Typical pitfalls to consider for foreign online service providers when expanding to Germany
I. Chances of entering the German B2C e-commerce market
The German B2C e-commerce market is certainly a very interesting playground for foreign online service providers for numerous reasons. These include inter alia (a) the strategic and favorable aspect of Germany being one of the key Member States of the EU, which becomes even more significant in the light of Brexit, as well as (b) the apparent demand and high purchasing power of the German B2C e-commerce market.
All this makes it very promising to successfully expand to Germany and to increase the overall turnover. That said, it is more than understandable, why so many established foreign online service providers driven by expansion have already entered the German B2C e-commerce market or, at least, seriously consider to do so.
In contrast to the offline world, the ubiquity of the Internet certainly seems to make it easier and more feasible (especially from a technical and infrastructural standpoint) to extend foreign online services to Germany. This way, it can be easily tested, if the newly targeted German B2C customer base enjoys the offered products/services in a similar way as the already targeted existing B2C customer base in other countries, where the online services are already successful and established.
II. Typical pitfalls of entering the German B2C e-commerce market
The pitfalls of such expansion are rarely located within technical or infrastructural specifics of providing online services to B2C customers in Germany. Rather, the pitfalls lie within certain regulatory requirements subject to German B2C e-commerce law (in particular, consumer protection). Insofar, the legal framework in Germany differs – to some extent – from what foreign online service providers are accustomed to in other countries. In this context, it is important to know and to take into account that – according to German settled case law – these regulatory requirements already apply, when the online service inter alia targets German B2C customers or potential customers.
Failure to comply with these regulatory requirements makes the online service provider vulnerable to claims (e.g. cease and desist, provision of information and/or damage compensation). In deviation to other countries, such claims are not brought forward by supervisory authorities, but rather in civil proceedings by competitors and/or consumer protection watchdogs. In particular, cease-and-desist claims can occur through interim injunctions, which are quite cost-efficient and fast. To avoid the unpleasant surprise to be subject to such litigation and to mitigate respective risks is in many cases feasible without further ado, particularly because many of these regulatory requirements are not too difficult to comply with. The main reason, why many foreign online service providers targeting the German B2C e-commerce market are subject to litigation is apparently the lack of respective knowledge of such regulatory requirements. This makes it quite easy for claimants to successfully attack this before a German court. In the vast majority of such litigation cases, the legal situation is unfortunately clear-cut and the remaining aim is to limit the respective detriments to the best extent possible.
The following illustration has the aim to provide foreign online service providers with a better lay of the land of typical pitfalls under German B2C e-commerce law and to flag essentials in order to sensitize for taking appropriate measures to mitigate respective risks.
1. The online service’s imprint (so-called Impressum)
Online service providers are required to provide an imprint within their online service, which basically comprises sufficient company information about the online service provider. The legal motif of this requirement is to provide the B2C customer or potential customer with the possibility to acknowledge the identity of the online service provider. Such information depends on the online service provider’s legal structure. In particular, the following essential information needs to be summarized and provided via a well-recognizable link (e.g. in the footer) – at best, designated with the German term “Impressum” –, which is accessible on every site of the online service:
- Full company name (incl. legal form, e.g. Inc., Ltd. or LLC etc.);
- the authorized representative;
- address of place of business – a p.o. box does not suffice;
- 2 electronic contact channels (e.g. phone number, fax number, email address and/or query mask);
- (if applicable) commercial register or other applicable register (incl. register number and register court);
- (if applicable) the competent supervisory authority, if the online service is subject to an official permit;
- (if applicable) the VAT identification number; and
- (in case of editorial content) the identity and contact details of the responsible editor.
These imprint requirements are based on Sec. 5 of the German Tele-Media Act (TMG), which transforms the requirements of Art. 5 of the EU Directive 2000/31 (so-called E-Commerce Directive) into German law, as well as Sec. 55 para. 2 of the German Broadcasting Treaty (RStV).
2. Information duties and respective technical measures to enable sufficient information
German B2C e-commerce law provides a variety of information duties for online service providers. Depending on the specific information duty, a designation of such information needs to take place (a) before the ordering process, (b) during the ordering process and (c) subsequent to the ordering process on a tangible medium (e.g. most commonly an email).
2.1 Essential information duties before the ordering process
Before the B2C customer enters the ordering process, the online service provider needs to provide information on
- the accepted payment methods (e.g. bank transfer, credit card and/or PayPal etc.); as well as
- (if applicable) any delivery restrictions.
In German e-commerce practice, this is predominantly fulfilled with a respective reference on the landing page of the online service.
2.2 Essential information duties during the ordering process
(a) During the ordering process, the online service provider inter alia needs to provide clear and comprehensive information on
- the essential characteristics of the products/services;
- the identity of the online service provider (incl. contact details);
- the overall price of the service/product (incl. applicable taxes) and (if applicable) shipping costs;
- the terms of payment;
- the terms of delivery (incl. the estimated delivery date);
- (if applicable) the duration of the contract, its termination conditions and the minimum duration of the B2C customer’s obligations hereunder; as well as
- (if applicable) the operating principles of digital content, its interoperability and compatibility.
(b) Further, the online service provider inter alia needs to provide clear and comprehensive information on
- the single steps on how the contract is concluded (i.e. order and acceptance);
- if the online service provider saves a copy of the contract terms as well as if and how the B2C customer can access such copy;
- the existence of statutory warranty rights;
- (if applicable) the existence and conditions of customer services and guarantees beyond statutory warranty rights;
- the available languages of the contract;
- (if applicable) any codes of conduct, which the online service provider is subject to and where such codes of conduct can be accessed;
- implemented reasonable, effective and accessible technical means aiding the B2C customer to identify and correct input errors prior to making his/her order; as well as
- the acknowledgement of receipt of the submitted order by the online service provider through an automatic order confirmation.
Except for the automatic order confirmation, these information duties set out in item 2.2 (b) above should – at best – be placed within the online service provider’s T&C, whereby these T&C need to be accessible (e.g. via a link), before the B2C customer places his/her binding order. In German B2C e-commerce practice, this is commonly done in conjunction with the B2C customer’s approval of the T&C in the framework of the ordering process.
(c) In addition, German B2C e-commerce law requires that the B2C customer’s order for a fee-based contract needs to explicitly confirm the fee-based character of the contract. In cases where a binding order is placed via a button, such button needs to be labelled exclusively with the phrase “order with obligation to pay” or a similar unambiguous wording.
In direct conjunction with this, information on (i) the essential characteristics of the product/service, (ii) the overall price of the service/product (incl. applicable taxes) and – if applicable – shipping costs as well as (iii) – if applicable – the duration of the contract, its termination conditions and the minimum duration of the B2C customer’s obligations hereunder need to be displayed to the B2C customer, so that he/she can take them into account, directly before placing the order. According to German case law, a link to such information does not suffice. The motif behind this is to enable the B2C customer to make an informed decision, directly before placing the order.
2.3 Essential information duties subsequent to the ordering process
Most information duties subject to the ordering process also need to be provided to the B2C customer on a tangible medium (e.g. a PDF or an email) subsequent to the ordering process. The motif behind this is that the B2C customer needs to have all the relevant information of the concluded contract in his/her sphere of control without the online service provider being able to amend such information.
In German B2C e-commerce practice, such information is commonly contained in the automatic order confirmation, the invoice and the online service provider’s T&C. To that end, all these documents need to be provided to the B2C customer in tangible form (e.g. a PDF or an email) in order to comply with the information duties subsequent to the ordering process.
These requirements on information duties are based on Sec. 312d et seq., 312i and 312j of the German Civil Code (BGB) as well as Art. 246a and 246c of the Introductory Act to the German Civil Code (EGBGB), which both transform the requirements of Art. 6 and 8 of the EU Directive 2011/83 (so-called Consumer Rights Directive) into German law
3. Right of withdrawal
German B2C e-commerce law – in principle – requires to provide the B2C customer with the right to withdraw from the contract (without any reasons) within 14 days. For services, this time period starts upon conclusion of the contract; for products upon receipt of the product. If the B2C customer is not sufficiently informed about his/her right of withdrawal, the time period extends to 1 year and 14 days.
In order to be on the safe side and to avoid such considerable extension, the withdrawal right information template provided by the German legislator should be used, as commonly exercised in German B2C e-commerce practice.
Examples of exceptions of the right of withdrawal
The right of withdrawal is subject to a variety of exceptions, such as (a) the supply of custom-made/individualized products on request of the B2C customer, (b) sealed products, which are not suitable for return due to health or hygiene protection, provided that they were unsealed by the B2C customer as well as (c) newspapers, periodicals or magazines, except for subscription contracts for the supply of such publications.
Due to the motif of effective consumer protection, German case law stipulates that these exceptions need to be interpreted restrictively. For example, a sports jersey personalized with the B2C customer’s name and chosen number qualifies as a custom-made/individualized product, whereby an individually composed notebook does not. According to German case law, the latter is not comprised by the exception of the right of withdrawal, because the product can be broken down into its original components and reused for sale without further ado.
These exceptions do not apply automatically. Rather, the online service provider can only invoke the privilege of such exceptions, if the B2C customer was sufficiently informed about them in the framework of the ordering process.
Loss of the right of withdrawal
With respect to (a) services and (b) digital content not provided on a tangible medium (e.g. downloads and streaming services), there is also the possibility to lose the right of withdrawal prematurely due to a respective waiver of the B2C customer. Basically, this waiver requires an express acknowledgement and approval by the B2C customer that the online service provider commences with the performance of the contract prior to the expiry of the withdrawal period. Such mechanism needs to be implemented within the ordering process or the subsequent initial access request. For example, such mechanism is commonly used in practice in context with the download of audio or video files or streaming subscriptions.
The legal basis for the right of withdrawal, its exceptions and loss scenarios is Sec. 312g and 355 et seq. of the German Civil Code (BGB), which transform Art. 9 et seq. and 16 of the EU Directive 2011/83 (so-called Consumer Rights Directive) into German law.
4. Essential restrictions by German T&C law
If the online service provider uses T&C, which is regularly the case, German T&C law provides a variety of requirements and restrictions. The legal intention behind this is basically to protect the B2C customer as the contracting party against aspects and stipulations in T&C that the German legislator deems to be an unreasonable disadvantage to B2C customers, who cannot influence the T&C subject to their concluded contract.
In order for T&C to form an integral part of the B2C contract, they need to be validly implemented. This can inter alia be accomplished by implementing a clearly visible link within the ordering/registration process, which enables the B2C customer to access and review the T&C. Further, the reference to the T&C should – at best – be equipped with a checkbox, which the B2C customer needs to tick before being able to complete the ordering/registration process in order to express his/her approval of the T&C.
Essential restrictions for T&C
- Unilateral reservations of the online service provider to amend prices in an ongoing contractual relationship are very difficult to implement under German T&C law, as such price amendments have considerable restrictions. Vague stipulations that the online service provider may amend prices in its sole discretion are inadmissible.
- Unilateral reservations to amend the T&C in an ongoing contractual relationship are subject to considerable restrictions. These reservations to amend cannot concern principal obligations and need to be reasonable and acceptable to the B2C customer. The online service provider needs to notify the B2C customer about amending the T&C in reasonable time in advance and provide him/her with reasonable time to object the envisaged amendment. Vague stipulations that the online service provider may amend the T&C in its sole discretion are inadmissible.
- Warranty rights (i.e. remedy of defects) need to reflect the statutory warranty rights in Germany.
- Liability cannot be limited or excluded to a similar extent common in other jurisdictions:
- For fee-based services/products German T&C law inter alia prohibits the exclusion of liability for (a) damages based on intent, gross negligence, maliciously concealed defects and guaranteed qualities, (b) damages to life, body and health as well as (c) damages subject to German product liability law. Damages due to the negligent failure to comply with material duties cannot be excluded, but limited to typical and foreseeable damages.
- Free-of-charge services/products have lighter restrictions: Here, German T&C law only prohibits the exclusion for damages based on intent and gross negligence.
- Stipulating a place of jurisdiction in T&C is inadmissible.
- Stipulating a foreign applicable law is only admissible to the extent that German consumer protection standards are not undercut.
5. The designation of prices in marketing claims
If the online service provider designates prices within marketing claims, it is necessary to designate the overall price of the service/product including VAT, whereby such designation needs to contain a disclaimer that the price includes VAT and whether or not additional shipping costs apply. If so, the specific shipping costs need to be designated as well – e.g. “notebook for € 1,100 (incl. VAT) plus € 10 shipping”.
If this is not possible, the online service provider needs to, at least, provide the relevant details of calculation in order to enable the B2C customer to easily calculate the shipping costs. The motif behind this is basically to enable B2C customers to make an informed decision about the services/products and the respective designated prices, before entering the ordering process.
This price designation requirement is based on Sec. 1 of the German Price Quotation Act (PAngV) and Sec. 5a para. 3 no. 3 of the German Unfair Competition Act (UWG).
Foreign online service providers face a variety of pitfalls under German B2C e-commerce law, when entering the German B2C e-commerce market. These pitfalls should be taken seriously. Otherwise, legal risks and unpleasant surprises cannot be ruled out.
Insofar, it certainly makes sense to take a closer look at the essential regulatory requirements under German B2C e-commerce law and to implement them to the best extent possible. This way, the online service provider can focus on the business development aspects of its roll-out in Germany without risking to get involved in unnecessary and costly litigation, which quite often has no prospect of success.