Out-Law News 3 min. read

Digital content licences must be fair, says CMA

Suppliers of digital content must ensure the terms of their licensing agreements with consumers are fair even if consumers are not eligible for statutory protections under new consumer protection laws, a UK regulator has said.

The Competition and Markets Authority (CMA) has published new draft guidance on unfair contract terms ahead of the Consumer Rights Bill being brought into force in the UK later this year. The Bill is going through the final stages of parliamentary scrutiny and, once finalised, is expected to be brought into force as an Act in October.

Under the Bill, consumers would enjoy new legal rights relating to the supply of digital content, such as qualified rights to refunds, or repair or replacement of that content.

However, those rights would only apply if consumers have either paid for digital content with money, whether directly or not, or if digital content supplied for free causes damage to their device or other digital content.

In its draft guidance, however, the CMA clarified that businesses licensing digital content to consumers must ensure those contracts are fair (122-page / 1.23MB PDF) even if the consumers are not eligible for other rights under the new consumer protection framework.

"Consumers enjoy statutory rights under the Act mainly where they have paid for digital content with money," the CMA's draft guidance said. "Payment does not necessarily have to be made directly. The consumer will be considered to have paid where (for instance) he or she makes payment by means of a virtual currency which has itself been paid for with money. The rights also apply where digital content is ‘bundled’ with something else that is paid for (when the ‘free’ digital content is of the kind that is generally paid for), for example commercial software provided with a magazine, which may be described as ‘free’ but is not in fact available without payment."

"The statutory rights do not apply where the consumer has given nothing in return for digital content. Nor do they apply where the consumer may be said to have given something in return but not money – with one exception where the digital content causes damage. But, again, this does not mean the consumers enjoy no protection against unfair wording since the provisions of part 2 of the Act apply. Even if no payment is made, terms in a licence may still be assessable under the general fairness tests," it said.

Unfair contract terms are not binding on consumers under existing UK consumer protection regulations, and the plans contained in the Consumer Rights Bill would maintain that position.

Under the Bill, a term in a consumer contract is considered to be 'unfair' if it "causes a
significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer", contrary to the requirement that businesses act in 'good faith'.

An assessment of the fairness of a term should factor in "the nature of the subject matter of the contract, and … all the circumstances existing when the term was agreed and to all of the other terms of the contract or of any other contract on  which it depends", according to the proposed new rules.

The CMA's draft guidance provides more detail on how to interpret the fairness test. It said consumers do not need to have been financially burdened by a contract term for that term to be considered to have 'significant imbalance'.

"An example of a term which could impose non-financial disadvantage is one which purports to allow the trader to pass on information it holds on the consumer more widely than is permitted under the Data Protection Act," the CMA said. "There may be no financial cost, but the intention is to take away the consumer’s legal rights. Linked to this, it should not be assumed that a detrimental imbalance in the contract is necessarily likely to be, or even capable of being, remedied by a reduction in the price. Unfair terms do not become fair just because a service is categorised by the business as being offered at low cost, or a product is part of a ‘budget’ line."

"A term is most likely to be held to cause an unfair imbalance if it alters the balance in rights and obligations that the law would have struck if left to itself. An important aspect of the assessment of fairness of any term is to consider the extent to which it places the consumer in a legal position less favourable than that ordinarily provided for by the law," it said.

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