New UK consumer laws coming into force in October 2015: consequences for the technology industry

On the 1 October 2015, the new UK Consumer Rights Act 2015 (Act) comes into force. The Act is intended to bring together, improve and update existing consumer law in the United Kingdom and will bring about considerable changes to the rights and remedies available to consumers. In particular, the Act also sets out, for the first time, specific rights and remedies relating to digital content and new rules will apply to the supply of services. 

The changes introduced by the Act are set to affect the majority of consumer facing technology businesses who will, in light of the changes introduced, need to review their: sales lifecycle; sales contracts (including standard website and app terms); limitation of liability clauses; check compliance, references to legislation; pre-contractual information (including notices and announcements); cancellation and return policies to ensure they reflect any changes introduced by the Act. 

The Act in summary:

• Clarifies the standards a consumer can expect when they buy goods, services or digital content.
• Sets out what to do when goods, services or digital content don’t meet those standards.
• Introduces a new category of digital content and tailored remedies if digital content rights are not met.
• Introduces new statutory remedies when things go wrong with a service.
• Limits the number of repairs or replacements of substandard goods before traders must offer some money back.
• Clarifies when terms and conditions can be considered unfair.
• Simplifies enforcement powers.
• Makes it easier for consumers and small businesses to take legal action against bigger companies breaching competition laws. 

Game changers

Whilst the Act largely consolidates existing UK consumer laws, it does introduce some important changes. Below is a non-exhaustive list of some of the potential “game changers” introduced by the Act:

1. New rules on the contractual status of pre-contractual information:

Under the Act (and as currently stipulated in the Consumer Rights Regulations 2013), information provided by the trader pre-contract will become a term of the contract (whether or not expressly included in the final contract). Importantly, it cannot be varied without the agreement of both parties. This could lead to significant logistical difficulties if implemented incorrectly. Consumers will also be entitled to claim any costs they incur (up to the price paid) if a trader is in breach of those implied terms. 

2. New remedies for defective or faulty goods:

Consumers will have a 30 day window to reject goods and receive a full refund where they are faulty or not as described. During the first six months after delivery, consumers can also request that faulty or defective goods be repaired or replaced (even after the 30 days right to reject period has expired). If the goods have been repaired or replaced, and are still non-conforming after one unsuccessful attempt (or where repair or replacement is not achievable within a reasonable time), the consumer will have the right to keep the goods and insist on an appropriate price reduction or reject the goods and receive a full refund (so traders effectively only have “one-shot” to repair or replace the goods). 

3. New remedies for poor performance of services:

If a service is not performed with reasonable care and skill, or it does not conform to pre-contractual statements made by the trader, consumers can require the trader to perform the service again to put it right (although there are certain exemptions). 

4. New specific rights and remedies for digital content:

Digital content is defined under the Act as “data that is produced and supplied in digital form” so is wide enough to include computer games, software, mobile phones, computer software, mobile apps and downloads. The definition also includes digital content largely or wholly stored and processed remotely (e.g. software supplied via the cloud). The Act, amongst other things, introduces the following specific rules relating to digital content:

• Implied Terms: Digital content must be: of satisfactory quality; fit for a particular purpose; and as described. If not, consumers have the right to a repair or replacement or a reduction in price.
• Compensation for damage to devices or content: Consumers will be entitled to claim compensation if digital content supplied (even if supplied for free) damages their electronic device or other digital content so long as the consumer can show the trader did not exercise reasonable care and skill.
• Limited automatic refund right: A consumer has an unqualified right to receive a full refund if the trader has no right to supply the digital content
• Upgrades and updates: The new act also includes various provisions relating to upgrades and updates of digital content.. 

5. Unfair terms – the fairness test:

Contract terms and notices will only be binding on consumers if they are “fair” (i.e. it does not put the consumer at a disadvantage by causing a significant imbalance in the parties’ rights and obligations to the detriment of the consumer). The Act also adds to the “indicative and non-exhaustive” so called “grey list” of terms which may be considered unfair. 

Impact for the technology industry 

The consequences for the technology industry, particularly those selling or licensing digital content, are potentially wide ranging and the legislation provides some difficulties which have to be carefully navigated. Some examples are set out below.

Traders operating in the media and/or technology industry should:

• review existing policies and procedures internally and at all levels of the supply and distribution chain to ensure the new consumer rights and remedies will be accommodated and observed (e.g. after sales care);
• review and update standard consumer terms and conditions to ensure existing provisions (e.g. regarding liability, device damage etc.) will not be invalidated by the new law and that adequate references are made to upgrades and updates;
• assess communications with suppliers and customers at all levels of the supply chain for consistency with the new law; and
• train their employees in the new consumer rights and remedies and to ensure they do not fall foul of the provisions relating to pre-contractual information.

Pre-contractual information: 

All traders will need to pay particular attention to any information provided as part of a marketing, online description or advertising campaign (whether through point of sale, packaging, social media or any other medium) that could be caught by the new rules requiring that the goods, services or digital content provided will need to comply with all pre-contractual information given to the consumer.

Digital content:

This is the first time in the UK that digital content has been subject to specific requirements in a piece of consumer rights legislation so businesses selling digital content to consumers will need to pay particular attention to the changes introduced by the Act. Importantly, these digital content provisions apply not only to more “traditional” digital products such as apps, music, ringtones, downloaded or uploaded software etc. but can also extend to cloud computing. Such software and SaaS cloud computing offerings have to date largely been treated as a supply of a “service” and therefore subject to a more limited obligation to provide the service with “reasonable care and skill“. Now traders selling or licensing such offerings and other digital content will need to ensure that they supply digital content which meets the higher minimum statutory quality standards specifically applicable to digital content.

Potential issues to be aware of include:

• the digital content must be fit for a purpose communicated by the consumer (even though this purpose may contradict the terms and conditions or be contrary to the ordinary use of such content);
• the consumer facing business takes responsibility for third party content/software even though they may not have any contractual protection from their licensors (i.e there may be a “liability gap“); and
• although improvements can be made, digital content must remain as initially described. 

Multiple repairs:

A consumer request/agreement for repair may apply to one fault or more than one fault; however traders only have ‘one shot’ at the repair process. Consequently, if one component of a device is repaired or replaced but then later fails again or, seemingly, if a second unrelated component fails, then the ‘escalated’ rights to price reduction or final right to reject are automatically triggered. This ‘one shot’ regime, coupled with the rights to reject or to a refund are a key concern for device manufacturers. The Act defines “repair” as “making [the goods] conform” but includes no greater detail on this point. Businesses are therefore likely to have to provide more expensive forms of redress at an earlier stage than previously, unless the consumer chooses to accept additional repairs before moving to the escalated remedies.