Background
The use of digital products has increased significantly in the past few years, and even more so due to the pandemic. Directive (EU) 2019/770 on contracts for the supply of digital content and digital services and Directive (EU) 2019/771 on the sale of goods (together, the Directives) aim to harmonize the legal framework for the sale of digital products in the EU and create a high level of consumer protection. Another goal is to promote the sustainability of digital products. The Directives have now been transposed into national law in Germany by way of amendments to the German Civil Code.
Content of the new provisions
A new type of contract: Consumer contracts for digital products
Previously, German law did not contain any specific provisions on consumer contracts for digital products. The new section 327 et seq. now implements rules on digital products.
Digital products include:
- Digital content (e.g., software, e-books, apps, digital music files, or digital games)
- Digital services (e.g., streaming services, messenger services, software as a service, or webinars) (together, Digital Products).
The new provisions on Digital Products apply when a consumer pays money or data for a Digital Product.
The new provisions also apply to so-called package contracts. Package contracts are contracts on Digital Products and other content, such as non-digital services. The new provisions, however, only apply to the digital part of the agreement. They do not apply to, inter alia, agreements other than package agreements or agreements on Digital Products even if the organization provides the service via digital means, or to financial service agreements.
Update obligation of the seller
One major novation is the sellers’ obligation to update the Digital Products. This obligation extends to updates that are necessary to ensure the Digital Products remain in compliance with the purchase agreement (no “upgrade” obligation). Updates include (i) function-maintaining updates and (ii) security updates. Updates must be provided free of charge.
The seller is obliged to provide the updates (i) where the Digital Product is made available on a permanent basis, for the duration that it is made available, or (ii) where the Digital Product is sold, at least for as long as the consumer might expect based on the nature and purpose of the Digital Product and considering the circumstances and type of agreement. This is a key contractual obligation, the breach of which could lead to the product being deemed defective and thus give rise to liability.
Quality obligations of Digital Products
Section 327e of the German Civil Code makes specific reference to defects in Digital Products. A Digital Product is free from defects if it complies with certain subjective and objective requirements, as well as with integration requirements.
- Subjective requirements: The Digital Product must be of the agreed quality (including with regard to compatibility and functionality) and fulfill the intended usage under the agreement, and any necessary accessories, instructions, customer services, or updates agreed in the agreement must be provided.
- Objective requirements: The Digital Product must be suitable for ordinary use, have a quality that is common to Digital Products of the same type, correspond with the nature of a test version or preview, be provided with accessories and instructions that the consumer can expect to receive and the required updates under section 327 of the German Civil Code, and be the most recent version available.
- Integration requirements: The Digital Product must be integrated properly, and the lack of integration may not be due to the improper integration of the organization. Integration means the connection and incorporation of a digital product with or into the components of the consumer's digital environment (hardware, software, or network connections) so that the digital product can be used as required by the provisions of this subtitle.
If a Digital Product does not meet these requirements, the seller is liable.
Corresponding new provisions in the area of sale of consumer goods
Corresponding warranty provisions, as well as the obligation to update, have also been implemented into the chapter on the sale of consumer goods for so-called goods with digital elements. Goods with digital elements are physical goods that cannot fulfill their function without digital content or services (such as smartwatches, smart TVs, or smartphones). Such products are considered defective if required updates for the digital elements are not provided or if installation requirements are not met. These installation requirements include, in particular, installation instructions and information about the availability and consequences of failure to install an update.
No absolute limitation for claims between seller and supplier
If a consumer makes a warranty claim against the seller on the basis of the above, the seller can take recourse against the supplier of the product during the two months after the buyer asserts a warranty claim. The maximum limit of five years under German contract law does not apply.
Extension of reversal of the burden of proof with regard to defects
Under the previous section 477 of the German Civil Code, it was presumed that, for a period of six months from purchase, any defects already existed at the time of purchase. This period has now been extended to one year. This means that buyers have a solid warranty case if the product fails to meet the agreed quality at any time during the first year after purchase.
Other new provisions strengthening consumer rights
i. Under the new section 475e (4) of the German Civil Code, warranty claims associated with the sale of consumer goods are not time-barred in the first two months after the occurrence of a defect.
ii. Under section 479 of the German Civil Code, guarantees (so-called explicit warranties, for example, a “waterproof warranty”) must be provided in writing to the consumer on a durable medium and without being requested (an emailed or hard copy guarantee is sufficient). It must also be made clear that existing statutory warranty rights remain unaffected and can be exercised free of charge.
Implications for organizations
Since January 2022, organizations selling Digital Products to German consumers have been required to implement the following changes:
- In the case of ‘physical’ goods, especially those that tend to have a short service life, (i) the planned extension of the reversal of the burden of proof (from six months to one year), in particular, but also (ii) the commitment to make Digital Products more durable through updates, will have a significant impact in practice.
- For Digital Products, (i) the obligation to provide updates and (ii) the associated data obligations will also mean additional work, because internal processes, calculations, and contracts will have to be adapted to meet the new obligations.
- Manufacturers, suppliers, and sellers should adapt their product ranges, model contracts, and terms and conditions of sale. Warranty provisions must be reviewed and revised.
Processes may need to be formed for this purpose so that they can be implemented in the processing of agreements. Existing sales agreements must comply with the new definition of material defects. With regard to the obligation to update, information and delivery obligations between suppliers and manufacturers must be contractually established and amended as necessary.
Further updates coming in 2022
During the first half of 2022, further legislative changes will come into force in Germany to strengthen consumer rights and modernize German law. We will update you on these new provisions, which relate to general terms and conditions and consumer protection provisions (such as the “termination button”), as well as developments in competition and trade law in separate client alerts. Stay tuned!
Client Alert 2022-055
