03 September, 2015

Joint GSMA-ETNO response to the questionnaire on contract rules for online purchases of digital content and tangible goods



Digital content products markets are growing rapidly. For instance, the app sector in the EU has grown significantly in less than five years, and is expected to contribute EUR 63 billion to the EU economy by 2018. Consumer spending in the video game sector is estimated at 16 billion EUR in 2013. In the music industry, digital revenues now represent 31% of total revenue in the EU. This economic potential should be further unleashed by increasing consumer trust and legal certainty for businesses.

However, when problems with digital content products arise (for example, the digital content products cannot be downloaded, are incompatible with other hardware/software, do not work properly, or even cause damage to the computer), specific remedies are lacking at the EU level (namely a right of the user against the trader when the digital content is defective). In addition, the user cannot influence the content of the contracts on the basis of which digital content products, which are 'off-the-shelf' products, are offered because these are 'take it or leave it' contracts. For instance, contracts may limit the user's right in case the digital content products do not work properly. They may also exclude the user's right to receive compensation if the digital content products caused damage (for example by damaging the computer), or limit compensation solely to so-called 'service credits' (extra credits for future service).

In addition, contracts for the supply of digital content products may be characterised differently in the Member States for example as service, lease or sales contracts. Such different treatment may result in different sets of remedies, some of them in the form of mandatory rules, others not. This may cause legal uncertainty for businesses about their obligations – and for users about their rights- when selling digital content products both domestically and cross-border.

A number of Member States have enacted or started work to adopt specific legislation on digital content products (namely the UK, the Netherlands and Ireland). This could further increase the differences between national rules that businesses would have to consider when providing digital content products throughout the EU.

Legal background at EU level

Certain aspects of contract law for online supply of digital content products are already covered by EU law. For example, the Consumer Rights Directive provides uniform rules on the information that should be provided to consumers before they enter into a contract and on the right to withdraw from the contract if they have second thoughts; the Unfair Contract Terms Directive provides rules against unfair standard contract terms in consumer contracts. However, there are no EU rules on other aspects of contracts for digital content products (such as what remedies are available if the digital content product is defective).

Section 1 –Problems

1. In general, do you agree with the analysis of the situation made in the "Context"? Please explain.

The assessment above is correct but only considers a part of the picture.

Consumer protection has grown in a piecemeal way since the implementation of the Unfair Contract Terms Directive in 1993. Since then, there has been a number of Directives which address consumer protection in different ways; the E-Commerce Directive, the Directive on Consumer Sales and Guarantees, the Consumer Rights Directive, the Directive on Consumer Alternative Dispute Resolution and many others. Some simplification has begun with the Consumer Rights Directive, which replaced two Directives – Directive 97/7/EC on the protection of consumers in respect of distance contracts and Directive 85/577/EEC to protect consumers in respect of contracts negotiated away from business premises. This simplification needs to continue in order to reduce the regulatory burden for companies and help consumers understand their rights.

Given the way in which the legislation has organically developed, overlaps, gaps and inconsistencies have emerged. This is also due to fundamental changes in the economics of service industries as new, often global, e-business models emerge, blurring the lines between digital products, communications and services. Consequently, the current regime is overly prescriptive and fragmented. Additionally, consumers are confused since businesses often have to provide more information than needed to make an informed choice.

In the light of the Digital Single Market objectives, consumer regulation needs to be holistically reviewed, taking into account not only digital content but also services. The review’s objectives need to focus on providing better access to digital services and content, creating the right conditions for digital services and content to flourish and maximising the growth potential of the whole digital economy.

In order to achieve the Digital Single Market policy objectives, a new approach is required. We believe that there is a need for fundamental principles which should be guaranteed for consumers of all digital products and services. These principles are the following: products should meet consumers’ expectations, be delivered on fair and transparent terms, privacy should be protected under the same conditions, no matter the status of the service provider and consumers should have a right of redress if something goes wrong.

There are new digital products and services today which were not even in existence when some of the current regulation was implemented. One particular category is digital communications services provided by other than telecommunication companies – voice over IP, instant messaging, social networks and many other services which compete with the more traditional voice and text services. Despite the similarity of these services, the fact that they do not fall within the outdated definitions of an “electronic communications service” (ECS) as described in the regulatory framework for telcos means that they are subject to less regulation. Traditional voice and text services are required to comply with additional consumer regulations, as prescribed e.g. in the Universal Services Directive: information requirements, dispute resolution procedures, requirements in relation to bills, contractual requirements and marketing requirements. Often, telcos are also required to comply with these additional sector-specific rules when providing other digital services than ECS.

Given the convergence of communications services and the increase in competition between telcos and other providers, sector-specific service regulation must be reviewed in parallel to general service regulation, in order to ensure consistent consumer protection standards. This includes a need to carry out an overall assessment of the current definitions and requirements, encompassing all digital products and services regardless of the provider and of the way by which they are provided to the customers. Where proportionate and appropriate, regulation should either be removed if outdated or adapted to address new risks. The principle of proportionality implies to avoid costs for the industry which create significant barriers for business activities. Otherwise, growth of innovation that we have seen over the last decade is at risk. In essence, this will require both modernisation and simplification of consumer rules. This updated horizontal consumer regulation then needs to be applied consistently to all service providers, to truly establish consumer trust for the digital age and legal certainty for businesses.

2. Do you think that users should be more protected when buying digital content products? Please explain why by giving concrete examples.

The rapid growth of the digital market has meant that the legislation, which predates much of the internet, does not cover many aspects of the digital offerings which are available today. Digital content in particular is an area where the applicable requirements are highly unclear and fragmented, with no specific rules at EU level.

There are essential rights which the customer should be able to rely on for all “lawfully acquired” services: knowing who the supplier is; price transparency; conformity with the contract; transparency as to the nature of the content/product delivered; information in relation to any restrictions or compatibility requirements; transparency as to consent requirements and no unfair terms. At the same time, care should be taken not to impose overly prescriptive requirements, particularly for low-value services, as this could inhibit innovation. An example of an overly prescriptive requirement may be: limitations on the duration of contracts, which may inhibit new business models; requirements to return data which may be irrelevant to the end user in practice; onerous redress obligations and termination rights arising as a result of any changes to terms and conditions even if it does not impose a disadvantage for the consumer. A proportionate response is required to take account of low value goods and services while also including services paid for via data or other non-monetary considerations.

3. Do you perceive difficulties/costs due to the absence of EU contract law rules on the quality of digital content products? Please explain.

Yes, as set out above. The key point is that the consumer legislation has not been drafted with either the current or future products and services in mind. A more principles-based approach, protecting essential rights in a proportionate way which applies equally to similar services and products, is needed. This requires a holistic reform and alignment of current sector-specific and general consumer legislation.

4. Do you think that upcoming diverging specific national legislations on digital content products may affect business activities? Please explain.

ETNO and GSMA believe that European consumers and businesses will generally be best served by common and proportionate European rules which are consistently applied in a technology-neutral way in all Member States. Diverging consumer protection laws give rise to legal uncertainty for cross-border service provisioning, as well as additional compliance costs. An EU-wide harmonisation of rules can therefore facilitate cross-border e-commerce. However, this is only true if fully harmonised EU-wide rules come at proportionate costs for businesses and do not create new obstacles.

Besides this, it has to be noted that barriers to cross-border trade go far beyond the issue of consumer protection. Series of other obstacles do exist such as national copyright laws; national cultures and languages; the cost of providing customer care and customer complaints in several languages; the need for the adoption of open standards for content delivery; tax regulations; the risk of fraud and non-payments; regulation of private copy and the diverse economic realities which make a single price impossible.

Section 2 – Need for an initiative on contract rules for digital content products at EU level

5. The European Commission has explained in the Digital Single Market Strategy1 that it sees a need to act at EU level. Do you agree? Please explain.

Yes – there is a need for a European approach in order to achieve a Digital Single Market, reduce the burden on businesses who aim to provide European products and services at scale on a cross-border basis, and also to provide more clarity to consumers who purchase services and products cross-border.

As mentioned above, equally important is (1) that consumer protection rules come at proportionate costs for industry and for the society as a whole, which requires an impact assessment, and (2) that these rules are consistently applied to all similar services in a technology-neutral way.

Only if both conditions are met, a harmonisation of member states’ legislation can positively affect all providers’ cross-border business activities and lead to an added value for consumers.

6. The European Commission has announced in the Digital Single Market Strategy that it will make a proposal covering harmonised EU rules for online purchases of digital content. Other approaches include, for example, the development of a voluntary model contract that consumers and businesses could use for their cross-border e-commerce transactions or minimum harmonisation. What is your view on the approach suggested in the Digital Single Market Strategy?

We are supportive of harmonised EU rules for digital content – provided that these are proportionate and future-proof, and that, at the same time, sector-specific requirements for telco operators are removed where appropriate. This will at the same time, provide a level playing field for competing services and support simplification and investment for the future.

In relation to a voluntary contract model, our view is that this has been tried before and there would need to be further analysis of why this has not succeeded in the past.

Section 3 – Scope of an initiative

7. Do you think that the initiative should cover business-to-consumers transactions only or also business-to-business transactions? Please explain.

The initiative focus should be restricted to B2C contracts. Business customers do not require an equally high level of protection as consumers. General contract law already provide adequate protection and business customers are free to individually negotiate contractual provisions. Additionally, business customers are better prepared than consumers to prevail their interests towards suppliers.

Only as far as consumer protection rules are also applicable to business customers in telco-specific regulation and have proven to be urgently required, these rules should be considered in a new horizontal set of rules applied to telcos and other providers of digital services.

8. What specific aspects in business-to-business transactions, if any, should be tackled? Please explain.

As stated in our answer to question 7, the main focus should be on B2C contracts.

9. Digital content products may cover inter alia the products listed below. Which of these digital content products/services should be covered by the initiative (tick as many as apply)?

All services below

  • X games, including online games
  • X media (music, film, sports, e-books) for download
  • X media (music, film, sports) accessible through streaming
  • X social media
  • X storage services
  • X on-line communication services (for example, Skype)
  • X any other cloud services
  • X applications and any other software that the user can store in its own device
  • X any software that the user can access online
  • X any other service that is provided solely online and result in content that the user can store in its own device (such as translation service, counselling)
  • X any other service that is provided solely online

Please explain your choice(s).

For the purpose of this initiative and to ensure consistent consumer protection online, the definition of digital content products and services should be encompassing, covering all products and services provided online. Thanks to the availability of connectivity services, today an increasing number of voice, text, photo and video messaging services have become substitutes of the traditional Electronic Communication Services (hereinafter ECS) creating the need for a cross sector harmonization of contracts rules. The need for the so-called level playing field has been recognised in the DSM strategy and harmonising contracts is a fundamental factor.

10. Digital content products can be supplied against different types of counter-performance. Which of the following counter-performances should be covered by the initiative (tick as many as apply)?

  • X Money
  • X Personal or other data actively provided by the user (for example, by registration)
  • X Data collected by the trader (for example, the IP address or statistical information)
  • X Activity required by the user in order to access the digital content (for example, by watching an advertisement video, or visiting another homepage)

Please explain your choice(s).

Wherever possible and proportionate, rules should be applied consistently to all “lawfully acquired” digital content and services and regardless of the underlying business model. Irrespective of the type of remuneration, providers should not be absolved from meeting the basic consumer protection rules such as transparency, contract withdrawal/termination, dispute regulation, warranty, etc, provided that the transaction has a commercial nature (synallagmatic relationship).

Therefore, the submission of a consumer’s personal data, in exchange for providing a service or product to the consumer, should be qualified as a counter-performance (remuneration).This should not be limited to data which are actively submitted by the consumer, but should also include personal data which are collected through the service provider for commercial use by the provider of the content or services (i.e. search results, online games, apps). However, collecting personal data solely for the purpose to maintain, improve or provide the service does not qualify as being a counter-performance (remuneration). This approach is also supported by the OECD, who has recommended in the context of its draft Recommendation on E-Commerce, that regulation should apply to commercial practices related to both monetary and non-monetary transactions for goods and services.

Any new rules should be applied in a horizontal way to all equivalent products/services, on the basis of proportionality criteria, so as not to inhibit innovation in dynamic markets and enabling all players equally to establish innovative business models.

Section 4 – Content of an initiative

11. Among the areas of contract law below, which ones do you think are problematic and should be covered by an initiative (tick as many as apply)?

  • X Quality of the digital content products
  • X Remedies and damages for defective digital content products
  • How to exercise these remedies, like who has to prove that the product was, or was not, defective (the burden of proof) or time limits for exercising these remedies
  • Terminating long term contracts
  • The way the trader can modify contracts
  • Other (please specify)

Please explain your choice(s).

The most important element in our view will be quality and remedies, as these are essential to build trust and confidence in the Digital Single Market. Disproportionate or overly prescriptive restrictions, which impose high costs on the industry without adding clear value for consumers, need to be avoided. This applies, in particular, when restrictions prevent the development of new business models, e.g. through too prescriptive rules on the duration of contracts, modification of contract details, overly onerous data protection obligations or similar requirements. The respective rules in the telco-specific regulation are much stricter than those applied to other players in the digital market. As such, there should be alignment across the rules for ECS and OTTs in respect of fundamental consumer protection. In any case, the necessity of such restrictions should be justified with adequate impact assessments.

Quality of the digital content products

12. Should the quality of digital content products be ensured by:

  •  Subjective criteria (criteria only set by the contract)
  •  Objective criteria (criteria set by law)
  • X A mixture of both

Please explain your choice(s).

A mixed approach should be sought, relying first on the subjective approach. However, in case the contract is silent, the objective approach would apply.

Digital content is not a uniform category. Each type of digital content has its specificities and this has to be taken into consideration. This heterogeneity prevents from the establishment of very detailed objective criteria by law.

In addition, any initiative on the assessment of quality of content has to be future-proof and take future innovation into consideration. Establishing objective criteria only would go against this necessary flexibility.

13. When users complain about defective products, should:

  • X Users have to provide evidence that the digital content products are defective
  • Traders have to provide evidence that the digital content products are not defective if they consider the complaint to be unfounded

Please explain your choice(s).

After delivery of digital content, the supplier is generally unable to prove that the delivered content is e.g. not defective. The consumer is in a better place to provide evidence.

Remedies for defective digital content products

14. What are the key remedies that users should benefit from in case of defective digital content products (tick as many as apply)?

  • X Resolving the problem with the digital content product so that it meets the quality promised in the contract
  • X Price reduction
  • X Termination of the contract (including reimbursement)
  •  Damages
  •  Other (please specify)

Please explain your choice(s).

In relation to digital products, resolving the issue is the most appropriate remedy. Additional remedies such as termination or price reduction should only apply if the supplier is unable or unwilling to resolve the problem because it is impossible or disproportionate.

With digital goods and services, usage is normally immediate so it is not proportionate to impose a short term right to reject.

15. Should users have the same remedies for digital content products provided for counter-performance other than money (for example, the provision of personal data)? Please explain.

Yes; again resolving the issue should be the first solution. If this fails, other remedies may need to be considered such as return of data.

Nevertheless, it is relevant to recognise that not all remedies are well suited for different forms of contracts and a remedy may differ for products which involve monetary payments from those available for other remunerations. In such cases, other forms of redress (such as product replacement) may be considered.

16. Should users be entitled to ask for remedies for an indefinite period of time or should there be a specific time limit after they have acquired the digital content products or discovered that the digital content products were defective? Please explain.

There should be a specific time limit which allows users to test functionality, which is both reasonable for consumers but also takes into account the need for certainty for the providers of such services. Companies require legal safety particularly in the digital market with very short service and product lifecycles. Therefore, the period of time for consumer to ask for remedies need to be limited and proportionate, given the type of service provided.

17. Should there be one single time limit or should there be two different time limits, one for the period during which the defect should appear and one during which users have to exercise the remedies? Please explain.

18. Which time limit(s) do you think is (are) appropriate? Please explain.

In our view, the consumption of digital content is more immediate than for physical goods. In addition, intellectual property constraints can impact the capacity of the service provider to solve the problem on the long term (i.e. duration of the license for the digital content). Hence, shorter time limits than those applied for physical goods seem justified.

19. If there is a right to damages, under which conditions should this remedy be granted? For example, should liability be based on the trader’s fault or be strict (irrespective of the existence of a fault)?

Damages claims should be limited to where there is fault by the trader. In any case, damages should never include moral loss.

20. Should it be possible for damages to mainly consist of ‘service credits’ (extra credits for future service)? Please explain.

Service credits can be a valuable option for the consumer, besides other means. Where possible, alternatives should be offered for consumers, e.g. if they cannot benefit from the service credit (i.e. the device prevents from accessing/ using the service credit).

Additional rights

21. Should users be able to terminate long term contracts (subscription contracts) for digital content products?

  • Yes
  • X No

22. If you reply yes to question 21, please specify under which conditions and following which modalities should users be able to terminate the contract (tick as many as may apply):

  • Termination should be expressed in advance
  • Termination should be made by notice
  • Users are provided with means to retrieve its data
  • The trader may not further use the users' data
  • Other (please specify)

Please explain your choice(s).

As to the right to terminate long term subscription contracts, telecom operators generally need to recover their investment (connection costs, promotions, subsidies of terminal equipment, etc.) by proposing fixed-term contracts with cancellation fee before the end of the fixed term. Early termination without charges reduces the possibility for operators to propose significant discounts to loyal customers, with disruptive effects for the market where there are now also, increasingly, offers with no commitments on duration for consumers who do not wish to commit to a longer-term contract.

It should be noted that additionally to the general Consumer Rights Directive, the telco-specific Universal Services Directive provides that “subscribers have a right to withdraw from their contract without penalty upon notice of modification to the contractual conditions (where such modifications are to the disadvantage of the consumer)”. “Subscribers shall be given adequate notice, not shorter than one month, of any such modification”.

Accordingly, in the field of contract duration, the rules applicable to telcos are currently more onerous than those provided for other players under the horizontal legislation, limiting telcos’ flexibility regarding business models. Rules applicable to telcos and other service providers, particularly regarding similar services, should therefore be simplified and harmonised.

In relation to return of data, all provisions relating to the portability and return of data should be addressed within the context of the GDPR. However, we would be supportive of an end users right to require the deletion of their data if they terminate a contract with a service provider.

23. In case of termination of the contract, should users be able to recover the content that they generated and that is stored with the trader in order to transfer it to another trader?

  • Yes
  • X No

Please explain your choice.

The portability obligations in the draft General Data Protection Regulation are sufficient to address the needs of the consumer in relation to recovery and portability of their personal data. For general data, users should be informed about how they can retrieve their data.

24. If you reply yes to question 23, please indicate under which conditions (tick as many as may apply):

  • Free of charge
  • In a reasonable time
  • Without any significant inconvenience
  • In a commonly used format
  • Other (please specify)

Please explain your choice(s).

25. Upon termination, what actions should the trader be entitled to take in order to prevent the further use of the digital content?

  • X Disable the user account
  • X Employ technical protection measures in order to block the use of the digital content products
  •  Other (please specify)

Please explain your choice(s).

There is no single answer to this question. For example, with video on demand content (VOD) it depends on whether the service is subscription VOD (SVOD) or VOD) or whether the content is definitively purchased (music downloading or Electronic sell-through)2.

In case of VOD or SVOD, access is based on valid subscription. If the subscription is terminated, the service provider has to disable the user account to prevent from any further use of the service.

In case of definitive purchase, different remedies may be appropriate depending on the reasons and circumstances of termination. It has to be considered that after definitive purchases a termination usually does not impact the further use of the content by the consumer.

26. Should the trader be able to modify digital content products features which have an impact on the quality or conditions of use of the digital content products?

  • X Yes
  •  No

Please explain your choice.

Such a possibility should be allowed in order not to hamper the technological evolution of products/services. Accordingly, contractual information requirements must be sufficiently clear so that the consumer knows what to expect, while providing enough flexibility to modify details of the services. Accordingly, to ensure similar possibilities for providers to further develop services, contractual information requirements have to be similar for all market players.

27. If you reply yes to question 26, under which conditions should the trader modify digital content products features which have an impact on the quality or conditions of use of the digital content products:

  • X The contract foresees this possibility
  • X The consumer is notified in advance
  • X The consumer is allowed by law to terminate the contract free of charge
  • X Other (please specify)

Please explain your choice(s).

All of the above should apply. Termination of the contract should be permitted only where such changes are to the detriment of the consumer and fall short of contractual obligations. Services consumed up to the date of termination should be paid for and any bundled content or services should not be affected.

28. Which information should the notification of modification include? Please explain.

Notification of the change should explain both the change and the end users’ termination right. The proposed legislation should avoid overly prescriptive requirements in relation to the detail of this information.

1 A Digital Single Market Strategy for Europe COM(2015)192 final

2 EST allows consumers to download a media file after paying a fee and to store this media. This refers to content ownership, as opposed to rental.

The full questionnaire can be found here.

© ETNO 2024
Comfortable read mode Normal mode X