CMS | Update on European consumer protection law: new EU rules on digital content and sale of goods

On January 1, 2022, new EU rules on digital content and on the sale of goods entered into force. Two European directives, , Directive (EU) 2019/770 on certain aspects concerning contracts for the supply of digital content and digital services (L_2019136EN.01000101.xml (europa.eu)) and Directive (EU) 2019/771 on certain aspects concerning contracts for the sale of goods (L_2019136EN.01002801.xml (europa.eu)), are intended to harmonize key consumer contract law rules across the EU.

Following a two-year transposition period during which the Member States had to implement the requirements of the directives into their national laws, since January 1, 2022 the new rules now apply in a uniform manner across the EU. The directives actually only apply to B2C contracts between entrepreneurs and consumers. However, in some Member States – like Germany – amendments which were necessary to transpose the directives into national law also affect B2B contracts. This excessive implementation of directives is not atypical, especially for Germany, but imposes on companies a need to take action despite not dealing with consumers.

Remedies for faulty digital content and mandatory software updates

For the first time ever, the directives introduce harmonized rules for digital content and digital services within the EU. If digital content is or digital services are faulty, consumers now have rights similar to those they have when they buy defective tangible goods. Consumers who are facing problems with digital content or digital services can ask the entrepreneur to rectify the content or service (i.e. to bring it into conformity) and, if the problem persists, claim a price reduction or terminate the contract and claim a refund. This applies not only where consumers have paid for the content or services but also where they have provided personal data to the entrepreneur.

Another important novelty: entrepreneurs who provide digital content or services as well as sellers of goods with digital elements (e.g. a smartphone with its operating system or “smart products”) are now required to supply consumers with updates that are necessary to keep the content, services or goods in conformity – especially but not necessarily limited to security updates. This obligation continues to apply for as long as the consumers may reasonably expect such updates in the individual case, which could be significantly longer than the statutory warranty periods. It will be interesting to see how the courts interpret this “period” and the fact that an entrepreneur (e.g. a seller), who is not the manufacturer in many cases, might not be able to handle the obligation to provide updates since it is quite often the case that sellers in the brick-and-mortar business do not know their customers. In any case, it is already now important to carefully draft supply contracts with manufacturers (or resellers) to ensure that the responsible entrepreneurs are able to comply with this obligation.

In Germany, the Directive on digital content and services was implemented into the German Civil Code by introducing a separate chapter on “contracts for digital products” – i.e. digital content and services. The new legal framework for these digital products as well as the duty to provide updates for “smart products” is only relevant in the B2C sector. However, the new obligations for B2C sellers may also affect B2B contracts higher up the supply chain. If there is a consumer at the end of the supply chain to whom a seller is required to provide a warranty for defects, it is possible that this seller, in turn, may have claims against its own seller by way of what is known as supplier recourse (even if the relationship is then a B2B transaction).

New definition of conformity of goods

For the (online and offline) sale of goods, the definition of conformity of the goods has changed. In the past, the main aspect for the assessment of whether goods of sale were defective was the respective agreement between the parties to the sales contract and objective expectations were subordinated. That meant that a seller could significantly reduce its risk of warranty obligations by clearly agreeing on the specifications of the goods. But now the new directives have shifted that focus. The new rules state that in order to conform with the sales contract, the goods not only have to meet the subjective requirements on which the seller and the buyer agreed in the respective sales contract but must simultaneously meet objective criteria that the buyer can reasonably expect. As a non-exhaustive list of examples for such objective criteria, the directives state, i.e. fitness for purpose, durability, functionality, compatibility and security of the goods.

While Directive 2019/771 on the sale of goods stipulates that this shift of focus is mandatory only for B2C contracts, in Member States which do not fully distinguish between B2B and B2C sales in their national laws, these changes also affect B2B contracts. In Germany, all commercial and private sellers will be bound by the new standards. The only possibility of excluding liability for objective criteria is to specifically agree on the specifications for the goods in the sales contract. Under the newly worded German Civil Code, such an agreement may be concluded expressly or implicitly in B2B contracts. For B2C contracts between entrepreneurs and consumers, a deviation from the objective criteria is significantly more complex. In accordance with the Directive, the consumer must be specifically informed about the deviation before the sales contract is entered into and must then expressly and separately accept that deviation. For online sales, this acceptance may be given by checking a separate (not pre-filled) checkbox.

Similar rules apply to B2C contracts on digital content and services. The definition of conformity of such content or services, in particular, follows the same concept.

Taking these changes into account, it is clear that sales procedures, descriptions of products and general terms and conditions of sale should be thoroughly reviewed and, if necessary, revised.

Reversed burden of proof, prolonged warranties

If a non-conformity of sold goods or digital content or services becomes apparent within a year of when a B2C contract was entered into, it is presumed that this non-conformity already existed at the time the good was handed over (which is the decisive point in time for warranty claims). Previously, the duration of this reversed burden of proof was only six months. Now the Member States can extend it even further to two years. In Germany, a new minimum period of one year applies.

What is more, the EU minimum standards for warranty periods the Member States must adhere to have been extended for certain cases.

While the statutes of limitations do vary between Member States, the former EU legislation already stated that consumers must be entitled to remedies for defective products for a minimum period of two years after delivery of the products. In Germany, this two-year warranty period applied to both B2B and B2C contracts (with exceptions for certain goods). Directive 2019/771 on the sale of goods now stipulates an extension of this limitation period if the defect in a product becomes apparent towards the end of this period. The German legislator decided to implement this rule only for B2C contracts which may lead to different warranty periods for B2B and B2C contracts under the new German Civil Code.

For digital products and digital elements of goods, entrepreneurs may be liable for an even longer period. On the basis of the minimum requirements of Directive 2019/770 on digital content and digital services, the limitation period is a minimum of one year after the end of the provision of the digital content or service or the digital element. If the new software update obligation applies (see above), claims in this regard will expire at the earliest one year after it has come to an end. This means that companies will have to be prepared to respond to customer claims for much longer than the previously applicable warranty period.

Another important change in this regard in German law which is important for B2B contracts is the following: until last year supplier recourse compensation claims for defective products, where at the end of the supply chain the final buyer is a consumer, became time-barred after five years from delivery of the goods by the supplier at the latest. This maximum period now no longer applies. As such, recourse claims against a supplier now expire – without any cap – at the earliest two months after the date on which the seller has fulfilled the buyer’s claims.

Stricter rules for commercial guarantees in B2C sales

Further, Directive 2019/771 on the sale of goods leads to stricter minimum requirements for commercial guarantees in the EU. The mandatory content for guarantee statements has been expanded and the guarantee statements must now always be provided before or together with the delivery of the goods (and no longer on request only). This is not only relevant for commercial guarantees given by the seller, but also for those given by the manufacturer or another legal entity.

Summary

It is clear from the legal updates, which came into force on January 1, 2022 and apply in all EU Member States, that companies – especially sellers – will in future face considerably more obligations. Entrepreneurs who sell goods or provide digital content or services in the EU should thoroughly check their contract and sales documents (e.g. product descriptions, data sheets, online descriptions, etc.) against the new laws. The legal situation has become significantly stricter, especially – but not only – in cases where consumers are involved.

Contact:

• Dr. Ulrich Becker, Rechtsanwalt | Partner
• T +49 69 71701 415
• E ulrich.becker@cms-hs.com

CMS Hasche Sigle Partnerschaft von Rechtsanwälten und Steuerberatern mbB
Neue Mainzer Straße 2-4 | 60311 Frankfurt am Main | Germany

Compliments of CMS Hasche Sigle – a member of the EACCNY.