Out-Law / Your Daily Need-To-Know

Proposed new rules on sale of digital content now subject to Parliamentary scrutiny

Out-Law News | 27 Jan 2014 | 11:33 am | 5 min. read

Planned reforms to UK consumer protection rules, which introduce new obligations for businesses around the supply of digital content, have been introduced before Parliament.

The Government said that the Consumer Rights Bill (129-page / 540KB PDF) is an effort to make it easier for consumers to understand their rights when being sold goods and services. It also contains, for the first time, dedicated rules that specify businesses' obligations when supplying digital content to consumers and consumers' rights when businesses fail to adhere to those standards. The Government has estimated that the economy will benefit by £4 billion as a result of the reforms over the next decade

However, consumer protection law expert Rob Graham of Pinsent Masons, the law firm behind Out-Law.com, said that the new Bill and the accompanying explanatory notes had failed to address concerns about the new rules' impact on software businesses.

Not all contracts governing the supply of digital content are covered by the new rules.

The Bill would apply in cases where consumers pay businesses to supply them with digital content. It would also apply where the supply of that content is free but provided alongside other goods or services the consumer has paid for where the digital content supplied as part of that package is "not generally available to consumers unless they have paid a price for it or for goods or services or other digital content".

According to the explanatory notes (110-page / 657KB PDF) published alongside the Bill, the Government has backup powers to extend the rules governing the supply of digital content to cover circumstances where digital content is "contractually supplied in exchange for something else of value other than money (e.g in exchange for personal data) in the future". It will only invoke such powers where it is "satisfied that there is significant consumer detriment resulting from these sorts of contracts".

Under the plans, businesses that supply digital content would be required to ensure that the quality of that content is "satisfactory".

That standard is defined by what a "reasonable person" would deem to be satisfactory given how the content has been described, its price – including in some cases where the content is supplied for free, and other relevant factors such as in the context of any "public statement about the specific characteristics of the digital content made by the trader, the producer or any representative of the trader or the producer".

Indicative of the quality of digital content being supplied is whether the content is fit for the purpose for which it is usually supplied, whether it is free from minor defects, its safety and durability, according to the Bill.

Where consumers inform retailers of the specific purpose for purchasing digital content before completing their transaction, the retailers will be obliged to ensure that the digital content "is reasonably fit for that purpose" even if it is not usually supplied to serve the purpose identified by the consumer.

Digital content providers are also obliged to ensure that the content they sell matches up to their description of it to consumers, such as around its main characteristics, functionality and compatibility. Modifications to digital content are permitted, but traders are required to ensure they meet their obligations around quality of content, its fitness for a particular purpose and in ensuring the content continues to match up to how they described it to consumers.

Separate requirements have also been laid out within the Bill to cover cases where the supply of digital content involves the transmission of that material to consumers' devices and where those arrangements are "initiated by the trader".

The Bill, if enacted as currently drafted, would provide consumers with certain rights to the repair or replacement of digital content, or to a price reduction or refund, where retailers fall below the standards set out for supplying digital content under the new framework. In addition, the Bill provides consumers with a right to claim damages or other remedies when traders breach the rules.

Where consumers require a repair to or replacement of their digital content, businesses are generally obliged to provide this within "a reasonable time" and without significant inconveniencing of the customer. In addition, they are required to "bear any necessary costs", such as labour and materials and postage, in providing those repairs or replacements.

However, if repairs or replacements are "impossible" to provide or "disproportionate" compared to other remedies available, consumers cannot compel businesses to provide those specific remedies. Under the proposals, the proportionality of providing repairs or replacements is dependent on how costly providing that service is relative to the value of the digital content, the significance of the retailers' breach of its obligations under the new rules and the availability of alternative remedies in helping avoid significant inconvenience to consumers.

Other rules also provide consumers with qualified rights to claim compensation from retailers where those businesses supply them with digital content that causes damage to a device or to other digital content they own. Businesses would not be able to be held liable for damage where they have exercised "reasonable care and skill".

The Government carried out an extensive consultation exercise prior to introducing the Consumer Protection Bill before Parliament.

A report on the Consumer Rights Bill was published just prior to Christmas last year by the Business, Innovation and Skills (BIS) Select Committee. In it the Committee highlighted concerns about software companies' ability to modify digital content to the benefit of consumers, or to improve the functionality of their software, on the basis that doing so could result in differences in the way their software performs relative to how they had described how it would perform to consumers.

"It is clear that many businesses, and in particular those dealing with digital content, do not as yet have an understanding as to how the new statutory landscape is likely to affect them in practice," Rob Graham of Pinsent Masons said. "The evidence given by software businesses and industry bodies to the BIS Select Committee on the potential impact of the Bill provides some illustrative examples."

Graham said that the Committee had said there was a lack of understanding within the software and digital content industry on the "intended flexibility of the bespoke set of rights contained in the Bill" and that the Committee had called on the Government to do more to convince the industry of the Bill's merits.

"Unsurprisingly, a number of industry bodies expressed strong concerns to the Select Committee in respect of the requirement that digital content be 'free from minor defects'," he said. "The Select Committee stated that further clarity was needed as to how the standard of quality will be judged across the spectrum of types of digital content."

"Where a reasonable consumer of a simple smartphone app might expect that app to be free from minor defects, a different test would likely need to be applied in respect of more complex content. The Select Committee therefore recommended that 'freedom from minor defects' be judged according to reasonable expectations of quality. This would involve a consideration of the particular type of digital content at issue, its complexity and its price," the expert said.

"It is clearly to be hoped that such issues will be addressed as the Bill makes its way through Parliament and that in parallel there will be a concerted effort by Government to ensure that businesses have the information they need to understand how the Bill, once enacted, will effect them in practice," Graham added.