Legally and politically important
Not cleared from scrutiny; further information requested; conditional scrutiny waiver granted; drawn to the attention of the Business, Energy and Industrial Strategy Committee
Proposal for a Directive on certain aspects concerning contracts for the supply of digital content
Article 114 TFEU; ordinary legislative procedure; QMV
Business, Energy and Industrial Strategy
(37389), 15251/15 + ADDs 1–2, COM(15) 634
1.1This proposed Directive aims to help deliver the Digital Single Market and boost e-commerce. It seeks to fully harmonise consumer contractual rights and remedies in relation to online trade in digital content. It was proposed at the same time as another on contracts for online and other distance sale of goods (physical goods proposal).
1.2The Government now provides an updated estimate that the proposal is likely to be adopted by the end of this year or early 2018. Since it is a Directive, with a two year grace period for implementation, it is unlikely that the UK will have to formally implement it before Brexit. It may ease any future trading relationship if the EU and UK consumer protection regimes are aligned post-Brexit. The Government is focussed on reducing divergence between this proposal and the Consumer Rights Act 2015 (CRA) which already regulates in UK law consumer rights in relation to digital content and as such has established the UK as a leader in that field.
1.3The Commission considers that the proposed Directive will reduce legal uncertainty and compliance costs for businesses selling digital content online and cross border, so boosting consumer confidence in such trade. The proposal is also legally significant because full harmonisation means that no Member State could give greater or lesser protection than that set out in the Directive once adopted, so that certain aspects of consumer contract law essentially would be the same across the EU. This means the proposal could have a significant impact in the UK both on consumers and businesses, particularly if it were substantially to diverge from the CRA.
1.4The proposal specifically addresses sales to consumers of digital content (for example, downloads of digital music, films, apps, e-books) and services (for example, cloud computing and social media platforms) and includes transactions where personal data changes hands rather than money.
1.5In our last Report in November, we welcomed:
1.6We also noted that there appeared to be general acceptance that “free” digital content contracts would be covered by the proposal but that the Government wanted the type of data acting as payment to be closely defined and for practical remedies to reflect reasonable consumer expectations. We agreed with the Government that legal clarity on obligations and rights in relation to such contracts would be key. On Brexit, we asked the Government to indicate when the legislative proposal was likely to be adopted and the extent to which it might want to align UK law with the proposal post-Brexit, depending on the feasibility of this where any reciprocal rights and obligations are concerned.
1.7The Government’s response to those questions is provided by letters of 5 December 2016 (which we have acknowledged in return correspondence already in our letter of 14 December) and of 9 March, which we have just received.
1.8The Government also now updates us on the negotiations, focusing on issues already highlighted in our past scrutiny such as: damages, the question of “free content” supplied in return for a consumer’s personal data, remedies (particularly relating to the termination of a contract, entailing the return of a consumer’s data) and alignment of rules on long-term contracts with those on the supply of electronic communications.
1.9The Government also requests a scrutiny waiver in order to support a possible partial General Approach (PGA) at the JHA Council meeting of the 28 and 29 March on certain “uncontroversial” aspects of the proposal: Some definitions, include:
1.10We thank the Minister (Margot James) for her detailed letter. We commend the timely basis on which she has informed us of developments and requested a scrutiny waiver for a Partial General Approach (PGA) at the end of this month.
1.11We would also like to acknowledge the prompt and helpful assistance from departmental officials in clarifying the practical and technical aspects of the PGA sought. Overall, the approach of the Minister and her officials to her department’s scrutiny obligations has been exemplary.
1.12We are prepared to grant a scrutiny waiver to enable the Government to support a partial General Approach (PGA) at the JHA Council meeting of 28 and 29 March. We have been told in the past by Government on other dossiers that PGAs are always subject to the understanding that “nothing is agreed until all is agreed” but we are not reassured by such understandings. So we subject this scrutiny waiver to the following conditions, that:
1.13We expect the Government to update us on the outcome of the JHA Council and provide us with any agreed PGA text as soon as possible. Pending the Minister’s further updates, we retain this proposed Directive under scrutiny. We also draw it and this chapter to the attention of the Business, Energy and Industrial Strategy Committee.
1.14The Minister for Small Business, Consumer and Corporate Responsibility (Margot James) told us that the Government:
1.15The Minister now writes to update us on further developments in the negotiation of the above Directive. In particular she asks us to consider waiving scrutiny in respect of a potential partial general approach at the JHA Council.
1.16First, she addresses general progress achieved in the negotiations:
1.17The Minister then turns to the question of the potential agreement of the PGA:
1.18The Minister next explains that the PGA will be in respect of “several relatively uncontroversial elements” of the proposal where indications in Working Group suggest overall that a majority of Member States are content. She comments:
“In the event that the elements we expect to be put forward are tabled, the Government intends to vote in favour. Achieving agreement on these issues at this stage may better enable the Presidency and Member States to concentrate discussions on the remaining areas where agreement and compromise is proving more difficult. However, we are aware that some Member States may be reluctant to commit at this time and the Presidency was not able to confirm its intentions at the most recent Working Group on 22 and 23 February.”
1.19She then lists and explains the areas which are likely to form the basis of a PGA and likely to attract the support of the Government, subject to reservations expressed about Article 5 below:
1.20The Minister updates us on developments on concerns we have previously highlighted, including those informed by the evidence session held by the EU Justice sub-Committee of the House of Lords European Committee in May 2016. She says:
1.21The Minister expands on this last point as follows, highlighting the important relevance of the EU data protection regime:
“We believe including just personal data as payment will be more practical and manageable on the grounds that the processing of personal data is already closely regulated under data protection rules with which business is already familiar. Consumers are more likely to perceive that their personal data carries value than other data they might generate through accessing content and services, for example. It remains unclear precisely what would be covered if digital content and services supplied in exchange for any other data was included, and there is some doubt as to whether, at the time of agreeing contracts (that is, before any use or supply of digital content has been made) that anything other than personal data is involved. In order to achieve more clarity on this issue so that Member States can consider properly the potential impact of this provision the Presidency has sought the views of both the Council Legal Service and the European Data Protection Supervisor on the relationship between this proposal and data protection rules. It is clear that there is no desire among Member States to affect the data protection regime in any way and this should help to ensure that there are no unintended consequences.”
1.22Next, the Minister reports on progress regarding remedies relating to the termination of the contract, entailing the return of data to the consumer. She says:
“Related to scope is the issue of achieving a proportionate instrument and the desire to try to achieve a regime which, in effect, is aligned as far as possible with the Consumer Rights Act so that suppliers who already comply with the UK regime would not need to change their practices significantly. In this respect, a cause of some concern has been the remedies which apply in the case of termination of the contract, particularly in respect of returning data to consumers (Article 13). I am pleased to report that we believe our suggestions to moderate what is a wide and potentially impractical and unnecessary requirement in many cases, have achieved purchase to the extent that the provision is now likely to meet a consumer’s reasonable expectations in the circumstances while not placing impractical requirements on business. I am sure the Committee will appreciate that achieving a good balance between remedies and liabilities and the aforementioned scope is a key objective.”
1.23She then addresses a final issue, yet to be fully addressed in the negotiation—the matter of compatibility between the proposed rule on long-term contracts (Article 16) which would provide the right to terminate contracts, or renewed contracts, at any time after the first 12 months, with the existing and proposed rules covering the supply of Electronic Communications. The Minister says:
“This is particularly relevant for bundled services (i.e. contracts which cover a combination of electronic communications and digital content and/or services). The electronic communications regime provides for contracts of up to 24 months duration, thereby enabling consumers to benefit from offers made possible in the knowledge that they will be committed for that period. A rule which enables the consumer to terminate a digital content element of a bundle prematurely would likely have a restrictive effect so that those benefits in cost or breadth of service might diminish, or that popular bundles which include digital content will simply not be offered. We will continue to argue for parity with the electronic communications regime on the issue of bundles and that for other contracts businesses should be able to ask consumers to commit for further periods of 12 months where they choose to do so.”
1.24In the European Parliament the Rapporteurs are in the process of gathering and assessing possible amendments from Members. The Government is considering these as they emerge and will engage as appropriate. The joint International Market and Consumer Protection and Legal Affairs (IMCO/JURI) Committee intends to finalise its report in May.
1.25The Minister finishes her letter by saying that:
1 (37390), 15252/15 + ADDS 1–2, COM (15) 635.
2 In the UK, contracts for supply of digital content were initially treated by courts as sui generis contracts, to which general principles of the common law applied. Now they are explicitly regulated as a specific type of contract by the CRA. It contains a special chapter devoted to ‘Digital content’, which applies to contracts for the supply of digital content to consumers in exchange for a price, even if that price was paid for other goods, services and digital content. The chapter regulates such issues as the satisfactory quality of the digital content, its fitness for a particular purpose, its conformity with any description given by the trader, consumer remedies (repair or replacement, price reduction, refund), as well as liability for damages caused by the content to the consumer’s device.
3 However, the proposal explicitly provides that national rules of general contract law regarding the formation, validity and effects of contracts, as well the consequences of their termination, will not be affected.
4 The Commission’s original proposal relied on initial assessment by consumers of the deficiencies in the contract before being able to rely on objective criteria similar to “fitness for purpose” and “quality” of products which would be at odds with established UK law, as contained in the Consumer Rights Act 2015.
5 The proposed Directive originally proposed harmonising the consumer’s right to damages from the supplier. This is summarised by a European Parliament Factsheet: “Apart from remedies for non-conformity (cure, price reduction, termination) the proposal also provides for the supplier’s liability in damages towards the consumer. This is possible whenever the non-conforming digital content caused ‘economic damage to the digital environment of the consumer’. The same applies if such ‘economic damage’ was caused by the non-delivery of the digital content by the supplier. The rule on damages provides that they are intended to ‘put the consumer as nearly as possible into the position’ in which they would have been had the digital content been duly supplied in conformity with the contract. The concept of ‘economic damage’ is not defined and the preamble merely explains that the harm suffered by the consumer can extend both to software and hardware. The proposal provides that detailed rules on the ‘exercise of the right to damages’ are to be laid down by the Member States”.
6 (37390), 15252/15 + ADDS 1–2, COM (15) 635.
7 Our addition: it updates the Minister’s letter of 5 December.
8 Our Assistant Legal Adviser has clarified this point with the Minister’s officials. An approach which equates “supply” with “receipt” reflects the position in the CRA is maintains that level of consumer protection. It is already accepted by suppliers of digital content governed by UK law. The point is that it is only when a consumer has downloaded or streamed content to his/her device that he/she is able to assess whether the content is in conformity with the contract in terms of quality etc. It also prevents the argument that a consumer may have been supplied when he/she is in fact unable to receive or download/stream content for a variety of reasons, mostly within the control of the supplier. For example, a link to the download may not work, the download may be incomplete or the content fails to reach an approved third party.
9 Our addition: Article 14 reads “(1) The supplier shall be liable to the consumer for any economic damage to the digital environment of the consumer caused by a lack of conformity with the contract or a failure to supply the digital content. Damages shall put the consumer as nearly as possible into the position in which the consumer would have been if the digital content had been duly supplied and been in conformity with the contract. 2. The Member States shall lay down detailed rules for the exercise of the right to damages”.
17 March 2017