to the AGCM’s stance and to avoid further prosecution, TikTok (A) implemented some measures to improve (i) transparency of the economic terms applicable to ‘virtual gifts’ and (ii) age verification of its users; it also (B) offered commitments, which the AGCM eventually found to be adequate to address the concerns underlying the notified (alleged) infringements and rendered binding (without issuing sanctions vs the investigated party). TikTok measures and commitments can be summarized as follows:

A)?Measures implemented by TikTok

(i)?Re: transparency of the economic terms applicable to ‘virtual gifts’

• Improved transparency vs users accessing live streaming content relating to the ‘virtual gifts’ and their prices in virtual currency.
• Added a section on the app allowing users to monitor their virtual currency balance, purchases history and gifts history.
• Implemented a system of purchase confirmation emails to be sent to the TikTok user’s following each purchase made on the platform.

(ii)?Re: age verification of its users??

• Improved transparency vs users around minimum age requirements for conducting in-app purchases (i.e., 18 years old).
• Modified the registration process requiring user to manually insert their birthdate (instead of their age) and preventing users below the age of 13 from registering/using the app.
• Implemented a functionality preventing registered users below the age of 18 from conducting in-app purchases.

Moreover, TikTok has notified the AGCM that it is currently testing further measures aimed at identifying and removing accounts activated by users below the age of 13 (most likely, these measures are meant to comply with the requests made by the Garante). These measures are, by way of example:

• improving the information on the app’s features made available by the app stores (Apple’s and Google’s);
• adopting a software functionality capable of identifying, through the use of certain keywords, accounts which are likely to be associated with users below the age of 13 (with the suspicious accounts having been identified by the software to be subject to subsequent human verification);
• making it easier for parents/third parties to report account associated with users below the age of 13;
• researching and developing new artificial intelligence features capable of facilitating the identification of users that are likely to be under the age of 13;
• organizing awareness campaigns, within and outside the app, aimed at promoting a responsible use of the platform.

B)?Commitments offered by TikTok (to be implemented by June 30/September 30, 2022)

• To carry out a thorough review of the app’s virtual Items policies and implement separate policies. In particular: (i) a Coin Policy, regulating the purchase and the use of virtual currencies, including the sending of ‘virtual gifts’; and (ii) a Rewards Policy informing creators on how to receive these ‘virtual gifts’, how TikTok gives diamonds/rewards to content creators and how creators can convert rewards into real money.
• To ensure that the Rewards Policy includes information relating to (i) minimum and maximum rewards that may be converted into money and (ii) the applicable commissions.
• To ensure that the Rewards Policy includes (i) an example of how these ‘virtual gifts’ can be obtained and (ii) information on the applicable conversion rate for converting ‘virtual gifts’ into real money.
• To ensure that when participating for the first time to live streaming content, Italian user will display a wording offering an estimate of the unit price of the virtual currency and a link to specific guidelines on ‘virtual gifts’?.
• To supplement the existing guidelines on ‘virtual gifts’ with information on the unit price of the virtual currency and on its calculation methods.
• To ensure that the improved/supplemented guidelines are permanently accessible via the ‘virtual gifts’ panel.
• To ensure that also the Coin Policy includes information on the unit price of the virtual currency and on its calculation methods.
• To enhance the information related to the consumer’s right of withdrawal for purchases of virtual currency.

AGCM - UNFAIRNESS OF CONSUMER FACING TERMS (Decision issued on January 5, 2022)

The facts of the case

The case was initiated following a report from a consumers’ watchdog organization alleging that (i) unfair terms were included within the TikTok terms of service (ToS) and that, more generally, (ii) the provisions of the ToS were too generic and opaque - especially considering the young age of the TikTok’s target users. As a result of these proceedings, the AGCM (upon consultation with the Garante in relation to certain clauses governing the processing of personal data) took the view that several terms featuring in the ToS (and which are commonly found in US-compliant terms) were in breach of the Italian Consumers Code, including:

• TikTok’s right to unilaterally modify the ToS without indicating a specific justification.?
• TikTok’s broad rights to, at its sole and complete discretion and without any reasonable notice requirements, (i) terminate/close the account; (ii) remove or limit access to user generated content (UGC) (ii) suspend or discontinue its services.
• The broad royalty free, irrevocable, unconditioned, assignable license granted to TikTok (and to its affiliates, subsidiaries etc.) allowing the licensees to (i) use, modify, adapt, reproduce, create derivative works from, publish and/or broadcast and/or distribute (and so on) UGC and (ii) use the user’s name, username, image, voice and other personal features.
• The broad (i) liability limitations; (ii) indemnity and (iii) warranty exclusions in favour of TikTok.
• The applicable law and jurisdiction clauses which were unclear and did not expressly indicate that the consumer’s forum is to be considered as mandatory.

The AGCM found that those terms were in fact unfair and ordered that they should be amended to ensure compliance with the Consumers’ Code, ordering that the AGCM’s decision establishing the unfair nature of some of TikTok’s ToS would have to be published on the homepage of TikTok’s website and remain displayed for 30 consecutive days. However, no fine was issued, since similar violations are currently not subject to direct administrative fines under the Italian Consumer Code. However, non-compliance with the order of the Authority to amend the terms and to publish the Authority’s decision on Tik Tok’s website, would trigger sanctions.

AGCM - INFLUENCER MARKETING AND HIDDEN ADVERTISING (Decision issued on July 5, 2022)

The facts of the case

The case relates to a paid for advertisement promoting some eye drops allegedly capable of changing the eyes’ colour, distributed by the company Crystal Drops and displayed by TikTok on its platform. The video featured a young girl, who – while holding the eye drops package - enthusiastically said she’d tried those eye drops because she was intrigued by an ad seen on TikTok.?The video framed the packaging and zoomed in on the FDA logo and on some doctors wearing scrubs. This video was not labelled as an advertisement and did not mention the existence of a commercial relationship with the distributor of the product.

The AGCM found that the video was in fact a paid for advertisement and considered that both TikTok and the company Crystal Drops were engaging in unfair commercial practices (sub specie misleading/hidden advertising).

TikTok commitments / implemented measures

In response to the AGCM’s findings and to avoid further prosecution, TikTok (A) implemented some measures and (B) offered commitments to (i) make paid for ads identifiable as such, and (ii) make it easier for content creators to flag branded contents (i.e., UGC created upon commercial agreements between brands and users). AGCM found that the implemented measures and the commitments offered by TikTok were adequate to address the concerns underlying the notified infringements and didn’t issue any sanctions against the platform - it did, however, sanction the company Crystal Drops on the basis that the content of the ad was also found to be misleading (inter alia, the ad referred to a non-existent FDA approval of the eye drops product) and that the e-commerce website (targeting also Italian consumers) didn’t comply with the Italian Consumer Code. The measures/commitments implemented/offered by TikTok, which were rendered binding by the AGCM, can be summarized as follows:

A)?Measures implemented by TikTok

• In relation to Paid for Ads: Tik Tok Improved clarity of its policies vs. professional users;
• In relation to Branded Contents: Tik Tok Implemented a specific functionality (i.e., the Branded Content Toggle) that content creators may activate in order to flag the existence of a commercial relationship with a brand;

B)?Commitments offered by TikTok (to be implemented by June 30/September 30, 2022)

• To ensure that the TikTok’s ToS include a reference to the policy regulating the Branded Content Toggle.
• To implement a new functionality allowing user to easily report “undisclosed branded content”.
• To modify the ToS to (i) grant users the right to report violations of TikTok policies, including the one regulating the Branded Content Toggle; (ii) to improve clarity on how TikTok handles reports.
• To modify the request for consent relating ‘personalized’ ads to (i) ensure that the “consent” and “refuse” options have the same prominence; (ii) include more information relating to ‘personalized’ ads as part of the request; (iii) include a link to further information relating to ‘personalized’ ads.
• To investigate whether it may be advisable to include new labels flagging paid for ads/branded content, thus replacing the hashtags currently in use.

GARANTE - SHOWING ‘PERSONALIZED’ ADS BASED ON LEGITIMATE INTEREST (Decision issued on July 7, 2022)

The facts of the case

In June 2022 TikTok notified its users that it was implementing a new privacy policy effective July 13, which indicated that people over the age of 18 would start receiving ‘personalised’ ads (i.e., ads selected based on their behaviour using TikTok). The processing of personal data would no longer be based on the user’s consent but on TikTok and/or its partners’ legitimate interest instead. Upon a clarification request by the Garante, TikTok argued that legitimate interest is to be considered a valid legal basis for data processing purposes as (i) users have been properly informed of the processing; (ii) it is unlikely that such processing would have any negative impact or be damaging vs the users; (iii) users below the age of 18 are not subject to this type of data processing; and (iv) TikTok provides users with a number of platform features which allow them to effectively exercise their rights under the GDPR.

The Garante disagreed with the impact assessment made by TikTok and considered that the change in legal basis was incompatible with EU directive 2002/58 (i.e., ePrivacy Directive), as well as with the Italian Privacy Code, which, as the Garante explained, require the data subjects’ consent for the storage of information, or for the accessing information already stored, in the terminal equipment of a user, to be lawful.

Moreover, the Garante highlighted that as TikTok showed that it is floundering in enforcing age requirements against its users, it is difficult for the Garante to rule out the risk that ‘personalised’ ads would be shown also to users which are in fact below the age of 18.

Therefore, the Garante sent a formal warning to TikTok that processing personal data on the basis of its (and its partners’) legitimate interest would be in contrast with the current regulatory framework, and, as such, would trigger corrective measures and fines.

Following the formal warning of the Garante, TikTok has announced that, for the time being, it has put on hold its plans to change the legal basis in connection with showing ‘personalised’ ads.