Consumer protection: innovations in sales contract law and the provision of digital products through EU directives

The EU has adopted two directives to harmonise the European digital single market and ensure the highest possible level of consumer protection. In particular, these will noticeably change the law on sales contracts in Germany: on the one hand, the so-called "Sale of Goods Directive" ((EU) 2019/771 - Directive on certain aspects of the law applicable to contracts for the sale of goods) and, on the other hand, the "Digital Content Directive" ((EU) 2019/770 - Directive on certain aspects of the law applicable to contracts for the provision of digital content and digital services).

On 13 January 2021 and 10 February 2021, the Federal Government has now passed its bills on the implementation of the two directives. The (probable) significant innovations and the resulting need for action on the part of entrepreneurs are set out below.

Substantial need for action on grounds of the "Sale of Goods Directive”

The "Sale of Goods Directive" ((EU) 2019/771) will significantly change German sales law. It has to be transposed into national law by 1 July 2021 and will apply to contracts concluded on or after 1 January 2022. Its relevance to all contracts concluded from that date onwards is immense.

The government draft provides for the following significant innovations:

• The presumption that a defect in the purchased item already existed at the time of purchase is extended from six months to one year for all contracts on the sale of consumer goods.
• In the future, entrepreneurs will no longer be able to plead an exclusion of liability pursuant to § 442 German Civil Code [Bürgerliches Gesetzbuch, BGB] vis-à-vis consumers due to knowledge of the defect. Instead, strict information and formal requirements must be observed.
• For certain items with digital elements an update obligation exists. This means that the functionality and IT security also has to be guaranteed after the purchased item has been handed over.
• Special rules are being introduced for items for which a permanent provision of digital elements is agreed. For example, the seller must ensure that the digital elements contained in the item are and remain free of defects during the period of its provision.

The government draft is now being forwarded to the Bundesrat for comments and, following a counter-statement by the Federal Government, will be forwarded to the German Bundestag.

Recommended action: As things now stand, entrepreneurs need to keep an eye on their general terms and conditions and check or adapt them in good time before the new regulations come into force. Deviations from the Directive to the detriment of consumers are inadmissible and will not withstand scrutiny of the general terms and conditions. Entrepreneurs should (in all likelihood) define the scope of their obligations under the sales contract, in particular with regard to the obligations to inform and deliver (security) updates. We would be pleased to advise you!

Substantial need for action on grounds of the "Digital Content Directive”

The Federal Government’s current bill on the implementation of the "Digital Content Directive" affects certain aspects of contracts for the provision of digital content and digital services. Entrepreneurs can expect an increased number of warranty cases, among other things, due to the changes in warranty law and the statute of limitations as well as the extension of the duration of the reversal of the burden of proof.

This Directive covers the provision of digital products, such as music and audio files, e-books, apps and games, whether on a physical medium or in a digital environment, as well as social networks and cloud applications. The Directive does not only apply to contracts pursuant to which the consumer provides a monetary consideration, but also to contracts where the consumer only provides personal data (so-called "payment with data").

The government draft envisages the following significant innovations, which are expected to apply from 1 January 2022:

• The entrepreneur must provide its digital content/services to the consumer in a contractually compliant manner. However, a significant change introduced by the Directive is the extension of the reversal of the burden of proof in case of a lack of conformity with the contract. In future, the entrepreneur will bear the burden of proof of conformity with the contract in the 1st year after provision.
• If a product defect occurs during the provision period, it is presumed that the digital product was also defective throughout the entire prior provision period.
• Consumers’ warranty rights are generally subject to a limitation period of two years, comparable to sales law. However, there are peculiarities with regard to the commencement of the limitation period. In case of the permanent provision of digital products, the limitation period shall not commence until the end of the provision period; in case of a breach of updating obligations, the limitation period shall not commence until the end of the period for which the updating obligation exists. Another new feature is that the limitation period does not start to run before the lapse of two months after a defect has first become apparent.
• In addition, consumers are granted extensive warranty rights, regardless of the type of contract. The warranty right for contracts for digital content and services is therefore being standardised, regardless of whether the contract is a purchase contract, a contract for work and services, a rental contract or the like. Thus, in the event of non-performance or poor performance, consumers may, under certain conditions, demand subsequent performance, terminate the contract or reduce the price.
• Consumers are entitled to updates and upgrades (see above).

Recommended action: In order to be prepared for the implementation of the "Digital Content Directive" (EU 2019/770) and the legislative changes to the German Civil Code (BGB), entrepreneurs should check in good time to which of their contracts the new legal provisions apply and, if necessary, adapt their general terms and conditions. Furthermore, they are advised to optimise existing in-house processes for handling warranty rights for defects to ensure above all that the deadline for subsequent performance can be met. We would also be happy to advise you on this!

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