EU consumer laws extended to digital services traded for data

Out-Law News | 13 Nov 2019 | 9:55 am | 3 min. read

Consumer rights laws will apply to providers of 'free' digital services who gather personal data from consumers for the first time under wide-ranging new rules set to be written into EU law.

The change will see the scope of existing EU consumer rights laws extended to cover "contracts under which the trader supplies or undertakes to supply a digital service to the consumer, and the consumer provides or undertakes to provide personal data".

Businesses trading their digital services for access to personal data will not be subject to the consumer rights regime if they only use the data gathered for the sole purpose of supplying their service.

A 'digital service' for the purposes of the reforms is one that either allows the consumer to create, process, store or access data in digital form, or that allows the sharing of or any other interaction with data in digital form uploaded or created by the consumer or other users of that service.

The changes, contained in a new Directive on the better enforcement and modernisation of EU consumer protection rules, would bring the law impacting digital services into line with EU consumer law that applies to the supply of digital content, which was finalised earlier this year.

"These proposals are relatively detailed and reflect the blurring of the lines between aspects of the consumer protection, privacy and competition regimes as policy makers and regulators seek to better protect consumers’ interests," said consumer law expert Angelique Bret of Pinsent Masons, the law firm behind Out-Law.

"The UK regulator, the Competition and Markets Authority, has been calling for much stronger enforcement powers in the context of its consumer protection remit. We expect more specific consumer protection rules and enforcement action, including in online and digital markets, which not only tackle point of sale marketing strategies but which place more fundamental limitations on the way in which businesses operate, with perhaps a broader impact on business models and innovation," she said.

In addition to the changes impacting digital services, the new EU consumer rules introduce fresh obligations for search engine operators. The reforms will prohibit businesses providing information to consumers via search results from taking payment to display adverts or to boost a product's search ranking "without clearly disclosing" that commercial arrangement.

The recitals in the directive explain further about the requirements the search engine operators must meet and the exceptions that apply.

"When a trader has directly or indirectly paid the provider of the online search functionality for a higher ranking of a product within the search results, the provider of the online search functionality should inform consumers of that fact in a concise, easily accessible and intelligible form," according to the directive.

"Indirect payment could be in the form of the acceptance by a trader of additional obligations towards the provider of the online search functionality of any kind which have higher ranking as its specific effect. The indirect payment could consist of increased commission per transaction as well as different compensation schemes that specifically lead to higher ranking," it said.

"Payments for general services, such as listing fees or membership subscriptions, which address a broad range of functionalities offered by the provider of the online search functionality to the trader, should not be considered to be a payment for specifically achieving higher ranking of products, provided that such payments are not dedicated to achieving higher ranking," it said.

The directive will also make it necessary for businesses to tell consumers when the price they have been presented with for goods or services has been "personalised on the basis of automated decision-making". This information requirement will not apply to ‘dynamic’ or ‘real-time’ pricing models that alter the price presented based on market demands.

New obligations in relation to online reviews and endorsements will also be introduced under the new directive to better protect consumers when making purchases.

"When traders provide access to consumer reviews of products, they should inform consumers whether processes or procedures are in place to ensure that the published reviews originate from consumers who have actually used or purchased the products," the directive said. "If such processes or procedures are in place, traders should provide information on how the checks are made and provide clear information to consumers on how reviews are processed, for example, if all reviews, either positive or negative, are posted or whether those reviews have been sponsored or influenced by a contractual relationship with a trader."

"Moreover, it should therefore be considered to be an unfair commercial practice to mislead consumers by stating that reviews of a product were submitted by consumers who actually used or purchased that product when no reasonable and proportionate steps were taken to ensure that they originate from such consumers. Such steps could include technical means to verify the reliability of the person posting a review, for example by requesting information to verify that the consumer has actually used or purchased the product," it said.

The new Directive on the better enforcement and modernisation of EU consumer protection rules has yet to be formally written into EU law. It was adopted by the Council of Ministers late last week following an earlier agreement between the Council, which is made up of representatives of the governments of the 28 EU member states, and the European Parliament on the reforms.

The new rules are likely to have effect in EU countries by the middle of 2022.