Reform of UK consumer rights law: new digital content provisions now in effect

European Union (“EU”) law regarding consumer contracts, including that which governs the provision of digital content, is undergoing large-scale reform.  The UK is implementing these changes as a part of wider reforms to consumer protection laws and which have resulted in digital content-specific terms being implied into contracts with UK consumers from 13 June 2014.

Reform of consumer protection law

The EU Consumer Rights Directive (2011/83/EU) (the “Directive”), which was passed in 2011, aims to harmonise consumer rights law across the EU, which is presently in a highly fragmented state. The Directive has been implemented in EU Member States through the enactment of new national legislation, the deadline for implementation of which was 13 June 2014. The UK Government has implemented the majority of the Directive’s provisions by enacting the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (the “Regulations”), the provisions of which apply to all contracts entered into with consumers on or after 13 June 2014.

The enactment of the Regulations precedes, and is in addition to, the UK’s proposed Consumer Rights Bill which was laid before Parliament In January 2014. The timing for enacting the Consumer Rights Bill is currently unknown although it will now fall for consideration during the next 2014-15 Parliamentary session. One of the aims of the Consumer Rights Bill is to consolidate the currently disparate body of UK consumer law and so once it is in force many of its provisions will replace the equivalent provisions in the Regulations.

Digital content

With the rising number of transactions being conducted over the Internet and the increase in consumers purchasing digital content licences (e.g. music and film downloads) instead of tangible goods such as physical DVDs or CDs, there was a pressing need for UK consumer law to better represent the type of contract which consumers enter into for such purchases of digital content and the way that such contracts are conducted. Digital content is now specifically provided for in both the Regulations and the Consumer Rights Bill, which define digital content as “data which are produced and supplied in a digital form”.

The Regulations

The Regulations make minor reforms to consumer contracts for digital content, which affect the consumer’s right to cancel and the pre-contractual information which must be provided by suppliers. These are as follows:

  • Cancellation:  Consumers will have a right to cancel a purchase without providing reasons and without liability.  There will be a right to cancellation within 14 days from the day after the contract was entered into. If the consumer was not made aware of this right at the time of contracting, but was made aware within the following 12 months, the 14 day period will run from the date of notification. If no notification is provided the customer shall have 12 months from the date that the cancellation right would normally expire (i.e. 14 days plus an additional 12 months) in which to cancel. Importantly, the supply of digital content must not commence until the end of the cancellation period without the express consent of the customer, in which case the right to cancel (described above) will cease. In order to assist suppliers of digital content, the Regulations include model cancellation clauses which can be inserted into contracts with consumers.
  • Pre-contractual information:  Suppliers of digital content must provide consumers with information about the functionality and technical protection measures (such as digital rights management) included within the digital content, and of hardware/software compatibility the supplier can reasonably be expected to be aware of.

There are also additional provisions which apply to consumers contracts that may affect agreements for digital content, such the inclusion of prescribed information about the supplier and the goods.

The Consumer Rights Bill

More significant reforms to contracts involving digital content are contained within the Consumer Rights Bill. In particular, the Consumer Rights Bill will (if enacted in its current proposed form) imply the following terms:

  • Satisfactory quality:  there will be an implied term that digital content will be of satisfactory quality, taking into account the content’s description, price and other relevant circumstances (including public statements, labelling and advertising). Digital content must also be fit for purpose, free from minor defects, safe and durable. Digital content will not be unsatisfactory as a result of things specifically drawn to the consumer’s attention before contracting, which are revealed (or ought to be revealed) by the consumer examining the digital content, or where the consumer has benefited from a trial version which ought to make such a thing apparent.
  • Fit for particular purpose:  it will be implied that digital content is for any purpose made known to the supplier (expressly or by implication).
  • Content matches description: the content must be as described by the supplier, which includes a requirement that it matches (or is better than) any trial version provided to the consumer.

These terms will also apply to any modification of the digital content (e.g. updates and patches). If digital content forms only a part of the goods, a failure to comply with the digital content requirements will mean the goods as a whole do not fulfil the terms of the contract. Where digital content does not conform to statutory requirements the consumer will usually have a right to obtain a repair/replacement, or a reduction in price.

Consumers may request non-conforming digital content to be repaired so as to put it in a state which conforms to the requirements of the statute, provided it is not impossible or disproportionate for the supplier to do so. If the consumer requests a repair or replacement, this must occur within a reasonable time and without significant inconvenience to the consumer, and shall be effected at the supplier’s expense.

If a supplier cannot (or cannot without disproportionate expense) repair the digital content, fails to do so in a reasonable time or without significant inconvenience to the consumer, then the  consumer may request the price be reduced by ‘an appropriate amount’ which may, in some cases, be the full purchase price.

Suppliers of digital content should also note that remedies will not be limited to digital content which is paid for up front. Therefore where, for example, the digital content is provided in the form of a free app which allows in-app purchases (such as ‘freemium’ games) the consumer would be entitled to request repair/replacement, or a reduction in the price (including money spent ‘in-app’).

There are also specific remedies for consumers where:

  • digital content damages their devices as a result of the supplier not exercising reasonable skill and care;
  • a supplier supplies digital content when not entitled to do so (entitling the consumer to a refund); or
  • a supplier fails to include information required under the Regulations (entitling the consumer to cover any costs incurred as a result, up to the amount paid).

All the statutory remedies within the Consumer Rights Bill are provided in addition to a consumer’s other statutory and common law rights and remedies as in force at the time. Attempts to exclude rights or remedies provided under the Consumer Rights Bill are almost certain to be ineffective. Furthermore, statutory terms governing the supply of goods and/or services may apply where digital content is supplied alongside services or tangible goods (e.g. optical media or storage devices).

Unfair contract terms

The Consumer Rights Bill also proposes to reform how unfair terms in consumer contracts are treated under UK law. The proposals include, amongst other things, amendments to the Unfair Contract Terms Act 1977 and the revocation and replacement of the Unfair Terms in Consumer Contract Regulations 1999.  Under the reforms, a term will be deemed unfair if “contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer”. The schedule to the Consumer Rights Bills provides guidance on what terms may be considered unfair in the form of sample clauses.

WAB Comment

The creation of a distinct set of rights and remedies for digital content, recognising that such content is distinct from retail goods and services, is a welcome development for suppliers and consumers of digital content. The proposals will strengthen and clarify consumer rights; however, compliance will undoubtedly result in increased costs for businesses, although those which are adequately prepared (for example, by reviewing sale and return policies and updating terms and conditions) in time for when the reforms under the Consumer Rights Bill come into effect will be in a much better position to handle the changes. Businesses and consumers alike should also benefit from greater certainty in agreements.

One point of concern will be how strictly the implied terms as to quality and fitness contained in the proposals are to be interpreted. The explanatory notes to the Consumer Rights Bill describe the standard as ‘flexible’, allowing consideration of various factors including the price (the more expensive the content, the higher threshold it will have to meet) and other relevant circumstances. The type of content may also be taken into account, and the explanatory notes suggest “a reasonable person may expect bugs in a complex new game on release, but not a more simple piece of software”. 

However, even with such considerations, the requirement that a product be free from minor defects and that advertising and publicity be representative of quality may prove to be important, particular where the digital content is software of some form. Software, such as apps and games, often still contains numerous minor bugs or defects upon release. Testing for such products can be limited and developers may be under strict deadlines, meaning products go ‘gold’ and are distributed in an imperfect state. As a consequence, last year saw two class-action lawsuits in the USA brought by consumers in relation to the publicity and advertising of popular videogames which was allegedly misleading. One product was also the subject of complaints in the UK to the Advertising Standards Agency, resulting in the relevant advertisement being withdrawn or amended. Certainly under the proposed reforms, UK consumers who are unhappy with purchased products, for example as a result of defects or misleading publicity, will have much greater chances of succeeding holding suppliers to account.