At the start of the new year, Germany’s Federal Ministry of Justice and Consumer Protection has taken twofold action by publishing two draft Acts intended to transpose, firstly, the Directive on certain aspects concerning contracts for the supply of digital content and digital services (2019/770/EU) and, secondly, the Directive as regards the better enforcement and modernisation of Union consumer protection rules (2019/2161/EU). Both drafts were passed by the Federal Government on 13 January 2021 and have now been presented to the Bundesrat for its comments. Below we describe a selection of the main new features in brief.
Transposition Act on the Directive on digital content
The aim of the Directive is to harmonise certain contractual aspects to guarantee greater consumer protection with the ultimate goal of achieving a digital single market. On the one hand, this will protect consumers and boost their confidence with regard to buying digital products and services by ensuring that the same rules apply in all Member States. At the same time, the Directive also pursues the aim of greater legal certainty to reducing costs and eliminate distrust for businesses specifically when they sell their digital products and services in a Member State other than their own. Adjusting contracts to the requirements of the individual Member States has always posed major (financial) challenges for smaller companies in particular as well as medium-sized firms. This is a problem familiar to many in the area of data protection before the General Data Protection Regulation 2016/679 came into force. At the time, companies that operated across borders always had to compare their data processing activities with the standards of the different individual data protection laws.
Transposition must take place by 1 July 2021. The resulting provisions for the Member States will then apply to all contracts entered into as of 1 January 2022.
Scope of application
In the draft section 327 of the Civil Code, the scope is clearly defined under the heading “Consumer contracts for digital products”: according to this, the draft section 327 onwards of the Civil Code are applicable to consumer contracts for the provision of digital content or digital services (digital products) by the entrepreneur in exchange for payment of a price (first sentence of draft section 327(1) Civil Code). Interestingly, the scope covers both contracts in which the consumer’s consideration is not given in monetary form but the price of the contract consists of the provision of personal data (see draft section 327(3) Civil Code), an approach which has been discussed for some time in German legal literature regarding the law on general terms and conditions of business. Of course this does not apply if the provision of that data by the consumer is necessary for the entrepreneur to actually fulfil the obligations of the contract.
At the same time, in draft section 327 Civil Code it is clarified that a number of contracts are not covered by this scope. Besides contracts for financial services (draft section 327(6) no. 5 Civil Code), these include, for example, contracts for the provision of software for which the consumer does not pay a price and which the entrepreneur offers under a free and open-source licence, provided the personal data given by the consumer is processed by the entrepreneur solely to improve security, compatibility or the interoperability of the software offered by the entrepreneur (draft section 327(6) no. 6 Civil Code).
The European lawmakers did not create a new type of contract in connection with digital content in this instance. Whether a contract ultimately counts as a contract for purchase, work or services, a lease or as a contract of its own type therefore remains the purview of each national legislature.
Provision of digital products
The draft expressly stipulates when provision takes place in the case of digital content (draft section 327b(3) Civil Code) and digital services (draft section 327b(3) Civil Code). The burden of proof of successful provision is reversed and is imposed on the entrepreneur in derogation from section 363 Civil Code (draft section 327b(6) Civil Code). If the entrepreneur does not make provision without undue delay, despite provision being due and requested by the consumer, the consumer is entitled to terminate the contract (draft section 327c(1) Civil Code).
Extended right relating to defects and obligation of updating
The draft sets out its own right relating to defects in digital products and services and expressly defines the conditions for freedom from defects. For example, the digital product or digital service must meet the subjective and objective requirements as well as the integration requirements (draft section 327e Civil Code). If there is a defect, the consumer has the right to supplementary performance, termination, damages or compensation for wasted expenses, and to reduction (draft section 327i Civil Code). In this context, what is also particularly noteworthy is the extended reversal of the burden of proof of freedom from defects, which is placed on the entrepreneur: for example, if a (legal) defect becomes apparent or an update fails to take place within a year of provision, it is assumed that a digital product was already defective when it was provided (draft section 327k Civil Code). In comparison to the regular purchase of consumer goods, which merely provides for a reversal of the burden of proof within six months (section 477 Civil Code), this can be seen as a huge increase in consumer protection.
It is also worth highlighting the entrepreneur’s standardised updating obligation contained in the draft. Here an entrepreneur must ensure that the consumer is provided with updates (i.e. updates to retain functionality and security updates) which are necessary to retain the contractual compatibility of the digital product, and that the consumer is informed about the updates (draft section 327f Civil Code).
Transposition Act on the Modernisation Directive
The Modernisation Directive is intended to impose on operators of online marketplaces such as eBay or Amazon greater legal duties to inform the consumer. The issue of transparency is quite clearly at the centre of this. Consumers are to be given more information about their contractual partner, the search results displayed, and the price quoted.
Scope of application
The new duties to inform affect operators of online marketplaces. Draft section 312k Civil Code defines an online marketplace as a service enabling consumers to enter into distance selling contracts through the use of software operated by the operator or on its behalf, including a website or app.
Duties to inform
Online marketplace operators’ comprehensive duties to inform are described in draft section 246d Introductory Law to the Civil Code. According to this, the consumer must be informed about (among other things) the ranking of goods and services displayed to them following their search query, with disclosure of the main parameters and weight of those main parameters for the ranking in question. In addition, the operator must inform the consumer whether the provider is one of its affiliates, an entrepreneur in general or even a private individual. The latter information is especially relevant to consumers because a contract entered into with a private individual would not be governed by the special regulations of consumer contracts. There are even changes to the resale of tickets for an event, because in the future the consumer must be informed of the organiser’s original price.
If an operator fails to meet its duties to inform, it is committing an administrative offence and may face a fine of up to €50,000. However, if the operator is a company with an annual turnover in excess of €1,250,000, the fine may even reach up to 4% of its annual turnover(!) or if this turnover cannot be determined, up to €2,000,000.
The new features are welcome, especially from the perspective of legal certainty, and were long overdue given the steady rise in offerings and use of digital products and services, which has been accelerated not least due to the pandemic. As we know, every change in consumer law is accompanied by the potential for warnings, which is why it is advisable to review and, where appropriate, adapt the general terms and conditions in a timely manner.
- Patrick Neidinger, LL.M., Rechtsanwalt/Attorney, NOERR
- Dr Florian Schmitt, LL.M., Rechtsanwalt/Attorney, NOERR
Compliments of Noerr – a member of the EACCNY.