The European Union (EU) has made reform of the e-commerce rules in Europe one of its main priorities for 2018.
The European Commission has already published two proposed Directives relating to cross-border e-commerce but legislative progress has been slow – a situation that the Commission plans to correct in 2018.
The Commission’s stated aim is to establish a more harmonised set of rules for the supply of digital content and sale of online goods across the EU, and to make it easier and less costly for businesses to engage in cross-border commerce. But what most e-commerce providers will focus on is the increased rights for EU consumers, particularly in the context of defects. The new rules will apply to online e-commerce providers, whether EU-based or not.
These changes are part of a wider programme of reform affecting all businesses operating in the Technology, Media and Telecoms (TMT) sectors in Europe.
The European Union’s 2018 Work Programme sets out a challenging agenda of legislative and regulatory change for the TMT sectors, to be delivered in conjunction with the EU’s Digital Single Market (DSM) strategy. The Work Programme includes a list of the pending legislation that the Commission wants to have delivered most swiftly to European citizens as part of the DSM strategy. Any business with digital or technology operations in the EU will need to monitor and react to the EU’s planned changes.
The Commission launched its DSM strategy in May 2015. We have written a number of articles following the DSM’s progress: at its inception, one year in and in 2017 following a mid-term review. With the Commission still waiting for a number of its proposals to be delivered, 2018 is a key year in the life of the DSM.
The DSM strategy is broken down into three “pillars” and 16 Key Actions. The first “Key Action” is to develop rules to make cross-border e-commerce easier, including harmonised rules on contracts with consumers and other consumer protection when buying online. Two proposed Directives relating to cross-border e-commerce were issued relatively quickly – firstly, a proposed Directive on the supply of digital content (Digital Content Directive) and, secondly, a proposed Directive on online and other distance sales of goods (Online Goods Directive) (together, the “Proposed Directives”).
Our previous alert explored the scope, content and likely impact of the Proposed Directives across the EU generally (and in the UK and Germany specifically). But, since initial publication, progress has been slow, and, in this alert, we review the progress that has been made so far and look ahead at the likely impact of these Directives in 2018.
The Digital Content Directive
At present, some EU Member States (such as the UK, the Netherlands and Ireland) have introduced legislation to govern the sale of digital content to consumers; other member states apply existing rules on the sale of goods or services that were not intended for digital content. That makes it very hard to apply EU-wide principles on the sale of digital content. Depending on the member state, the sales contract could be considered as a sales contract, as a services contract or as a rental contract. And then there’s the question of whether consumer sales law is applicable to digital content: in Germany and in Italy, a consumer is protected under consumer sales law when it comes to digital content, and the courts qualify intangible goods as a moveable object; whereas in Norway, the online supply of digital content is considered a service contract, and consumer sales law is not applicable.
The draft Digital Content Directive will harmonise the rules that apply to the provision of digital content to EU consumers, including rules on the remedies to which consumers are entitled for allegedly defective content. If any digital content is defective, firstly the EU consumer will be able to request that the defect be fixed – with no time limit on the ability to make that request – and, secondly, the burden of proof is reversed so that it will be the supplier’s responsibility to prove that the defect did not exist at the time of supply. See a more detailed summary here.
The rules would apply: (i) regardless of the method of sale, and (ii) to both digital content sold to the consumer (i.e., licensed on a perpetual basis) and digital content supplied under a temporary licence on a subscription basis. Currently, most EU Member States do not have national consumer protection legislation specifically concerning sales or subscription of digital content to consumers (the issue tends to be covered by sales of goods or services rules).
European Council: General Approach
After the Commission issued the draft Digital Content Directive in December 2015, there was steady progress through 2016 and various committees debated or “took stock” of the proposal.
In March 2017, the European Data Protection Supervisor raised concerns with the proposal – namely that the provision of data as “counter-performance” was problematic (as discussed further below) and that there was a potential overlap in scope with the incoming General Data Protection Regulation.
However, the first major development on the Digital Content Directive took place in June 2017, when the European Council clarified the EU’s position on the proposal as follows:
European Parliament: Joint Report
The next key development took place in November 2017 when the two committees within the European Parliament that are responsible for progressing the proposed Digital Content Directive (being the Internal Market and Consumer Protection Committee (IMCO) and Legal Affairs (JURI)) adopted a joint report on the proposal. A number of compromise amendments to the draft Digital Content Directive were prepared on the basis of the report, of which the main ones were:
The report was referred to the European Parliament, Council and Commission to commence informal trialogue talks, which are now expected to take place in the first part of 2018.
The Online Goods Directive
The draft Online Goods Directive will apply new rules to goods sold online or otherwise at a distance to EU consumers. Face-to-face sales are not covered, nor are contracts for the supply of services.
The key provisions of the Draft Online Goods Directive include a reversal of the burden of proof (i.e., the onus will be on the seller to prove that any defect didn’t exist at the time of sale) for two years; consumers won’t lose their rights if they don’t inform the seller of a defect within a certain period of time (as is currently the case in some Member States); if the seller is unable or fails to repair or replace a defective product, consumers will have the right to terminate the contract and be reimbursed also in cases of minor defects. See a more detailed summary here.
The draft Directive replaced the Commission’s previous attempt at harmonisation, which took the form of a proposed Regulation on a Common European Sales Law. The EU Parliament’s IMCO published its draft report on the Directive in November 2016, supporting the full harmonisation measures envisaged, but suggesting an expansion of the scope of the Directive to cover offline sales. This was driven by the desire for consistency – the idea that a common set of rules across Member States would be valuable for online, distance and face-to-face sales alike, rather than having a fragmented legislative framework that would vary depending on the method of sale.
After publishing its draft report, IMCO tabled over 200 amendments to the draft Online Goods Directive during a committee meeting in January 2017, and more in July 2017 (mostly relating to the expansion of the scope of the draft Directive to offline sales).
The Commission subsequently released an amended proposal on 31 October 2017. Although the main elements of the Online Goods Directive were unaltered, the amended proposal did provide for the following noteworthy changes:
The amended proposal has been resubmitted to the European Parliament and Council. We await a decision from the European Economic and Social Committee, after which the European Parliament will need to vote on the proposal at first reading.
What Should We Expect in 2018?
We will be keeping tabs on the Proposed Directives as they progress under the ordinary legislative procedure, although, because there is no time limit on the first reading stage, it is difficult to predict exactly when we will see movement.
It is also difficult to predict the impact of the Proposed Directives on the UK. The UK is, of course, due to leave the EU in March 2019, which is likely to be before the Proposed Directives are implemented. It will therefore be for the UK to decide the extent to which it wishes to reflect the provisions of the final Proposed Directives in national law, if at all. The commercial benefits of harmonisation with EU Member States will need to be weighed carefully against the drawbacks of overhauling consumer laws so soon after the changes introduced by the UK Consumer Rights Act 2015.