New consumer protection law for digital goods
With the Digital Content Directive (Directive (EU) 2019/770), the EU is further expanding the European digital single market and making it easier for consumers to access digital products. The EU’s stated goal was to ensure a balance between a high level of consumer protection and promoting the competitiveness of companies. Nevertheless, the drafting of contracts that have as their object the provision of digital content will have to be adapted in some fundamental respects as a result of the new legal framework, which has been in force in Germany since January 01, 2022.
Legal regulations and scope of application
The new legal framework for the provision of digital content was created in Germany by several amendments to the German Civil Code. The following overview focuses on the new regulations in sections 327 et seq. BGB, which have a significant impact on the design of general terms and conditions in the B2C sector.
These regulations apply to all consumer contracts that have as their object the provision of digital content or digital services (digital products) by an entrepreneur in return for payment of a price. A significant change is that the new legal regulations also apply if the consumer provides personal data as a means of payment, unless this data is processed solely to fulfill the contractual obligation to perform or legal requirements. Since free digital content is often provided with the aim of using users’ collected personal data beyond what is necessary to provide the digital product itself, this expansion of the scope means that many previously unregulated use cases, such as free apps, will now be subject to stricter consumer protection law requirements.
Obligation to provide the digital product
Within the scope of application of §§ 327 et seq. BGB, the entrepreneur is obligated to provide the digital product that is the subject of the contract. If the entrepreneur breaches this contractual obligation, the consumer may terminate the contract and claim damages or compensation for futile expenses. If the digital product is defective, the consumer may also demand subsequent performance or a price reduction. Particularly for digital products that are offered “free of charge” and for which the consumer only “pays” with personal data, this represents a paradigm shift compared to the previous regulations, which gave the entrepreneur greater leeway to amend or withdraw from the contract and also provided for milder legal consequences in the event of defects.
Obligation to update the digital product
Another controversial issue was regulated in Section 327f of the German Civil Code (BGB), which now requires the entrepreneur to provide the consumer with updates that are necessary for the digital product to remain in conformity with the contract and to inform the consumer of these updates accordingly. These mandatory updates explicitly include security updates. The obligation to update the digital product applies for as long as the digital product is provided and may therefore even go beyond the general warranty obligations. The trader is even liable for product defects if it has provided an update but the consumer has not installed it because the trader has not sufficiently informed the consumer about the availability of the update and the consequences of not installing it, or because the failure to install is due to faulty installation instructions.
Changes to the digital product
Another important provision is found in the new Section 327r of the German Civil Code, which implements Article 19 of the Digital Content Directive. If the contract provides that the digital product will be made available to the consumer on a permanent basis, the trader may only make changes to the digital product that go beyond what is necessary to maintain conformity with the contract if
- the contract provides for this possibility and contains a valid reason for it,
- the consumer does not incur any additional costs as a result of the change, and
- the consumer is informed about the change in a clear and comprehensible manner.
If these conditions 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 changed digital content no longer meets the subjective and objective contractual requirements, the consumer should also be able to demand subsequent performance, reduce the price, and claim damages or reimbursement of futile expenses.
According to Recital No. 75 of the Digital Content Directive, valid reasons for modifying the digital product may include cases where the modification is necessary to adapt the digital content to a new technical environment or to a larger number of users, or for other important operational reasons.
Especially in the case of free apps, it is not uncommon to change the feature catalog during the lifetime of the app, sometimes perhaps with an expansion of features, but often with the removal of features that prove to be impractical or not economically viable. However, according to the examples given in recital 75 of the Digital Content Directive, neither the practicality nor the economic viability of a function should be a valid reason for its removal from the app. If the removal of such features proves to be a defect, the user could theoretically demand that the app be restored to its previous version.
Consequences for contract design
The new regulations significantly tighten legal obligations when providing digital products, especially in cases where the product is provided free of charge and access is paid for only through the consumer’s data. The previous legal framework did not explicitly recognize personal data as a valid means of payment and therefore did not oblige the entrepreneur who received the data to provide any consideration. With the new legal framework, the entrepreneur’s performance obligations are now structured similarly to a normal purchase or rental contract. Since the legal requirements under Section 327s of the German Civil Code (BGB) can hardly be modified by contract, the new regulations will require a redrafting of most existing contracts. Even more than in the past, it will be important to define the scope of performance carefully so as not to expose oneself to subsequent performance obligations and to reserve the right to make changes at a later date. Additional information obligations will also be imposed on the entrepreneur, which he must fulfill in order to avoid warnings from competitors. If you have any questions about the new legal framework, we will be happy to advise you.