Background
Following on from the guidance note we recently published on this topic (available here), new consumer rights have now been introduced on an EU-wide basis which affect most businesses dealing with consumers. These rights have been introduced through the EU Consumer Rights Directive (2011/83/EU) (the Directive) and implemented by way of national legislation in the various EU Member States (e.g. for the UK, by means of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013).
As we had anticipated, long-awaited guidance on the application of the Directive has now been published by the Directorate General for Justice (available here) (the Guidance). Whilst guidance on the Directive is certainly welcome, it would perhaps have been more useful to have had the Guidance prior to the Directive coming into effect. The Guidance isn’t as helpful as had been hoped and, in some places, provokes further questions and arguably fails to provide answers to a number of common queries on the Directive’s application.
This client alert summarises the most significant points in the Guidance, particularly in relation to those that affect providers which supply online digital content.
Key highlights
a) Free content. The Guidance confirms that the provision of free digital content would be covered by the Directive. The Guidance specifically provides the following example: “the Directive applies to a contract for a free download of a game from an app store”. This interpretation of the Directive significantly expands the scope of the Directive with a larger number of providers being required to make changes to their processes.
b) Pre-contractual information requirements. The Guidance makes a broad suggestion that information on a provider’s website, which is required to be provided to consumers prior to conclusion of a contract pursuant to Article 6(1) (Required Information), should be binding on the parties and, “if the provider wishes to alter any of its elements, he should obtain the consumer’s express consent”. On a strict reading of this statement, providers would never be able to change the information on their websites without each consumer’s consent. Additionally, the Guidance states that “a provision in the general terms and conditions stating that the provider may derogate from the information provided on the website would not comply with the requirement for express agreement of the parties”.
c) Price information requirements for subscription contracts. For contracts of an indeterminate duration or under a subscription (such as a VOD movie subscription service), the Guidance clarifies that the consumer must be notified of the total cost per billing period and the total monthly costs. The Guidance provides the following example: “Internet or pay-TV subscriptions are typically charged at a fixed rate per month/bi-monthly/quarterly irrespective of usage. Therefore, the monthly cost and, if the billing period is different, the cost per billing period would have to be provided to the consumer who wishes to conclude a subscription online…”
In addition, the provider must clearly explain to the consumer any payment arrangements which allow the provider to continue to charge the consumer under a subscription contract, using the same payment information initially provided by the consumer (such as a credit card) for subsequent billing payments, without prompting the consumer to re-enter this information. Practically, this simply requires the provider to be transparent with the consumer about the fact that they will automatically bill the consumer at the start of each billing period, using the credit card they have supplied, until the contract is terminated.
d) Online marketplace platforms. Where a provider uses an online platform to market their products and conclude contracts with consumers, the Guidance suggests that the provider of the platform will share the responsibility of ensuring compliance with the Directive in so far as they are acting in the name of or on behalf of the provider.
e) Information required to be provided at the point of purchase. Article 8(2) of the Directive requires online providers to make the consumer aware of certain significant information (such as the main characteristics of the goods/services, the total price, the duration of the contract and conditions for termination, and the minimum duration of the contract) in a clear and prominent manner, directly before the consumer places their order. The Guidance advises that such information “should be presented in a way that the consumer can actually see and read it before placing the order without being obliged to navigate away from the page used to place the order”. Providers will therefore have to ensure that, as a minimum, their checkout pages contain this specific information.
f) Order buttons. The Guidance reiterates that purchase buttons which state: “buy now”, “pay now” or “confirm purchase” will be sufficient, whereas “register”, “confirm” or “order now” will not be sufficient to comply with the Directive.
g) Confirmation email. Article 8(7) of the Directive requires providers to provide confirmation of the contract (including all the Required Information) on a durable medium within a “reasonable time” after conclusion of the contract. The Guidance recognises that contracts for online digital content are usually performed immediately, but suggests that providers will be required to send the confirmation email “immediately before” the consumer begins to download or stream the content. This may be technically challenging for some providers, particularly those which enable consumers to start their stream almost concurrently with conclusion of the purchase.
h) Service contracts vs. contracts for the supply of digital content. The Directive does not explain whether certain online subscription-based digital content services (e.g. online VOD movie subscriptions or all-you-can-eat music subscriptions) should be treated as “services” or “contracts for the supply of digital content”. Whilst the Guidance does not specifically address this point, it seems to imply that such subscription contracts should be treated as contracts for digital content. This is a helpful clarification for providers. The Guidance goes on to say that: “If covered by a subscription contract, each supply of individual digital content under that contract would not, accordingly, constitute a new ‘contract’ for the purposes of the Directive”. The Guidance adds that pay-per-view content, which is not covered by the consumer’s subscription, would nevertheless be treated separately as a new contract.
i) Provision of digital content prior to expiry of the cancellation period. Possibly the most controversial requirement of the Directive is that the provider must obtain the consumer’s express consent before making purchased digital content available to the consumer during the 14-day cancellation period by way of download or stream, together with an acknowledgement from the consumer that they will lose their cancellation right once they start to access the content. Providers have been concerned that such language may be intimidating to consumers and may lead to a negative effect on sales and conversion.
The Guidance now explains that the consumer must take a “positive action” to provide its express consent and acknowledgement. The Guidance suggests using a tick-box on the provider’s website but clarifies that a pre-ticked box is likely not to be sufficient, nor would reference to the general terms and conditions. Nevertheless, the Guidance adds that the express consent and acknowledgment can be obtained at the same time (e.g. at the purchase page) and provides the following example wording: “[ ] I hereby consent to immediate performance of the contract and acknowledge that I will lose my right of withdrawal from the contract once the download or streaming of the digital content has begun”. Providers may be keen to use less intimidating language to achieve the same result, but in light of the seemingly inflexible interpretation of the Directive on this point, it is important to ensure that any replacement language still obtains both: (a) the express consent of the consumer; and (b) the consumer’s acknowledgement that they will lose their cancellation right by continuing.
j) Additional information requirements. Providers have been particularly concerned by the ambiguity over the level of detail which is required to be given to consumers relating to: (a) the functionality, including applicable technical protection measures, of digital content; and (b) any relevant interoperability of digital content with hardware and software.
First, the Guidance clarifies that “it does not appear feasible to set a single exhaustive list of functionality and interoperability parameters that would apply to all digital products”. Secondly, the Guidance provides a non-exhaustive list of information which may be required:
Functionality
As appropriate for the product, the following information should be given:
- Language of the content, and, if different, language of any instructions included with the content
- Method of providing the content: e.g., streaming, online, one-off downloading, access to download for a specified time
- For video or audio files: playing duration of the content
- For downloadable files: file type and size
- Commitment or absence of commitment by the provider or a third party to maintain or update the product
- Any conditions for using the product to the described extent not directly linked to interoperability, such as:
a. Tracking and/or personalisation
b. Need for internet connection to use the product and its technical requirements (such as minimum download and upload speed)
c. Need for other users to have specific software installed (e.g., for communication software)- Any limitations to the use of the product:
a. Limits to the number of times, or the duration, a digital product can be watched, read or used
b. Limits to the reuse of content, for purposes such as private copies
c. Restrictions based on the location of the consumer's device
d. Any functionalities that are conditional on additional purchases, such as paid content, club memberships, additional hard- or software.Interoperability
Interoperability can be described by giving information on devices that the content can be used with; where applicable this should include information about the necessary operating system and additional software, including the version number, and hardware, such as processor speed and graphic card features.
The level of detail described above may surprise many providers and is likely to require some providers to make significant changes to their service. In any event, the additional clarification is welcome and providers may now consider with more certainty, what changes to their consumer journey may be necessary.
Annex I of the Guidance provides a useful model for the display of consumer information about online digital products (page 69 of the Guidance). Providers are advised to use the information categories with the suggested icons and table-like display, as captured in the examples provided at pages 70-72. The model provides specific examples of how providers of music services and video subscription services may comply with the information requirements demanded by the Directive.
Final thoughts
The Guidance was certainly much needed and answers a number of questions which have been tormenting providers over the past few months. It is unfortunate that the Guidance has been published so late, particularly since many providers will have already made significant investments and used significant resources to comply with the Directive by 13 June 2014. However, it is likely that, as a result of the Guidance, many providers will now have to reassess their services to ensure that their own interpretation of the requirements of the Directive were in line with that of the Directorate General.
We have been working with a number of clients who have been undertaking compliance audits to help bring their services in line with the requirements of the Directive. For advice on this matter, please contact Nick Breen, Gregor Pryor or Sakil Suleman.
Client Alert 2014-178