Business, Innovation and SkillsWritten evidence submitted by Microsoft

1. Microsoft has been actively involved in policy dialogues at the UK and EU levels about digital content and consumer rights. We are committed long term to the mission of helping our customers realize their full potential. Just as we constantly update and improve our products, we want to continually evolve our company to be in the best position to accelerate new technologies as they emerge and better serve our customers. Our consumer business spans from gaming, music and video across multiple screens, including Xbox 360, Xbox LIVE, the controller-free Kinect for Xbox 360, and Xbox Music and Video, as well as PC and mobile interactive entertainment to productivity and collaboration products and services (eg Office), personal communications services (eg Bing, MSN portals), Skype Windows, Internet Explorer, and Microsoft software and services for Windows Phones. We welcome the opportunity to provide our comments to the Business, Innovation and Skills Committee’s inquiry into the pre-legislative scrutiny of the Draft Consumer Rights Bill (CR Bill). In this submission, we focus on the new rules regarding statutory remedies and liabilities for digital content.

2. The success of the digital industries depends on clear rules, harmonised across Europe. Using new technologies, content is now often delivered to users remotely and via multiple devices, regardless of the location of the content provider or of the consumer. This ability to transcend geographic boundaries offers all companies, including start-ups and entrepreneurs in the UK, a much bigger market for their innovations. But their ability to participate in this market in a cost-effective way depends on there being a single clear set of rules for all of Europe. A patchwork of national rules and requirements can also deter consumers, who may be unfamiliar or worried by the protections available—or their lack thereof—in other Member States. Microsoft supports consumer rights for digital content, but we believe that these rights should be carefully calibrated to match, and not to exceed, the recently adopted European Consumer Rights Directive.

3. “Digital content” is different than physical goods, and needs different rules. The CR Bill “transplants” too many traditional concepts regarding the sale of goods and applies them directly, and we think at times inappropriately, to digital content. As a result, and despite the guidance of the explanatory memorandum, it is unclear how the CR Bill’s provisions would work in practice. Here are some examples:

“Satisfactory quality” (Section 36). This term works well for physical goods, but should be clarified with regard to digital content, because, unlike physical goods, some digital content (such as software, computer games or apps) evolve, are reliant on a network of third party platforms and software, and are often under “attack” from external sources. Many “faults” also come from the actions of users themselves, who may use software incorrectly (eg, incorrect installation or non-application of security updates, the use of infected USB devices, the use of insecure passwords, etc). In addition, digital content often needs to work together with an operating system, other programs, and devices (smartphones, printers, scanners, digital cameras, outside drives, etc). Such digital content necessarily interoperates with products created by multiple vendors, and this leads to consumer experiences that the original developer did not and could not reasonably anticipate.

These issues do not mean that consumers should be deprived of a remedy if the digital content simply does not work because of bad coding, or for problems caused by externalities, such as unanticipated system incompatibilities, but the law should recognise and allow for the different scenarios that lay behind loss of digital functionality.

“Fitness for purpose” (Section 37). Digital content for the consumer (mass) market is almost never modified for individual consumers. Further, digital content is most often, and increasingly, purchased online, via automated transactions. In these circumstances, it is not clear how consumers would explain their intended purpose, as the CR Bill envisages.

“As described” (Section 38). The requirement to be “as described” is difficult to apply to digital content, which is often complex and evolves (see above). Consider a game that features a significant online component that is later discontinued by the game publisher as the game falls in popularity. Would this change mean the game is no longer “as described”, entitling the consumer to a refund? Or, would the existence of the online functionality, now dormant, still mean the code provided to the consumer still is exactly “as described”? Digital content is often updated over time to include functionalities that are different from those originally described to a customer on purchase; likewise some functionalities are also deprecated over time. Again, we believe more clarity is needed.

“Repairs” (Section 44). Minor bugs in coding are unavoidable, which consumers understand and expect. Currently, once bugs are identified, for example, businesses often develop patches that fix the digital content, for all consumers who choose to download the patch. Patches may be simple, but they may sometimes also be very complex, and can take weeks or even months to develop. Further, deploying patches is a way that maximizes adoption can also be challenging because updates are often at the user’s election (and not required). We believe the current approach, where companies offer patches that are shared with all consumers on a good faith basis, works well.

4. Introducing liability for digital content that causes device failures and loss of digital content will have long-term negative impacts on innovation and cyber-security. The CR Bill contains a rule pinning liability on digital content providers if faulty digital content from that provider damages or destroys, in a way that content made with reasonable care and skill would not, a consumer’s device or other digital content (Section 48). This rule represents a dramatic expansion of liability, and risks creating negative scenarios for our industry. If upgrades create this kind of liability, for example, then companies may release upgrades much less frequently, to avoid risking liabilities. And, when upgrades are released, they may be less ambitious, offering up fewer features that could create unwanted side effects—effectively slowing innovation and, under some scenarios, slowing the roll-out of security upgrades too. If free digital content becomes regulated companies may also be slower to react to newly discovered cyber-vulnerabilities, for fear of creating significant new liabilities should the patch not work as intended. 

5. Extending the CR Bill to cover “free” digital content will discourage innovative new business models. Regulating free content—such as apps, or webpages with videos and pictures—could undermine the incentives for innovation that have driven the Internet to thrive in the last two decades. Many of the Internet’s most innovative features are based on “free” and “freemium” product models. Entrepreneurs won’t be able to offer free services on a massive scale if they face individual new liabilities for each new customer—the risk will be too great. Many web companies simply aren’t set up to offer services such as “repairs” or other non-payment remedies to millions of consumers if a fault occurs.

These issues demonstrate why further discussion and revision is needed before this law comes into force. Many of the concepts of the CR Bill need more clarity in the digital context. We believe consumers are entitled to meaningful, straight-forward protections, that are crystal clear for both customers and businesses—but the current proposals are taken too literally from “sale of goods” law precedents that simply don’t fit the market for digital content, and need to be further refined before they can be applied in practice.

27 August 2013

Prepared 20th December 2013