Hit or BIS? – in search of clarity for digital content consumers

Posted: November 27, 2012

Consumers have no clear remedies for defective digital content under current UK consumer law.  Digital content is not obviously a product, nor clearly a service, but something of a hybrid between the two.  It remains uncertain whether a consumer should invoke remedies for sale of goods or supply of services – or, indeed, whether either regime is appropriate for digital content anyhow.

The UK Government plans to modernise the law to address this problem.  The Department for Business, Innovation and Skills (BIS) has completed a consultation on the supply of goods, services and digital content.  One of its aims is to identify a suitable set of consumer rights tailored to digital content.  To that end the consultation proposes three options for reform:

Option 0 – Do nothing, i.e. nothing beyond implementing the information and withdrawal rights due to be introduced under the Consumer Rights Directive (CRD).[i]

Option 1 – Introduce new statutory guarantees, backed with remedies specific to digital content, in largely the same way as BIS has proposed for goods and services more generally.
Option 2 – Adopt option 1, but add a short-term right to reject (with a full refund).[ii]

Whichever option is ultimately chosen, the new regime stands to have a subtle but significant impact on both suppliers and consumers of digital content.

Background

The main UK legislation on consumer rights for goods and services consists of the Sale of Goods Act 1979, the Supply of Goods and Services Act 1982 and the Supply of Goods (Implied Terms) Act 1973.  Legislation on the sale of goods sets out seven implied terms, along with specific remedies.  Nonetheless, the law is hard to understand because these rights and remedies differ according to the type of transaction and some terms and concepts are uncertain.  Moreover, in 2003 the Consumer Sales Directive[iii]  introduced a right for consumers to ask for repair or replacement of goods, creating two parallel legal regimes.  The law on services, by contrast, contains only limited implied terms, requiring the service to be provided with reasonable care and skill, within a reasonable time and for a reasonable price, although parties are free to negotiate alternative terms (including in a business-to-consumer contract, where it is reasonable to do so).  None of the legislation deals specifically with digital content transactions.

In July 2012 BIS issued its consultation paper entitled “Enhancing consumer confidence by clarifying consumer law”.  Its proposals follow a BIS-commissioned report, which observed that it is “not clear what, if any, legal rights the purchaser of a digital product has if the product proves defective or fails to live up to expectations”.[iv]   The closing date was 5 October 2012, and the Government’s own consultation response is expected three months after that.

The proposed reforms are intended to clarify the rights that a consumer can expect for digital content and the remedies available if the content does not meet those expectations.  Digital content is to be treated as a separate category from goods and services in order to tailor the regime where necessary.

The proposals, once adopted, would form part of the core of the Consumer Bill of Rights, which will also introduce wider civil court sanctions for breaches of consumer law.  The Government will also implement the CRD and plans to clarify consumer rights for victims of misleading and aggressive practices and to simplify and update the law on unfair contract terms.

Key definitions

In this context, references to “consumer” and “trader” will be based on the CRD.  Essentially, these have their ordinary-language meanings.  A “consumer” will be an individual “acting for purposes which are wholly or mainly outside of his or her trade, business, craft or profession”.  A “trader” will be any type of person “acting … for the purposes relating to their trade, business, craft or profession”.

By “digital content”, BIS means computer-readable “data or information products supplied in digital format”.  This technology-neutral definition would include computer software, videos, films, music, computer games, ebooks, ringtones and apps, whether delivered to the consumer through physical media (such as discs) or via intangible media (such as downloads or streaming).  It would not, however, include information browsed on a free website, nor would it include hardware.

Option 0 – do nothing, but rely on the CRD

This is the minimum action required under current law.  When implemented,[v]  the CRD will introduce two main requirements in relation to digital content:

(a)

Suppliers will need to provide certain pre-contractual information to consumers before they purchase digital content.  This information must include the content’s main characteristics, its price, and the name, address and contact details of the trader.  The trader must also inform the consumer in advance of the content’s interoperability and functionality, and of any technical restrictions (such as digital rights management or region coding).
(b)

Consumers will be entitled to withdraw from digital content contracts within 14 days of the transaction date.  Such right will be lost, however, if the consumer chooses to access the digital content or to install it on the device within the 14-day period, where warned by the trader that by doing so such right would be waived.


As BIS acknowledges, however, Option 0 has some potential shortcomings.  Although pre-contractual information should make consumers better informed before purchase, the CRD does not contain any consumer rights in relation to the quality of the digital content.  Nor will the right to withdraw within 14 days make much practical difference: there is rarely a significant delay between purchase and access, and both download and unwrapping could deny the consumer the right to withdraw.

Option 1 – statutory guarantees with digital-specific remedies

Rights under Option 1

In the interests of clarity, Option 1 would broadly align the framework for digital content with the regime proposed for the sale of goods.  The Government proposes not to use a system of implied terms.  Rather, digital content would be subject to five new statutory guarantees:

(a)

The trader must be entitled to grant rights in the digital content on the basis purportedly granted (e.g. the right to permit exclusive use of the copy sold, in accordance with any lawful rights and restrictions set out in the end-user licence agreement).
(b)

The consumer should have a right of “quiet” or “uninterrupted” use of the digital content (reflecting the implied term of “quiet possession” under section 12(2)(b) of the Sale of Goods Act 1979), which would in practice require consumers to consent to any interference that might affect their use of the digital content.
(c)

The content must correspond with any description given (including any pre-contractual information given under the CRD).
(d)

The content must be of satisfactory quality, taking into account: (i) the content’s description, price and other relevant circumstances, such as public statements on its characteristics; and (ii) its fitness for purpose, appearance and finish, safety and durability, and (possibly – this being a subject of consultation) freedom from minor defects.
(e)

The content must match any trial version or demo (which is of particular relevance in the digital market, where consumers often make purchases based on a demo copy).

          
To rely on the guarantee of quality, the consumer would need to prove a fault in the content.  If the consumer can provide such proof in the period of six months from purchase, the content would be presumed to be faulty at the date of purchase, unless the trader can prove otherwise.  Beyond those six months, there would be no such presumption.

BIS recognises that in some circumstances, a reasonable person would expect some bugs in certain types of digital content on issue of a new version (for example, software and games).  BIS envisages that such bugs would not necessarily contravene the guarantee of quality, even though “freedom from minor defects” might still be taken into account in assessing satisfactory quality.  It is also considering the need to distinguish between a minor bug and a major bug that affects the substance of the product or the core expectation of the consumer.  One solution, BIS suggests, might be to differentiate between an automatic bug fix and a repair that is provided in response to a complaint.  Presumably, this would need to be subject to some sort of carve-out for automatically fixed bugs that have caused significant inconvenience to the consumer.

Remedies under Option 1

In contrast to remedies for faulty goods, Option 1 would offer no short-term right to reject faulty digital content.  A dissatisfied consumer would still have means of redress:

(a)

In any event, BIS expects that the CRD requirement to provide pre-contractual information would be incorporated into contracts for the supply of digital content.  The failure of the content to meet the description provided would then give rise to a contractual claim in the ordinary way.
(b)

Option 1 also provides for two statutory remedies.  First, the trader must offer either a repair or replacement. Secondly, where repair or replacement is impossible (or has not taken place within a reasonable time or without significant inconvenience to the consumer), the trader must reduce the purchase price or, where the consumer returns the content, provide the consumer with a refund. For inherent faults present at the time of purchase, such remedies will be available for up to six years (in England) or five years (in Scotland).  Clearly, such a regime has the potential to prompt a large number of disputes over the interpretation of “reasonable time” and “significant inconvenience”.

BIS is also considering whether to allow traders, when paying refunds, to make a deduction to reflect the consumer’s use of digital content, in line with the regime proposed for goods.  Allowing businesses to make such deductions should mean that consumers are not incentivised to cancel contracts, even when they believe that faults can be easily repaired.  BIS proposes, therefore, a minimum threshold of around £100, on the basis that most digital content bought by consumers would cost less and so deductions for use would not apply in most cases.

Option 2 – Option 1 rights and remedies, plus short-term right to reject

In addition to the rights and remedies provided under Option 1, Option 2 would give the consumer a short-term right to reject faulty digital content, with a full refund (as an alternative to having to opt for a replacement or repair before claiming a refund).  This right of rejection would have to be exercised within 30 days of purchase and, in any event, before doing anything to demonstrate acceptance of the content.  The consumer would have to prove that the fault existed on the day of purchase.

While the right may sound appealing to consumers in theory, it may prove less straightforward in practice.  As BIS acknowledges, the intangible nature of digital content makes it inherently difficult to return, and the act of doing so could create another copy of the content.  Moreover, the right to reject could increase potential for fraud, by those using the content and subsequently claiming that it is defective.  Even if, as BIS is considering, consumers were legally required to delete such content from their device on rejecting it, BIS acknowledges that this would be difficult to enforce.  BIS also accepts that a short-term right to reject might create wrangling between the trader and rights holder, who could refuse to refund the trader in the absence of proof that the returned content has actually been deleted.   These issues might, however, become less problematic as means to delete digital content remotely become more widely used.

Related services

Under Option 2, BIS also considers offering specific protection to consumers affected by poor-quality “related services”.  These would be defined as services that are “integral to the proper functioning and use of the digital content” and for which consumers have “no choice over who supplies the service once they have bought the digital content”.  This would include, for example, the downloading or streaming of digital content to a consumer’s computer, the provision of updates to the content or the provision of access to a game online or to digital content in a cloud.

BIS is considering two alternative sets of rights to satisfactory quality in this context.  Either:

(a)

as contemplated under Option 2, the whole digital content package (e.g. the content itself and the means of access/use) would have to satisfy the statutory guarantee of satisfactory quality; or
(b)

as contemplated under Option 1, only the content itself would need to be of satisfactory quality, while the means of access/use would have to be provided with reasonable care and skill.


Whichever rights are to apply to related services, BIS envisages that breach of such rights should give rise to the equivalent remedies for such services as for faulty digital content (i.e. a right of rejection or a right to repair or re-performance or, failing that, a reduction in price or refund on return).

Related services would be distinct from separate “enabling services”, i.e. services which are independent from the supply of individual digital content and for which the consumer usually has a choice of providers (such as the provision of the consumer’s internet connection or telecommunication services, or storage of the consumer’s own digital content in the cloud).  Enabling services would fall under the regular services regime.  Naturally, it may not always be easy to distinguish in practice between content, related services and even enabling services: to some extent, presumably, the burden of assuring quality would have to fall where it lies, depending on which provider is responsible as a matter of fact.

Comment

The current lack of clarity for suppliers and consumers does neither any service.  Both stand to gain from a streamlining of the rights and remedies relating to the supply of digital content: certainly consumers, if they can understand their rights and more easily enforce them; but also suppliers, from the efficiency and consumer confidence that could result from greater transparency on rights and workable remedies (although that transparency may, at the same time, encourage consumer claims for redress and result in higher costs of providing redress).

Unsurprisingly, the devil is in the detail.  And there is no shortage of detail in the consultation paper: 225 pages of it, no less.  At first sight, the options for reform proposed can seem as confusing as the consumer laws that they would replace.  But that does BIS a disservice: if consumer laws are to be harmonised across all categories of goods, services and digital content, the options deserve to be considered in detail, with an opportunity for interested parties to identify practical merits and pitfalls.  Besides, issues around related services and enabling services are inherently complex, and they should be anticipated, not just side-stepped.

In the meantime, rights-holders will be relieved to note that BIS is not proposing to change the law of copyright in relation to digital content.  While copyright law is the subject of a separate Government review, those proposals are essentially format-neutral, reflecting the common-sense proposition that cyberspace can and should reflect the physical marketplace as far as possible. 

In trying to achieve the same harmonisation across consumer remedies, the Government’s proposals for reform are based on a sensible premise.

Ed Baden-Powell and Olivia Bennett
Article written for Entertainment Law Review.

[i] 2011/83/EU.
[ii] A useful table summarising the main differences between the options is set out at page 189 of the consultation paper.
[iii] 1999/44/EC.
[iv] Bradgate, R. (2010), “Consumer Rights in Digital Products: A research report prepared for the UK Department for Business, Innovation and Skills”, Department for Business, Innovation and Skills.
[v] CRD implementation has been the subject of a separate BIS consultation, which opened on 20 August 2012 and closed on 1 November 2012.