Draft online sale of goods and sale of digital content directives

Who: European Commission

Where: Brussels

When: 9 December 2015

Law stated as at: 22 January 2015

What happened:

The European Commission (the “Commission”) has announced the first major legislative developments in the Digital Single Market initiative*, with the publication of two draft directives aimed at harmonising digital contract rules and promoting online sales across the EU. As well as strengthening the European digital economy and increasing consumer confidence in pan-EU trading, the initiative will, in theory, reduce the costs of compliance for businesses.

The first directive deals with certain aspects concerning consumer contracts for the supply of digital content (the “Digital Content Directive”) and the second with consumer contracts for the online sale of goods (the “Online Goods Directive”).

The directives proposed by the Commission have been drafted as so-called “maximum harmonisation measures”.  This means that, if passed, no Member State could give consumers greater or less protection than the provisions of the two directives. A similar approach was taken under the Consumer Rights Directive with regard to pre-contract information and cancellation rights.

The key proposals

If adopted, the directives would apply to business-to-consumer (“B2C”) contracts only, although one provision of the Digital Content Directive seems to indicate that consumer-facing companies will be able to bring actions against a supplier where an act or omission of that supplier has led the consumer-facing company to be in breach of the new provisions.  This will be welcomed by – and very advantageous to – B2C businesses which have previously not been able to back-off certain consumer protection provisions to upstream suppliers.

Digital Content Directive

The majority of Member States do not currently have specific legislation covering the sale of digital content (which, for the purpose of the Digital Content Directive, expressly includes cloud services).  Some countries deal with this under the rules on sales of goods, while others deal with it under the rules on sales of services.  The Digital Content Directive would harmonise contract rules in four main areas:

1. If digital content is defective, a consumer can request a remedy. This will not be subject to a time limit, since digital content is not subject to wear and tear.
2. The consumer will not have to prove that a defect existed at the time of supply. Rather, it will be up to the supplier to prove that was not the case.
3. Where a contract provides for the supply of the digital content for an indeterminate period or for a duration exceeding twelve months, the consumer will be entitled to terminate the contract any time after the expiration of the first twelve-month period.
4. Personal data given in exchange for digital content (beyond what is necessary for performance of the contract) is considered to be “counter-performance other than money” and will be treated in a similar way to financial consideration. In addition, where the consumer gives the supplier personal data in order to obtain digital content, the supplier must stop using that data when the contract is terminated.

Online Goods Directive

There are currently only minimum EU requirements in place in relation to the sale of goods online, meaning that the laws of each Member State differ significantly. The headline points in the draft Online Goods Directive are:

1. The consumer will not lose the right to a remedy if they fail to report a defect within a certain period of time (as is currently the case in a number of Member States).
2. Under current EU rules, for a certain period of time after supply, the consumer is not required to prove a defect was present on delivery; it is, instead, up to the supplier to prove it was not. This period of time will be harmonised to a standard two years.
3. Consumers would only be able reject goods after requesting a repair or replacement first, as opposed to the current short-term right to reject. If the seller is unable to repair or replace a defective product, the consumer will have the right to terminate the contract and be reimbursed. This will apply in case of both minor and major defects.
4. Consumers will have rights in relation to second-hand goods purchased online for a period of two years, rather than the current one year period which applies in some Member States.

Why this matters:

The Commission’s proposals include several key changes to the existing regime for the supply of digital content and the online sale of goods, which consumer-facing businesses will need to consider carefully. This is likely to cause frustration for many UK companies, particularly given that they will have recently addressed similar issues in connection with the Consumer Rights Act 2015 (the “CRA”), which came into force on 1 October 2015.

The concept of non-essential personal data being treated in more or less the same way as financial consideration for digital content under the Digital Content Directive is particularly relevant, as much of the CRA applies only to paid-for digital content. This change would extend the scope of the regime significantly and will affect a broad range of businesses, particularly those which deal with high volumes of personal data.

Of course, the directives have only recently been published so we are still a long way from enactment and the drafts may well change significantly in that time. If they do not, UK consumer law, which has only recently undergone major change, will have to change once again.

* The draft directives are part of the Commission’s DSM initiative, on which we have a dedicated hub.