EU Legislation Watch: New Rules for Consumer Contracts under the Digital Content Directive

As part of the Digital Single Market initiative, European legislators are in the final stages of implementing a new Directive that will fundamentally change the contractual regime for selling digital content to European consumers. In particular, the new instrument will introduce the concept of “payment by data”, mandate portability of user account contents upon termination, and introduce significant statutory warranties. The scope of this directive is broad, and it will affect all online and mobile games providers selling to European customers.

A new approach and a broad scope

The draft Directive follows a fully harmonized approach, meaning that Member States will not have (much) discretion to modify the contracting rules for digital content. The rules themselves are inspired by earlier legislative projects in view of introducing a fully harmonized Common European Sales Law.

The scope of the Directive is quite broad and particularly not limited to contracts where digital content is supplied to a consumer; it also covers digitally provided services that let users themselves upload or create their own content.

Some key provisions of this proposed new directive are the following:

• Payment by data: The scope of the Directive is limited to the paid provision of digital content to consumers, but “paid” is no longer limited to monetary counter-performance. Contracts where the consumer “actively provides personal data or any other data” are also expressly included. Providers only escape the application of the directive if their collection and processing of data (personal or otherwise) is strictly limited to the extent required for the performance of the contract and/or otherwise required by law.
• Portability upon termination: The Directive does not create a general or unlimited right for users to shift their data between different providers of similar services, but does require providers of digital services to enable users to download – for free – any content they have uploaded to or created on the service. In a similar vein, providers may generally no longer use such content after termination, which will likely impact the way message boards and other user contributions to public parts of an online service have to be managed.
• Warranties and liability: Some of the core provisions of the draft Directive concern Providers’ liability for their digital content (and, likely, all digitally provided services to consumers). If the content is not in compliance with the contract (and/or fit for purpose) upon delivery, consumers can require providers to fix the defect. The burden of proof for conformity is on the provider! If a defect cannot reasonably be corrected, users can terminate the agreement and claim a full refund. Consumers can also claim damages.
• Content modification clauses: One positive aspect of the new Directive, however, is that providers will be expressly permitted to include clauses in their terms that permit modifications of the content, even if it means that the content will no longer fully conform to the initial description or otherwise “adversely affect access to or use of” such content.

Analysis and Outlook

The language of the current draft is still unclear, confusing, and even contradictory in many respects. For instance, the term “digital content”, in the eyes of the legislator, seems to be meant to include services where the vendor does not in fact provide any content at all, but instead enables consumers to upload and share their own content.

Another unanswered question concerns the compatibility of the “payment by data” mechanism with the provisions in the General Data Protection Regulation that limit a vendor’s right to make the provision of a service contingent upon data collection and processing consent.

The draft is not final. The Council just recently published a number of comments and suggested modifications, and the European Parliament has yet to comment on the draft at all – this is expected to happen in the fall, and may yet result in a number of modifications and – hopefully – clarifications.

Digital content providers, including operators of online and mobile games, should however start taking the proposed new rules into account for their mid- to long term planning regarding European markets.