"SaaS-providers and web shop owners in particular might have to adapt their business models to the DCD and SGD."
Since the overall aim of these directives is to achieve a higher level of harmonisation, this brief summary will serve as a reminder for all our clients in CEE countries. SaaS-providers and web shop owners in particular might have to adapt their business models to the DCD and SGD.
The Sale of Goods Directive
The SGD applies to contracts between consumers and entrepreneurs concluded for the purchase of movable tangible objects, including those that are yet to be manufactured ("goods") and so-called "goods with digital elements". Goods with digital elements are products that are so closely linked to digital content or a digital service that in the absence of this digital element the product would not be fully functional (e.g. smart TVs, smart fridges or smart watches). The SGD explicitly excludes contracts for the supply of digital content or digital services (as those are subject to the DCD), any goods sold by way of execution or otherwise by authority of law, and any tangible medium that solely serves as a carrier for digital content. Member States may also exclude contracts for the sale of second-hand goods sold at public auction and living animals from the scope of the SGD.
The Digital Content Directive
The DCD applies to any contract (e.g. to sale and lease agreements) against payment where the entrepreneur supplies or undertakes to supply digital content (e.g. movies, photos, e-books) or digital services (e.g. apps, cloud storage, streaming services or social media) to a consumer, even where the digital content or service is developed in accordance with the consumer's specifications. It should be emphasised that the DCD also applies when the consumer's "payment" consists of personal data in return for the digital content or service.
"The SGD and the DCD are twins. Consumers are granted similar rights, both for buying goods (online and offline) and for getting access to digital content or services."
The SGD and the DCD are twins. Consumers are granted similar rights, both for buying goods (online and offline) and for getting access to digital content or services. Furthermore, Member States are free to extend the application of the rules of the SGD and DCD to contracts that are excluded from the scope of these directives (e.g. to contracts between two entrepreneurs).
Below we discuss some of the most significant changes under the directives.
Liability for defects
The directives classify the conformity requirements (as already regulated by Directive 1999/44/EC, but the new rules are more detailed) into two categories: objective conformity requirements and subjective conformity requirements. The objective conformity requirements demand that the product or digital service fulfils any criteria a consumer can reasonably expect, in other words, any feature or functionality that is "normal" for goods or services of the same kind or that were part of a sample, specimen or test version. The subjective conformity requirements demand that the product or digital service meets those features or functionalities agreed upon with the consumer.
Waving objectively required characteristics only with express and separate consent
Until now, there were no specific requirements for a "separate" agreement on deviations from the presumed characteristics of a product or digital service and, therefore, such deviations led to protracted court cases. Under the new directives, a consumer must expressly and separately agree to such a deviation of a certain characteristic from the objectively required characteristics.
Right to warranty if consideration is personal data
The DCD sets it straight: consumers are entitled to warranty claims if their consideration was not monetary but consisted in providing their personal data.
Introduction of an obligation to update
For digital services as well as goods with digital elements, an obligation to provide updates is introduced that goes beyond a "classic warranty concept" (i.e. liability for defects that already existed at the time of handover). The entrepreneur must provide the updates that are necessary to prevent defects during a certain "update period". In case of a one-time provision of a digital service (e.g. an e-book), the "update period" is for as long as the consumer can reasonably expect updates. In case of continuous provision of the digital service (e.g. a two-year contract for cloud storage or an unlimited membership of a social media platform), it is for as long as the digital service is provided.
Remarkably, Member States are free to extend this update obligation to contracts between entrepreneurs. Austria, for example, made use of this option.
Extension of the presumption period for the reversal of the burden of proof
In principle, the warranty obligation only covers defects that are already present at the time of handover. However, until proven otherwise, it is now presumed that a defect was already present at the time of handover if it becomes apparent within one year after handover. The new minimum presumption period is therefore one year. This presumption period used to be at least six months according to Directive 1999/44/EC.
Right to amend the contract
In the case of continuous digital services, the entrepreneur may be granted the right to modify the digital content or the digital service if the contract allows and provides a valid reason for the modification, this does not result in additional costs for consumers, consumers are clearly informed of the modification and of their right to terminate the contract or to maintain the digital content or digital service without such a modification. Consumers may terminate the contract free of charge if their access or use is more than slightly affected by the change. Consumers must be informed about their right to terminate the contract. If the consumer can maintain the digital content or digital service without such a modification without additional costs, and if the digital content or digital service remains in conformity with the contract, it is not mandatory to grant the consumer a right to terminate the contract. This right to modify the contract is applicable to contracts concluded after 31 December 2021.
Already a couple of years ago, the European Commission set consumer protection as a strategic goal. It then implemented changes which are currently becoming effective (e.g. the DCD, the SGD or the Omnibus Consumer Directive). Those legal changes will strengthen consumer rights and create a higher level of harmonisation and legal certainty. The EU Commission's agenda even flags further reforms in consumer protection in the next five years, particularly in green and digital transformation and online enforcement. We'll keep you posted!