Digital Single Market: proposed Directive on contracts for the supply of digital content

As part of the EU’s Digital Single Market initiative, on 9 December 2015 the European Commission published a draft Directive on certain aspects of the supply of digital content. The text of the draft Directive is here.

Implications for consumer-facing businesses 

At Osborne Clarke we have been following the development of the Commission’s proposals carefully, and have lobbied the Commission in relation to earlier drafts of the Directive on behalf of clients in the technology sector. 

Whilst neither the publication nor the content of the draft Directive come as a surprise, the Commission has proposed several key changes to the existing regime for the supply of digital content which consumer-facing businesses in particular will need to consider. This may be frustrating for some, particularly as businesses have recently addressed similar issues in connection with the UK’s Consumer Rights Act, which came into force on 1 October 2015 (the CRA). 

We have answered some of the key questions about the draft Directive below – and of course the Directive remains a long way from being implemented into the national law of Member States. We have previously produced a paper outlining the different rights and remedies which apply to digital content in several EU jurisdictions and in California. Please do get in touch if you would like a copy of that survey. 

What is the aim of the draft Directive?

The proposals aim to tackle what the Commission perceives as the main obstacles to cross-border e-commerce in the EU. They aim fully to harmonise across the EU a set of key rules concerning contracts for the supply of digital content (such as streaming music or video) and to reduce legal fragmentation in the area of consumer contract law, so – hopefully – reducing the costs of compliance for businesses. 

Is this a “maximum harmonisation” directive? 

Yes it is. In theory, after initial compliance, this should reduce contract law-related costs for traders and facilitate cross-border e-commerce. Once the Directive is implemented, businesses should be able to rely largely on their own national law when selling cross-border because the main rules, which are relevant for cross-border trade, should be the same in all Member States. 

Can you describe the main provisions of the Directive, in a nutshell?

It includes rules on conformity of digital content, remedies available to consumers in cases of lack of conformity of digital content with the contract entered into between the consumer and the relevant business, as well as certain aspects concerning the right to terminate a long-term contract and the modification of the digital content. 

It sounds very similar to the Consumer Rights Act 2015, which we’ve just implemented in the UK? 

It is. Fortunately, some of the proposals in the draft Directive, particularly around rights (e.g. content must be fit for purpose) and remedies, are similar to the CRA. However, there are some variations. So businesses, fresh from checking and ensuring their compliance with the CRA, will now need to consider the new proposals and ascertain what they need to do to comply once the draft Directive is implemented into the national law of Member States.

Is the definition of “digital content” the same as in the CRA and the Consumer Rights Directive (CRD)? 

No. The definition of digital content is now wider than previously defined in the CRA and in the UK’s implementation of the CRD through the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013. 

Specifically, the definition has been extended to cover digital services, which was not previously the case, including:

• “a service allowing the creation, processing or storage of data in digital form, where such data is provided by the consumer”; and
• “a service allowing sharing of and any other interaction with data in digital form provided by other users of the service”. 

The definition seems deliberately broad and can therefore encompass all types of digital content and services, including some which arguably were not caught by the previous provisions, such as cloud storage and potentially social media. It also raises the possibility of dual regulation for some services (for example, “electronic communications services”) under different EU regimes, with the possibility of conflicting or inconsistent contractual rules and other unintended consequences. 

The CRA stated that data-driven transactions may be treated differently in the future. Is there anything about this in the draft Directive? 

Yes. The Directive covers digital content supplied not only for a monetary payment but also in exchange for (personal and other) data provided by consumers, except where the data have been collected for the sole purpose of meeting legal requirements, which is a very narrow exemption. 

There is no concept of proportionality, so if any data is provided (regardless of volume or value) the rights and remedies will apply. This is at odds with the provisions relating to payment in the CRA, which is a flexible and proportionate test i.e. the greater the payment, the higher the expected quality of the content and vice versa. 

What happens to data on termination?

Interestingly, the draft Directive states that:

• the trader must stop using the data; and
• the trader must 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“. 

This opens up the possibility that customers can ask for playlists they have made on music services. What about creations they have made in Minecraft (for example)? Or messages they’ve sent on social media sites? Should these be returned to users and if so, how? It could involve significant cost and implementation implications for businesses. 

Is the draft Directive just aimed at B2C transactions?

Not entirely. One provision states that where the trader 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, the trader shall be entitled to pursue remedies against the person or persons liable in the chain of transactions. 

This seems to indicate that consumer-facing companies will be able to bring actions against their suppliers where an act or omission of the supplier has led them to be in breach of the new provisions, regardless of whether the consumer rights or remedies have been implied into that B2B contract. It will therefore be important for B2B suppliers to understand what use their B2C customers are making of content they are supplying. This will be very advantageous to, and welcomed by, B2C businesses which have previously not been able to back off certain provisions upstream. 

What are the other headline points I need to know about?

• Immediate supply: the supplier must supply the digital content immediately after the conclusion of the contract, unless the parties have agreed otherwise. If the supplier fails to supply in this way the consumer can terminate immediately. This is potentially problematic for online service providers as “immediate supply” could be a very onerous target.
• Conform with most recent version: digital content must be supplied in conformity with the most recent version of the content which was available at the time of the conclusion of the contract. This may be the case for online content but has never been an express consumer right before. It may prove problematic for hard copy purchases and may give rise to potential issues, as the consumer may not be aware of the latest developments or modifications.
• Ability to make modifications to digital content will become much more restrictive than is currently the case: modifications to digital content can only be made if: (i) the contract so stipulates; (ii) the consumer is notified reasonably in advance of the modification by an explicit notice on a durable medium; and (iii) the consumer is allowed to terminate the contract free of any charges within no less than 30 days from the receipt of the notice. The consumer will be due a refund if they elect to terminate.
• Easier for consumers to claim damages for device/content damage: the draft Directive differs from the CRA provisions on content and device damage, allowing the recovery of damages for “any economic damage to the digital environment of the consumer” caused by: (i) a lack of conformity with the contract; or (ii) a failure to supply the digital content.
• Right to terminate long term contracts: where a contract provides for the supply of the digital content for an indeterminate period or for a duration exceeding 12 months, the consumer shall be entitled to terminate the contract any time after the expiration of the first 12 months period. This will have a severe impact on some companies’ business models and certainty of revenue, particularly where they subsidise electronic devices through long term contracts, unless potentially they split the goods and digital content into separate contracts. 

What happens next? 

The draft Directive now enters the EU consultative legislative process. Once the text is consulted upon and agreed between the Parliament, Council and Commission – which is likely to be a lengthy process – the Directive will then need to be implemented into the national law of each Member State. So implementation is some years away, and of course the text of the draft Directive is likely to change, possibly substantially, as it progress through the relevant EU institutions. 

The draft Directive (formally titled “Directive of the European Council and Parliament on certain aspects concerning contracts for the supply of digital content”) is part of the Commission’s Digital Single Market initiative, on which we have a dedicated hub here.