Business, Innovation and SkillsSupplementary written evidence submitted by the Department for Business, Innovation and Skills

12 November 2013

DRAFT CONSUMER RIGHTS BILL—FOLLOW UP

Dear Amelia,

We met last week and I said I would provide you with some information which you requested at our meeting.

Digital Quality Rights: “Appearance and Finish”

You asked about the deliberation we undertook when considering whether “appearance and finish” should form part of the digital quality rights criteria. We took the view that it was not an appropriate measure of quality because it implies a physical quality that is not generally associated with digital content, and in particular to digital content that is not of a visual nature, such as music files or software. Clause 36(3) states that “the quality of digital content includes its state and condition” and this would include more visual aspects of digital content, where appropriate, as well as its usability. In the original consultation for the draft Bill, we received no specific comments on “appearance and finish”—most comments focused on “freedom from minor defects”, recognising that the context and type of digital content is important here.

Further Information on the Roundtable on “Right to Reject” in the Context of Digital Content.

The paper that was used to inform participants is attached in the annex to this letter. While consensus was not reached over the short term right to reject faulty digital content on a disc, the prevailing view was that it would be simpler for consumers to view the digital content and the disc as a single product and so give the digital content on the disc the same short term right to reject as the disc itself.

References to the “Average Consumer” in Other legislation

You asked if we could provide references to where the “average consumer” concept is used in other legislation. As you are aware we currently use this concept in the Unfair Contract Terms part of the draft Bill.

The notion of an “average consumer” is a concept developed by the European Court of Justice (CJEU). The CJEU has set a robust standard, describing the average consumer as someone “reasonably well informed, reasonably observant and circumspect”. It is an objective test, which is not based on the understanding or expectations of a particular consumer. According to the Guidance of the Commission, the notion has been adopted “to strike the right balance between the need to protect consumers and the promotion of free trade in an openly competitive market”.

The leading case on the average consumer1 was about egg labelling. The CJEU ruled that the correct approach was to consider the “presumed expectations of an average consumer who is reasonably well informed and reasonably observant and circumspect”, without ordering an expert’s report or a consumer poll.

The CJEU has applied this test in a number of cases and found that,2 for example:

where a product was described as “dermatologically tested” an average consumer would take this to mean no more than it had been tested and found not to be harmful to the skin; an average consumer would not be misled into thinking that the product had been shown to be beneficial to skin; and

a flash on a chocolate bar wrapper advertising it to be 10% larger was not misleading just because the advertisement itself was larger than 10%; reasonably circumspect consumers would be aware of this.

The European Commission’s Guidance has emphasised that the average consumer is “a critical person, conscious and circumspect in his or her market behaviour”. However, “the average consumer’s level of attention is likely to vary according to the category of goods and services in question”.

The Unfair Commercial Practices Directive 2005 uses the concept of an “average consumer” as a benchmark for determining the impact of a commercial practice. This is implemented in the UK through the Consumer Protection from Unfair Trading Regulations 2008 (CPRs). As the recitals to the Directive explain, the test is based on the principle of proportionality. To prohibit practices that might deceive only the very credulous, naïve or cursory consumer would be disproportionate to the objectives pursued and create an unjustified barrier to trade.

The Unfair Terms Directive does not explicitly refer to the average consumer. In the landmark bank charges case, the Supreme Court held a term could remain an exempt price term even if the actual consumer was illiterate and unable to read it. On this, the Law Commissions said

“We think this is right. Traders need certainty. Where traders sell to a mass market it is inevitable that some of their customers will be non-English speakers, illiterate or visually impaired.”

We agree. Whilst a subjective test would be too onerous for traders, we think that an objective “average consumer” test is a helpful way of understanding the level of protection which the unfair terms legislation is intended to provide. It provides certainty to businesses in particular when using standard form contracts to mass markets as to when terms can or cannot be assessed for fairness.

Vulnerable Consumers

The CPRs are also intended to protect particularly vulnerable consumers. Although the general test is based on the average consumer, vulnerable consumers are protected in two circumstances, where:

the commercial practice was “directed to a particular group” of consumers; or

a “clearly identifiable group of consumers is particularly vulnerable … because of their mental or physical infirmity, age or credulity” and a trader could be reasonably expected to foresee this.

As part of the Government’s wider reforms of consumer law, we are enabling private rights of redress for victims of misleading and aggressive practices. This includes the particular provisions in relation to vulnerable consumers.

We agree with the Law Commissions who advised that:

“There is a clear difference, however, between the CPRs, which aim to protect vulnerable consumers against core bargains which are misleading and exploitative, and the [unfair terms legislation], which are aimed at preventing unfair standard terms. We do not think it is the role of the [unfair terms legislation] to replicate the CPRs.”

I hope this is helpful,

Yours Sincerely,

Chris Thompson

Deputy Director, Consumer Rights Bill Team

Annex

DISCUSSION PAPER FOR THE SHORT TERM RIGHT TO REJECT FOR FAULTY DIGITAL CONTENT ON A DISC

Issue

1. Should consumers have the short term right to reject digital content on a disc (such as a DVD or a computer game—tangible digital content) when it is faulty (that is when for example it is not of satisfactory quality or when it is not fit for purpose)? or alternatively treat it in the same way as digital content that is downloaded or streamed (intangible digital content), where we are proposing that consumers would not have the short term right to reject?

Background

2. Consumer rights in connection with digital content are highly uncertain. There are legal disputes over whether digital content are goods, services, both or neither. A legal research paper commissioned by BIS,3 found that it was not clear what, if any, legal rights the purchaser of digital content has if the content proves defective or fails to live up to expectations. As a result it is unclear what rights to quality and what remedies are available to consumers for digital content making it difficult for consumers to enforce their rights. Following our consultation on clarifying consumer law, there was a clear mandate from stakeholders to clarify the position of digital content (35 out of 43 respondents who expressed a clear position), and the majority favoured introducing a new category of digital content with a bespoke sets of rights and remedies based as far as possible on those for goods (29 respondents—a further 6 respondents favoured digital content being classified as goods and 8 favoured no change).

Intangible digital content

3. One issue has been whether consumers should have the short term right to reject for faulty digital content that has been accessed in intangible form (for example an ebook that has been downloaded, or a streamed movie).

4. Consumer groups were in favour of applying the short term right to reject (which applies to sale of goods but not sale of services) for all digital content, arguing that it is a fundamental consumer protection. However industry argued strongly against a short term right to reject, pointing out that this protection goes beyond that available in most other European countries even for tangible goods. Moreover intangible digital content cannot of itself be easily “returned” like physical goods and is easily copied. In fact, a copy is made on the consumers’ device whenever intangible digital content is accessed, making it very difficult for the consumer to delete all copies of any “returned” content, and impractical to ensure that the consumer does not continue to access the digital content. Business may have to resort to costly methods for ensuring rejected content is remotely deleted, the costs of which would be passed down the value chain to consumers. Many types of digital content are also “used” well within the proposed 30 day limit, for example a film may have been viewed or a game played many times (despite a minor fault) and enjoyment exhausted before the 30 days is up. The right to reject digital content could therefore potentially lead to an increase in fraud and this would have strong implications for the digital content value chain.

5. We therefore propose that there should be no equivalent to the short term right to reject for faulty digital content in intangible form. For the same reasons, neither would consumers be able to access the European second tier remedy of rescission of contract for faulty digital content in intangible form (where, following a failed repair or replacement, the consumer terminates the contract and returns the goods to receive a refund).4 Consumers would still have the right to a repair or replacement of faulty content and failing that, a price reduction (which could be of 100% if appropriate).

Tangible digital content

6. However where digital content is delivered in tangible form, such as a film bought on a DVD or a computer game on a memory stick, the situation is less clear cut. Although digital content on a disc can still be copied by the consumer, and the content exhausted in a short time frame, a disc can be returned in a physical sense (along with the digital content on it) and in many cases a copy of the content is not automatically made when the consumer accesses the content (eg when they play a music CD or watch a film on DVD).

7. The leading English case on the question of what the status of digital content on a disc is found that a disc is clearly goods and software of itself is not. It went on to hold that if digital content on a disc were faulty this would be a fault with the disc and therefore there would be a breach of the consumer protections in relation to sale of goods (that if the digital content on a disc did not work, the disc would not be of satisfactory quality or fit for purpose). This means that in theory there is probably already a short term right to reject for digital content on a disc. This may also match consumer expectation where if a consumer buys a copy of a film on a disc they expect it to be fit for purpose and for the disc to play the film. Some industry sources have disagreed that the law is this clear cut.5

8. It should be noted that it is possible that the Court of Justice of the European Union may agree with the English Court of Appeal that if digital content on a disc did not work properly then it would mean that the disc itself was not fit for purpose. This would mean that consumers would be able to access the European second tier remedy of rescission of contract for faulty digital content on a disc. Arguably this interpretation is supported by the Consumer Rights Directive which provides that digital content on a disc “should be considered as goods”.

9. Consultation responses were mixed on the question of how to treat digital content on a disc in future for the purposes of the short term right to reject, and were not generally split along traditional consumer/business lines with a mix of consumer organisations and business groups favouring either option (ie for or against the right to reject for tangible digital content).

The two options are outlined below:

OPTION 1—DISTINGUISH BETWEEN THE DISC (GOODS) AND THE DIGITAL CONTENT ON IT (IE NO SHORT TERM RIGHT TO REJECT FOR DIGITAL CONTENT HOWEVER SUPPLIED)

For	Against
All digital content is treated consistently for the short term right to reject and so avoids a situation where a film on a disc has different rights to a film that is downloaded. “I can’t return my film and ask for a refund if it doesn’t play—I have to ask for a new version of the same film instead. It doesn’t matter if the film was downloaded or if I bought it on a disc.”	Potentially confusing to the consumer. Is the problem with the digital content file of the physical disc carrier? “I can reject my DVD if the disc is scratched, but not if the disc looks fine but the film just doesn’t play.” May encourage consumers to scratch the disc in order to claim a refund.
Does not favour the medium (a virtually valueless disc) above the content.	Arguably the only purpose of the disc is to play the film and therefore the disc is not fit for purpose if it doesn’t do that—similar to video or cassette tapes

OPTION 2—TREAT THE DIGITAL CONTENT ON A DISC AS GOODS IN THE SAME WAY AS THE FILM ON A VIDEO TAPE OR MUSIC ON VINYL

For	Against
Consistent rights for a product. “If a DVD doesn’t play, I can get my money back straight away, whatever the problem is.”	May distort the market as traders could begin to favour delivering their content in intangible form or consumers may get the message that they are better protected if they buy their digital content on a disc.
Although there is an inconsistency in the way digital content is treated, this may be easier for the consumer to understand than the different values applied to the disc and the content. “OK, I get it, if I buy a film on a DVD I can get a refund in the short term it if it won’t play, but if I download it and it won’t play, I have to ask for another download.”	Favours the medium (a virtually valueless disc) above the content.