Sales of Goods Directive and Digital Content Directive – The New Level of Consumer Protection in the European Digital Single Market

With the requirements of the Sales of Goods Directive (EU 2019/771; “SGD”) and the Digital Content Directive (EU 2019/770; ”DCD”), the EU shows it remains true to its course of strengthening consumer rights.

Just like the Digital Single Market Directive, which has been implemented into German law by the UrhDaG, the directives also are an essential component of the European strategy for creating a uniform digital single market with a high level of consumer protection.

Both directives will be implemented into German law effective January 01, 2022. This implementation leads to the most comprehensive reform of the German Civil Code (BGB) since the modernization of the German law of obligations in 2001, and adds numerous new provisions to the BGB specifically tailored to digital products. In the following, we will identify the most relevant aspects.

Reformed Provisions of the Law of Sales for Physical Products and Supplementary Provisions for Digital Products

The German provisions of the law of sales mostly regarding the liability for defects of physical products will be updated as of January 01, 2022. The updated provisions also apply to “products with digital elements”. These products contain or are connected to digital products in such a way that they cannot fulfill their functions without these digital products. In particular, smartphones, tablets, and other smart devices fall under this category.

The new term “digital products” covers any digital content or service. Instead of opting for a new stand-alone contract type for the purchase of digital products, the German legislature decided to supplement the BGB with additional rules (new Sec. 327-327s BGB) that will be applicable for any existing contract types between a business and a consumer, which may have the provision of digital products as its subject.

In the case of digital products that are provided together with physical products as part of a so-called “package contract”, the liability systems are split depending on the part of the product concerned. If, for example, a subscription for the provision of a streaming service is concluded with the purchase of a tablet, the provisions of the law on sales apply to the tablet, and the provisions on digital products apply to the streaming service (in addition to the provisions on service contracts).

New Concept of Defect

The new concept of defect for both physical and digital products expands and specifies the previously applied concept in the law of sales. Up to now, subjective quality criteria have taken precedence over objective criteria. With the implementation of the SGD and the DCD, the product must meet both the subjective and objective requirements. In other words, even if a product complies with the quality the parties agreed on in the contract, it can still be defective. In the B2C sector, deviations from this concept are only permissible under strict conditions.

Update Obligation for Products with Digital Elements and Digital Products

With regard to products with digital elements, as well as digital products, the objective requirements for freedom from defects are met only if the consumer is informed about and provided with updates for the usual period of the product's use and service life. The update obligation may regularly exceed the applicable warranty period. Especially manufacturers  providing smartphones or other smart devices with security updates only for a short period of time up until now will have to adapt. As a result, it should be possible for consumers to use such devices longer, without having to fear that they become vulnerable for unresolved security risks. Obviously, increased sustainability also was a driving force behind the update requirement.

Extension of the Reversal of the Burden of Proof in Favor of Consumers to One Year

The period during which the presumption in favor of the consumer applies that a defect already existed at the time of the transfer of risk is extended from six months to one year as of the provision of the physical product. A one-year reversal of the burden of proof in favor of the consumer also applies to digital products from the time they are made available to the consumer.

Provision of Personal Data Quid Pro Quo for the Provision of Digital Products

Consumer contracts for the provision of digital products also include those where the consumer provides or agrees to provide solely personal data and no further payment for the digital product.

In order to ensure a fair balance between the protection of consumers' interests under the GDPR and the interests of businesses, businesses may terminate a contract if a consumer withdraws consent for the processing of personal data or objects to further processing. No notice period will be required, if the business cannot reasonably be expected to continue providing services until the agreed end of the contract or until the expiry of a statutory or contractual notice period.

Since consumers may not be unreasonably hindered in exercising their rights under the GDPR, businesses are not entitled to claim damages against consumers for exercising such rights.

Prohibition of Use of Digital Products After Termination of Contract

The consumer may neither continue to use the digital product after termination of the contract – no matter which party terminated the contract – nor make it available to third parties. The business is entitled to prevent further use by the consumer.

With few exceptions, after the termination of the contract, businesses may not continue to use content that does not constitute personal data, which has been provided or created by the consumer when using the digital product.

A Look Into the Future of Consumer Protection in the European Digital Single Market

The impact of these new harmonised rules on the legal practice remains to be seen. Both directives provide for full harmonisation of national law. This means that EU Member States may not implement stricter, more consumer-friendly or more lenient regulations in areas that fall within the scope of the directives.

Digitalisation and the development of new business models that go hand–in-hand with progress are developing at lightning speed. Thus, it is certainly a good question as to whether this is the best point in time for even stricter regulations that will lead to further costs for business and might therefore be considered as having a negative impact on innovation. On the other hand, harmonised rules are essential for providing digital products throughout the EU without the risk of violating specific national rules. Moreover, in order for consumers to trust new and innovative products, legal certainty that only rules adapted to such products can provide are essential.

One thing is certain today: Since the new national regulations are consumer-protection regulations, companies will have to comply and use the scope for deviations granted. Companies are therefore advised to review their contractual terms and conditions for consumers as quickly as possible to ensure that they comply with the new requirements and to adapt where necessary.