Court Decision: Consumer Withdrawal Right Waiver Possible for Virtual Currencies

The EU Consumer Rights Directive created an express right for consumers to withdraw from purchases of digital content. Unlike for other goods and services, the Directive however permits providers to obtain waivers of this withdrawal right before supplying digital content to customers. It has been highly controversial, whether this rule also applies to virtual currencies in online and mobile games, and how exactly such a waiver must be designed. In the first court decision to tackle these issues, the Regional Court of Karlsruhe, Germany, now held that withdrawal rights waivers are possible, but only subject to a rather complicated procedure.

Legal Background

The Consumer Rights Directive grants consumers a right to withdraw from purchases of digital content within 14 days and claim a refund. While the customer must, of course, also “return“ the digital content, there is one practical catch: The consumer is expressly not obliged to pay any compensation for any use of the digital content between purchase and withdrawal. Hence, even if the value of the digital content has been exhausted – a movie watched, an in-game item consumed – consumers can still demand all their money back.

Since this would be taking things a bit far, the European legislator gave digital content providers the right ask for a waiver of withdrawal right before granting access to the content, subject to two cumulative conditions: The entrepreneur must have started the performance after the consumer

• has expressly agreed that the entrepreneur begin performance before the end of the withdrawal period, and
• has confirmed their knowledge of the fact that such agreement results in a waiver of the withdrawal right.

The Case before the Court

The case before the Karlsruhe court was brought by notorious consumer watchdog group Verbraucherzentrale Bundesverband e.V. (“vzbv”) against the online game giant Gameforge. The purchase process for virtual currency in the Gameforge game NosTale, (“NosTaler” in German), included the following language to implement the actual withdrawal waiver:

„By clicking „Buy now“ I agree to the immediate execution of the contract by Gameforge and I know that this will cause my withdrawal right to lapse.” […]

The Consumer Group’s Perspective

In their complaint, vzbv argued that virtual currencies were not “digital content” for the purpose of the withdrawal right legislation, but subject to regular distance selling rules where a withdrawal waiver is not permitted at all.

However, vzbv went on, even if virtual currency was (legally speaking) digital content, Gameforge could not obtain the waiver prior to the conclusion of the agreement. The consumer, according to their logic, could waive only a right that already existed – meaning any waiver would have to be agreed after conclusion of the contract. According to vzbv, valid withdrawal waivers therefore require a two-step process with a separate waiver declaration after the consumer has clicked the “buy now” button.

Since Gameforge had not implemented the waiver in this manner, vzbv argued their wording could not meet the requirements for a valid waiver and was therefore misleading.

The Decision

The court only partially followed vzbv’s arguments: It confirmed that virtual currency was in fact “digital content”, but it did agree with vzbv regarding the requirement of a two-step process to obtain a withdrawal waiver.

Are Virtual Currencies Digital Content?

vzbv argued that NosTaler merely represented a “claim or an entitlement” without having distinct informational value. Therefore, they were means of payment and not digital content.

The court rejected this opinion: Virtual currency represents a value in the game – similar to play money, but in a digital form. Hence, virtual currency is an integral part of the game and enhances the user’s gameplay options. As part of the game, virtual currency must be considered digital content.

Designing the Waiver Process

Moreover, vzbv argued that the specific design of the waiver process was illegal, since the waiver declaration could not happen at the same time as the conclusion of the contract – and hence a two-step clicking process was necessary.

The Karlsruhe court agreed on this point, saying that “[the statute] governs the extinction of the right to withdraw for a contract regarding the delivery of digital goods which are not stored on a tangible medium. However, a right can only become extinct if it has previously existed.” From this, the court draws the erroneous conclusion that the conclusion of contract and the waiver of the right to withdraw cannot occur simultaneously with the same declaration.

This conclusion, however, is not supported by the wording of either the Consumer Rights Directive or the German implementing statute, or even the recitals and other accompanying documents of either piece of legislation. Due to a lack of valid sources, the court only makes the blanket statement that a “chronological coincidence” of conclusion of contract and loss of right to withdraw was not possible.

In addition, the judges in Karlsruhe seem to have confused two distinct moments in time, i.e. the time a consumer declares their waiver, and the time this declaration becomes effective – and nothing in the statute suggests that the declaration and its effect must occur simultaneously! On the contrary: German civil law is full of express rules where the legal effect of a declaration unfolds at a different time than when the declaration was made.

A two-step process as demanded by vzbv and LG Karlsruhe would, moreover, not benefit consumers: When the waiver is obtained at the time of conclusion of contract, the consumer can consider before buying whether they really want the digital content if it means they have to waive their withdrawal right. In a two-step process, the consumer must first enter into a binding agreement (which may for instance result in their credit card or other payment method already being charged), and only then is informed about the fact that they must now waive the withdrawal right or wait 14 days before receiving the digital content. Effective consumer protection… NOT!

To Be Continued!

The ruling of the Regional Court of Karlsruhe is a small milestone – for the first time it was established in court that virtual currency which is an integral part of a computer game must be considered digital content and that therefore, the consumer withdrawal right can be validly waived. However, the next milestone is already in sight: Gameforge has appealed, and it will now be up to the Higher Regional Court of Karlsruhe to revisit the law on the waiver process. Watch this space for updates!

Disclosure: We represent Gameforge in this matter.