As part of the European Commission’s Digital Single Market Strategy, the European Union has recently adopted two Directives which will apply from 1 January 2022. The Sale of Goods Directive relates to the sale of goods to consumers and the Digital Content Directive relates to the supply of digital services and digital content to consumers.
The Directives prescribe new and enhanced trader obligations towards consumers, and describe the consumer’s rights and remedies, in respect of goods, digital content and the novel category of digital services. They are maximum harmonisation Directives, meaning that Member States cannot deviate from their requirements (for example, by giving consumers or traders more or less protection in the areas covered by the Directives), unless expressly permitted by the Directives. This is designed to ensure that the consumer law landscape across the European Union is more consistent than it is currently, which in turn should encourage more traders to offer their products to consumers in other Member States, and give consumers greater confidence when making cross-border purchases. At present European law provides for minimum harmonisation in respect of the sale of goods and associated guarantees only, as set out in Directive 1999/44/EC, which will be repealed when the Sale of Goods Directive comes into force.
The Directives will now need to be transposed into national law by Member States, including the United Kingdom if it remains an EU Member State. If not, the United Kingdom may choose to transpose the Directives (or at least parts of them) anyway, to ensure conformity with EU standards.
Some of the key points to note under the Directives and which may result in changes to current national laws are:
- New concept of digital services. The Digital Content Directive distinguishes between digital content (e.g. software, a video file or an e-book) and digital services (e.g. SaaS and social media services), and applies to both.
- Supply of software updates. The Directives require traders to supply consumers with updates where necessary to keep goods with digital elements (such as smartphones and smart televisions), digital content and digital services in conformity. The duration of this obligation will vary depending on the context. In the case of a single supply of digital content or digital services, it will apply for the period of time that the consumer may reasonably expect. The Digital Content Directive also entitles consumers to terminate the contract if a modification supplied by the trader negatively impacts the consumer’s access to or use of the digital content or services in a non-minor way.
- Accessories and installation instructions. Goods, digital content and digital services must be delivered with all accessories and instructions that consumers may reasonably expect to receive, including in the case of goods, packaging and installation instructions. Consumers installing flat pack furniture will rejoice, whereas traders will need to think about whether the products they sell include everything that a consumer would reasonably expect, including clear installation instructions.
- Deviations from the conformity requirements. The Directives allow deviation from certain of the conformity requirements (for example, the satisfactory quality requirement) if the consumer is specifically informed of the deviation and expressly and separately accepts the deviation when concluding the contract.
- Burden of proof. Under the Directives, goods, digital content and digital services are presumed not to have conformed to the contract on delivery or at the time of supply if they fail to conform at any time within one year from delivery or the time of supply. This time period could differ in certain cases. For example, for goods, Member States can opt to extend the one year period to two years. The Directive includes exceptions to this presumption. For example, under the Digital Content Directive, the presumption will not arise if the trader can demonstrate that the consumer’s digital environment is incompatible with applicable technical requirements, provided the consumer has been clearly informed of such requirements pre-contract.
- Consumer remedies. The Directives set out the consumer’s remedies in respect of non-conforming goods, digital content and digital services, including rights to receive repairs or replacements or terminate the contract. The Sale of Goods Directive does not include a short term right for consumers to reject non-conforming goods, but does allow Member States to introduce or maintain such a right.
- Commercial guarantees. The Sale of Goods Directive clarifies that producers of goods (being manufacturers, importers of goods into the European Union or any person placing their name, trade mark or other sign on goods) which offer consumers a commercial guarantee of durability for goods will be directly liable to consumers under such guarantee for repair or replacement of the goods during the guarantee period.
- Types of digital contract where consumers benefit from protection. The Digital Content Directive applies where the digital content or digital services are paid for by the consumer or provided in exchange for the consumer’s personal data and that data is used for purposes other than supplying the content or services or to comply with legal requirements.
- Integration requirements. Under the Digital Content Directive, any lack of conformity resulting from the incorrect integration of digital content or digital services into the consumer’s digital environment will be regarded as a lack of conformity of the content or services if the integration was done by the trader or was the trader’s responsibility, or carried out by the consumer incorrectly due to shortcomings in the trader’s integration instructions.
- Traders’ obligations on termination. The Digital Content Directive imposes obligations on the trader on termination of a contract for digital content or digital services, including to make available to the consumer on request content created or provided by the consumer when using the digital content or digital services, subject to certain exceptions. This represents a radical change to the legal landscape and for certain businesses, will require a change in how a product is architected.
What will businesses need to do to ensure compliance?
Businesses which are involved in sales to European consumers will need to consider the relevant national implementations of the Directives (once they are available, and in any event in good time before 1 January 2022) to ensure compliance. Whilst the Directives will harmonise the law in this area across the European Union to a far greater extent than currently, some national differences will remain. Businesses will need to identify the differences for each market in which they operate and consider what impact such differences may have.
Key points to consider will be:
- Whether any parts of the Directives impact the business and how the impact can be dealt with if so. For example:
- The protection afforded to consumers in respect of digital content and digital services which are provided in exchange for personal data may have a significant impact on certain business models such as social media platforms.
- The obligations on traders to supply software updates could have an impact on costs, in which case a business may need to change its pricing or pricing model. Under the Digital Content Directive, consumers may be entitled to terminate the contract following updates made to digital content or digital services. Traders will therefore need to carefully think about making any updates which could affect the consumer’s access or use of digital content or digital services.
- A clothing retailer with a “seconds” section on its website will need to include a mechanism for consumer acceptance of the deviations from the relevant conformity requirements.
- Checking consumer-facing materials such as terms and conditions, product descriptions and disclaimers, refund policies and advertising materials to ensure that nothing conflicts with the consumer’s rights and remedies under the Directives. Typical areas which can cause conflict are terms and conditions which limit or exclude the trader’s liability, and restrictions on how and when customers can return goods (which can often be found in the detail of guarantees or warranties).
- Ensuring that customer services representatives in physical stores and providing online customer service are trained to be aware of the rules which apply when goods, digital content and digital services do not meet the standards required by the Directives.