The European Commission’s proposal on contract rules for the purchase of digital content

December 20, 2016 by
Janine Nothlichs

Dr. Léon Mölenberg, senior policy advisor Ecommerce Europe and Thuiswinkel.org. This article previously appeared in the Cross-Border Magazine, Edition 1, June 2016

In the scope of the Digital Single Market Strategy the Commission has recently launched two directive proposals: one on contract rules for the  purchase of digital content; and another for the online and other distance sales of tangible goods.

The objective is to create a single set of rules and to establish a genuine Digital Single Market, ensuring the same high level of consumer protection across the European Union, and allowing traders to sell tangible goods and digital content to consumers in all Member States based on the same contractual terms and legal conditions. The proposals would significantly reduce traders' compliance costs while granting consumers a high level of protection, thus stimulating cross-border ecommerce and economic growth.

The European Parliament recently started a discussion on the proposal for digital content and at the same time postponed the discussion on the proposal on tangible goods until the results of the REFIT evaluation of the momentary consumer acquis are known. Here we have outlined the main features of the proposal for the purchase of digital content.


Scope
The proposal on the sale of digital content covers all B2C sales of digital content services not provided for free, regardless of whether they are offered to the public online, by other distance means or by stationary sales, and regardless of whether they are domestic or cross-border (Art. 3). “Not provided for free” means that the digital content is exchanged for a price in money or, and this is a new regulation, for an active counter performance in the form of personal or other data. It covers also the durable medium which is solely used for transport of the digital content. A CD, floppy disk or USB stick containing digital content, and as such a tangible good, will be considered as digital content.

The directive does not apply to privacy and copyright and other intellectual property-related aspects of the supply of digital content and is also not applicable to electronic communication services, health care, financial services and gambling.

Digital content
With the aim of being future-proof, avoiding distortions of competition and creating a level playing field, the definition of digital content is deliberately broad and encompasses all types of digital content, regardless of whether they are delivered via a durable medium or not.

Digital content means (Art. 2):

(a) data which is produced and supplied in digital form, for example video, audio, applications, digital games and any other software;

(b) a service allowing the creation, processing or storage of data in digital form, where such data is provided by the consumer, and

(c) a service allowing sharing of and any other interaction with data in digital form provided by other users of the service.

The Directive does not cover services performed with a significant element of human intervention.

Conformity
For digital content, conformity in this proposal builds on a system of subjective and objective components, directed on and extended with typical issues for digital content (Art. 6).

It generally means that digital content shall be of the quantity, quality, duration, version and updated as stipulated in the contract. It shall possess functionality, interoperability and other performance features such as accessibility, continuity and security, instructions and customer assistance as stipulated by the contract or in any pre-contractual information.

To the extent that the contract does not stipulate, the digital content shall be fit for the purposes for which digital content of the same description would normally be used including its functionality, interoperability and other performance features such as accessibility and continuity and security.

When assessing conformity, the existing international technical standards and applicable industry codes should be taken into account as well as whether the digital content is supplied in exchange for money or for data.

Incorrect integration of the digital content in the consumers’ digital environment by the trader or due to a shortcoming in integration instructions is also seen as a lack of conformity.

Digital content shall be free of third party rights that hinder their proper functioning and use (Art. 8).


Delivery and time
The supplier shall supply the digital content to the consumer or a third party chosen by the consumer which operates a physical or virtual facility making the digital content available to the consumer or allowing the consumer to access it (Art. 5). Unless otherwise agreed, digital content not on a durable medium must be supplied immediately after the conclusion of the contract and digital content on a durable medium solely used for the transport of the digital content, must be delivered without undue delay but not later than 30 days from the conclusion of the contract.

Where the supplier fails to supply the digital content the consumer shall be entitled to terminate the contract immediately.


Reversal of burden of proof of non-conformity and passing of risk
The (non-)conformity of digital content has to be assessed for the moment of delivery. At that moment the risk for the digital content will pass from the trader to the consumer. The consumer has to prove the non-conformity. The proof that the non-conformity of the good was not existent at the moment of delivery or is not caused by the supplier or is caused by the consumer or by circumstances which are on the consumers’ risk, shall always and unlimited in time be on the supplier (Art. 9), unless the trader shows that that the digital environment of the consumer is not compatible with interoperability and other technical requirements of the digital content and where the supplier informed the consumer of such requirements before conclusion of the contract.

Notification period, prescription period, legal guarantee and traders’ guarantee
There is no obligation in the proposal for the consumer to notify a lack of conformity within a certain period after the detection or assessment of the non-conformity. Any prescription period - the period in which the consumer has to bring the case before court - will be governed by the applicable national legal system. Which basically means no full harmonisation on prescription periods.

The legal guarantee period for digital content – the period in which the seller or supplier will be held liable for non-conformity and in which they must provide a solution - is unlimited, meaning that suppliers of digital content basically have an endless obligation to repair non-conformity and that this obligation will only be limited by applicable national provisions on the prescription period. The same accounts for the durable medium (which is as such a tangible good subject to wear and tear) that is solely used as a means of transport for digital content, as it is seen as digital content.  The proposal allows the commercial guarantor to offer a commercial guarantee under conditions they determine.

Remedies and free choice for trader
In case of non-conformity, the consumer shall be entitled to have the digital content brought into conformity with the contract free of charge, unless this is impossible, disproportionate or unlawful (Art. 12). The supplier shall repair non-conformity within a reasonable time from the time the consumer has notified the supplier the lack of conformity and without any significant inconvenience to the consumer, taking account of the nature of the digital content and the purpose for which the consumer required this digital content.

The choice on how to repair the non-conformity falls to the trader. The consumer has a right to either a proportionate price reduction or to terminate the contract where this is seen the nature of the non-conformity, where the remedy for the non-conformity is not in time, impossible, disproportionate, unlawful or would cause significant inconvenience to the consumer.

Liability and right to damage compensation
The supplier will be liable to the consumer for any failure to supply the digital content or any lack of conformity which exists at the time the digital content is supplied (Art. 10). The supplier must compensate the consumer for any economic damage to the digital environment of the consumer caused by the non-conformity or a failure to supply. The compensation has to put the consumer as nearly as possible into the position in which he would have been if the digital content had been duly supplied and been in conformity with the contract.

How to calculate and exercise the right to compensation of damages is up to the Member States and national law and is not harmonised in this proposal.

Right of redress in the chain of transactions
New is the provision that whenever the supplier is liable to the consumer because of any failure to supply the digital content or a lack of conformity with the contract resulting from an act or omission by a person in earlier links of the chain of transactions (e.g. whole-sale, importer or producer), the supplier shall be entitled to pursue remedies (such as damage compensation) against this person or persons liable in the chain of transactions (Art. 17). The person against whom the supplier may pursue remedies and the relevant actions and conditions of exercise, shall be determined by national law. The proposal provides no full harmonisation in this area.

Termination of the contract, data and user generated content
When the consumer has a right to terminate the contract they can exercise it by notice to the supplier given by any means (Art.13). Where the consumer terminates the contract, the supplier shall reimburse the price paid without undue delay and in any event not later than 14 days from receipt of the notice.

If the counter-performance was not in money, the supplier shall take all measures which could be expected in order to refrain from the use of data which the consumer has provided in exchange for the digital content and any other data collected by the supplier in relation to the supply of the digital content.

The supplier shall provide the consumer with technical means to retrieve all content provided by the consumer and any other data produced or generated through the consumer's use of the digital content to the extent that data has been retained by the supplier. The consumer shall be entitled to retrieve the content free of charge, without significant inconvenience, in reasonable time and in a commonly used data format.

Right of termination of long term contracts after 12 months
Where the contract provides for the supply of digital content for an indeterminate period or where the initial contract duration or any combination of renewal periods exceed 12 months, the consumer will have the right to terminate the contract any time after the expiration of the first 12 months period (Art. 16). The consumer exercises the right to terminate by notice to the supplier given by any means. Termination becomes effective 14 days after the receipt of the notice.

Modification of the digital content service
Where the digital content will be provided for over a longer period of time, the supplier has a clear right to alter functionality, interoperability and other main performance features of the digital content such as its accessibility, continuity and security, to the extent those alternations adversely affect access to or use of the digital content by the consumer (Art. 15). The supplier has this right, however, only if:

(a) the contract so stipulates;

(b) the consumer is explicitly notified on a durable medium reasonably in advance of the modification;

(c) the consumer is allowed to terminate the contract free of any charges within no less than 30 days from receipt of the notice; and

(d) upon termination of the contract, the consumer is provided with technical means to retrieve all the user generated content.

Updates and latest version
Digital content shall be updated as stipulated by the contract (Art. 6). Unless otherwise agreed, digital content must be supplied in conformity with the most recent version of the digital content which was available at the time of the conclusion of the contract.

 

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