From 1 October 2015, new specific rules will apply to supplies of digital content to end users. Time to review purchase flows and terms and conditions. (Yes, again, as during 2014 new regulations already brought in various changes, including in particular new rights of cancellation).
1. What’s changing?
In the UK, consumers currently have differing and often hard to interpret rights when purchasing digital content depending on whether it was purchased on physical media or downloaded.
Under the new Consumer Rights Act 2015, among other changes, from 1 October 2015 supplies of digital content will be a distinct category of regulated contract subject to its own specific set of rules, without needing to work out in each case whether to apply those covering goods or services.
In particular, supplies of digital content will be subject to the following compulsory contract terms:
- it must be of satisfactory quality (measured from the point of view of a reasonable person, and taking into account in particular the description given, price paid and most public statements in advertising and labelling). Quality is of course dependent on many things, but can where appropriate relate to fitness for the purpose for which the content is normally supplied, freedom from minor defects (which in the case of software may present a practical challenge), safety and durability. If we draw the consumer’s attention to any unsatisfactory aspect before sale, or the consumer should have known about it by examining or using a trial version of the product, then we may be able to exclude this;
- it must be fit for any purpose made known by the consumer (directly or by implication). (But only where the consumer relies on the skill and judgement of the trader and not where it would be unreasonable to do so.) The requested purpose may deviate from the normal use of the content and so sales or customer service staff may need to be vigilant to ensure that consumer’s expectations are managed;
- it must be as described. This applies even if the content matches a version the consumer has previously tried out. Upgrades or new versions can be added but the content must essentially continue to match the original description;
- that the trader has all necessary rights to supply it to the consumer.
As in all consumer contracts, pre-contract information must also be given to the consumer in a clear and comprehensible way, including among others on a long list: the main characteristics of the supply, the trader’s identity and contact details, the total price or if not known then how it is calculated and any other costs, and if applicable the consumer’s right to cancel. For digital content, also we need to inform the consumer about its functionality (including any technical protection measures such as regional coding or copy protections) and hardware and software compatibility.
2. What supplies are covered?
For consumers to enjoy the rights under the Act they must:
- purchase digital content – i.e. data produced and supplied in digital form (for mixed contracts where digital content is supplied with goods we may still need to refer to the rules on goods). Providing a service (webpage, store etc.) by which the content is supplied is not a supply of digital content;
- as a “consumer”, i.e. outside of a trade, business, craft or profession;
- from a “trader”, i.e. a person, company, firm or organisation acting within their trade, business, craft or profession;
- for payment – so not free content, but this does include “free” content bundled with other goods or content where the content is not usually available for free. Upgrading from a freemium to a paid version or making in-app purchases are covered;
- including purchasing modifications or upgrades – in which case the digital content should still match the description and information provided (including new information as long as previously agreed to by the consumer). However, modifications are deemed to have been provided at the same time of the initial supply – so any time limit for making a claim may be shortened.
3. What remedies do we need to give users in case of a problem?
- Repair or replacement at the trader’s cost: if consumer requires this then the trader must do it within a reasonable time without significant inconvenience to the consumer. However, the consumer must accept the trader’s decision either to repair or replace if the other remedy impossible or disproportionate (i.e. the costs are unreasonable). What is reasonable here may take some time to settle in practice;
- Price reduction: The reduction needs to be “appropriate” to the non-conformity, and can be the entire price. However, this will only apply if the repair or replacement remedy fails, either become it is impossible or disproportionate, or because the trader has not complied with that obligation in a reasonable time or without inconveniencing the consumer. It must be given without delay (normally within 14 days) by the same method as the payment and without cost to the consumer. A full refund can also be available, on similar rules;
- Repair of or compensation for damage to a device or other digital content belonging to a consumer;
- Other remedies permitted by law: the remedies set out in the act do not exclude any other legal remedies the consumer may have (e.g. to claim damages – but not twice for the same loss), except for simple termination of the contract.
4. What do we need to do?
The most immediate effect is that any terms which attempt to limit or exclude the trader’s liability in case of breach of the compulsory terms referred to above (or restrict the consumer’s ability to enforce the applicable remedies) will not be considered binding on the consumer. So those lengthy exclusions of all conceivable types of liability and disclaimers of all known warranties that anyone who actually reads EULAs will habitually see (often in FULL CAPS FOR NOT-VERY-WELL-THOUGHT-THROUGH REASONS) could now be wholly or partly unenforceable. The new rules apply only to paid-for content – so for free content we could continue to apply some exclusions as far as the general law allows. For freemium offerings we might need to be very clear on the separation as we are permitted to apply different terms to the free and paid elements.
We might also look at supplier contracts as our best position will be to ensure that our potential liabilities towards consumers are not greater than those our suppliers have agreed to. However, if our digital content includes open-source or free elements that come without any warranty, then we might find ourselves having to take on this risk. And that risk can be significant – or effectively unlimited – if we are liable for damage to consumers’ devices caused by our content. Testing time: as software testers like to say “All code is guilty until proven innocent”.
We also need to be aware of the compulsory pre-contract information that must be given including in relation to digital rights management protections, and the consumer’s cancellation rights. The purchase process including screens and confirmation emails should be checked for compliance with all of this. Helpfully, we also now have the main unfair contract terms legislation set out in the same Act.
And finally, further changes are due in relation to alternative dispute resolution (mediation or arbitration) and online dispute resolution, which traders may agree or be obliged to offer to consumers under the EU Directive on consumer ADR and the EU Regulation on consumer ODR. Eden Legal will return to these at a later date.