New consumer protection regulation for digital products
With the Digital Content and Digital Services Directive (EU Directive 2019/770), the EU is further expanding the European Digital Single Market, facilitating the consumer access to digital products. The outspoken goal of the EU was to ensure a balance between a high level of consumer protection while promoting the competitiveness of businesses. Nevertheless, the contractual design of the provision of digital content must be adapted in some fundamental points due to the new legal framework that has been in force in Germany since 01 January 2022.
1. Relevant provisions and scope of application
The new legal framework for the provision of digital products in Germany came with several amendments to the German Civil Code (BGB). Nevertheless the following overview will focus on the new regulations in Sections 327 et seq. BGB, which have an essential impact on the design of Terms & Conditions in B2C-relations.
Those regulations apply to all consumer contracts on the provision of digital content or digital services (digital products) in payment of a price. A major change is that the new legal regulations shall also apply if the consumer provides personal data as payment, unless the personal data is exclusively processed for the purpose of supplying the digital content or digital service or for complying with legal requirements. As free digital content is often provided with the specific goal to harness the collected personal data of users beyond the extent which is necessary for supplying the digital product itself, this expansion of the scope of application means many use cases like free Consumer Apps, etc., which have been previously rather unregulated are now subject to a stricter consumer protection regulation in Germany.
2. Obligation to provide the digital product
If the Sections 327 et seq. BGB apply, the trader is under a contractual obligation to provide the digital product. If the trader fails to provide the product, the consumer can terminate the contract, claim damages or claim reimbursement of futile expenses. In the event of a lack of conformity or defective performance, the consumer shall be entitled to have the digital content or digital service brought into conformity, to receive a proportionate reduction in the price, or to terminate the contract. The consumer may further demand damages or reimbursement of futile expenses. In particular for digital products offered “free of charge” and for which the consumer only “pays” with personal data, this means a paradigm change compared to the former regulations, which left the trader greater leeway to change or withdraw the product and which also offered a more lenient regulation in case of product defects.
3. Obligation to update the digital product
Another controversial topic has been regulated in Section 327f BGB, stipulating that the trader must ensure that the consumer is provided with updates necessary for the digital product to remain in conformity with the contractual conditions and that the consumer is informed about these updates accordingly. These mandatory updates explicitly include security updates. The obligation to update the digital product applies as long as the digital product is made available and can therefore even go beyond the general warranty obligations. The trader is even liable for product defects if he has provided an update but the consumer has not installed it, either because the trader has not sufficiently informed the consumer about the availability of the update and the consequences of failing to install it, or because the failure to install was due to defective installation instructions.
4. Modification of the digital product
A particularly challenging provision can be found in the new Section 327r BGB, which implements Article 19 of the Digital Content Directive. Where the contract provides that the digital content is to be supplied to the consumer over a period of time, the trader may modify the digital content beyond what is necessary to maintain the digital content in conformity, only if
- (1) the contract allows, and provides a valid reason for, such a modification,
- (2) such a modification is made without additional cost to the consumer and
- (3) the consumer is informed in a clear and comprehensible manner of the modification.
If these requirements are not met, the consumer has the right to terminate the contract. However, Recital No. 77 of the Digital Content Directive explicitly states that, if the modified digital content is no longer in conformity with the subjective and the objective requirements for conformity, the consumer shall also be able to demand cure, to reduce the price as well as to demand damages or reimbursement of futile expenses.
Pursuant to Recital No. 75 of the Digital Content Directive valid reasons to modify the digital product could encompass cases where the modification is necessary to adapt the digital content to a new technical environment or to an increased number of users or for other important operational reasons.
In particular with free apps, it is not uncommon to change the catalogue of features during the runtime of the app, sometimes maybe expanding the features, but often also removing features which prove to be impractical or not economically viable. However, according to the examples given in Recital No. 75 of the Digital Content Directive, neither the practicality nor the economic viability should be valid reasons to remove features from the app. If the removal of such features proves to be a defect, the user could theoretically demand the app to be restored to the previous version.
5. Consequences for contract design
The new regulations significantly tighten the legal obligations for the provision of digital products, especially in those cases, where the product is provided free of charge and access is only paid by the consumers data. The former legal framework did not explicitly recognize personal data as a valid mean of payment and therefore did not oblige the trader who received the data to perform for it in return. With the new regulatory framework, the trader’s performance obligations are now very similar to those of a normal purchase or rental contract. Since the legal requirements can hardly be altered by contract according to Section 327s BGB, the new regulations require a redesign of most existing contracts. Even more than in the past, it will be important to define the scope of performance carefully in order not to expose oneself to supplementary performance obligations and to reserve the right to make changes at a later date. Also, the trader is imposed with additional information requirements which need to be complied with in order to avoid cease and desist letters from competitors.
Should you have any questions regarding the new regulatory framework, we will be happy to offer our support.