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How will the Digital Content and Digital Services Directive (DCD) of the digital single market strategy affect your business?

The Digital Single Market Strategy is an EU strategy to break down barriers to cross-border selling. The Digital Content and Digital Services Directive (DCD) is one part that could affect how your business sells online, especially if you sell digital goods or services online to customers throughout the EU.

What is the digital single market strategy?

The Digital Single Market Strategy (DSM) is an initiative of European Commission. Its aim is to  provide businesses and consumers with better access to digital goods and services across Europe.

There are three main strands to the strategy:

  1. To provide improved access to digital goods and services
  2. To remove barriers and harmonise regulation across different EU member states
  3. To maximise the opportunity for growth in digital services

Legislation introduced under the umbrella of the DSM has covered:

  • Data privacy and data protection such as GDPR
  • Improving the portability of digital content and rules relating to roaming charges
  • Promoting and enabling the take-up of 4G and paving the way for 5G wireless broadband
  • Promoting the use of digital content by government across the EU

The Directive on Contracts for the Supply of Digital Content and Services of the Digital Content Directive (DCD) is one of the pieces of legislation introduced under the umbrella of the DSM. It is a maximum harmonisation measure, so member states like the UK must introduce their own local laws that give consumers the same protection as that set out in the DCD.

The Directive was formally adopted on 15 April 2019, and member states have two years in which to update their local laws. It covers digital content such as software, apps and video filters, and digital services such as ‘software as a service’ (SaaS), for example video and audio sharing files.

The Directive offers high levels of protection for consumers who either buy digital content, or who provide their personal data in exchange for such content. In particular, it offers consumers either a price reduction or a full refund for digital content or services that fail to perform as expected.

If the UK is not in the EU at the end of the two-year period, it could choose to adopt the Directive so that its laws continue to align with those of Europe.

Why is the Digital Content and Digital Services Directive important for businesses?

The DCD provides benefits for small businesses, particularly those who sell on online marketplaces:

  • A ban on certain practices that will be deemed as unfair and that are particularly troublesome on trading platforms, such as suspension or termination of a seller account without good reason and the right to appeal. There will also be a right to have an account re-instated if the suspension has been made in error.
  • The requirement to have clear and plainly written terms and conditions of service, and advance notice of changes (at least 15 days for minor changes, and longer for more substantial changes).
  • The requirement for trading platforms to explain their ranking system and identify the criteria they use to rank sellers so that businesses can use them to their advantage.
  • For larger online platforms which are hosted by businesses that also sell on the marketplace, enhanced transparency in respect to any advantage the host gives to their own products over those supplied by other sellers. They will also have to disclose what data they collect, how they use it, and how they share it with others.
  • New opportunities for dispute resolution so that sellers aren’t left stranded with no way to appeal or resolve complaints. Platforms will be required to set up a complaints handling department to help business users, and provide access to mediators.
  • The ability for trading associations to sue platforms for non-compliance, and for public bodies at the local level like trading standards in the UK to obtain enforcement powers and resolve disputes.

Another objective of the DCD is to harmonise consumer protection laws across the EU so that customers are encouraged to buy digital content from other countries. While laws in the UK and the Netherlands have adopted rules for the supply of digital content, most other EU states are lagging behind.

The DCD has introduced rights for consumers acquiring digital content similar to those that apply to the purchase of goods, adapted to reflect the special nature of digital products. It covers the supply of B2C digital content such as videos, books, software and apps, as well as digital services like SaaS and video or audio sharing, as well as file hosting, word processing, games and social media. Digital goods and services will have to meet the same quality requirements as physical goods and services, allowing consumers more rights than exist at present.

Does the Portability of Online Content Directive affect how you supply digital content and services?

The objective of this portability Directive is to allow travellers within the EU to fully use their online subscriptions to films, sports events, ebooks, games and music streaming services. For example, a subscriber to Spotify in the UK is able to stream music available from that service in the UK while on holiday in France or Spain. The portability regulation became directly applicable in the UK on 1st April 2018.

If you are a business who supplies a paid streaming service, you’ll need to verify your customer’s country of residence when you enter into a contract with them, either via the payment process, within the contract, or by checking the IP address. If your services are unpaid, for example if you operate a radio station, you can decide whether or not to provide portability to subscribers.

Do your contracts for the supply of digital content need to change?

In bringing consumer laws relating to digital content in line with those relating to goods and services, the DCD aims to ensure that:

  • The digital content or service does what the contract says it will do.
  • If the content does not perform as promised, has defects, or fails to be supplied, consumers have appropriate remedies such as a reduction in the price or a refund.
  • Modifications to the digital content or service are clear and fairly implemented.

If you sell digital content or services (or if you make them available to consumers in exchange for their personal data), your contracts may need to be modified to reflect the DCD in certain key areas:

  • If your customers give you their personal data to open an account such as a social media subscription, or subscribe to an app, and you use this data for purposes other than to provide the service to them, you will need to guarantee the quality of the content you provide and allow the customer remedies should there be a fault or discrepancy. This is a significant change, as previously the Consumer Rights Act only applied to services provided in return for payment.
  • If you sell ‘goods with digital elements’ like smart fridges or TVs that need their digital components in order to work as advertised, then the rights and remedies for defects in these goods will be regulated in the same way as ‘normal’ goods and services, for example in respect to how they function, their compatibility, and updates.
  • If you sell digital content or services, you will be required to provide updates including security updates in line with your contract with the customer and as may be needed to keep the product or service in line with quality requirements for the duration of the supply period. You won’t be liable if your customers fail to install these updates, provided you notify them that an update is available, and warn them of the consequences of any failure to install.
  • You must supply digital content and services promptly after you enter into a contract with your customer unless agreed otherwise.
  • The fitness for purpose of your goods and services will be deemed to be EU and local technical standards, or if none exist, any industry-specific codes of conduct. Your content must also be fit for any purpose that you describe in the contract and that you have accepted will apply.
  • You will have to get your customers to accept specifically any changes or deviations in the quality of your digital goods and services, such as defects.
  • If your contract with a customer comes to an end, and they have themselves created digital content as part of the service, you’ll need to give this back free of charge in a commonly used and machine-readable format. This could cover blog entries and photographs for example created on a hosting platform. You would also have to stop using this content yourself.
  • You must ensure that digital content or service is integrated with the consumer’s digital environment, and provide clear instructions on how this integration can be carried out.
  • When the contract ends, customers will have to stop using the digital material you have supplied to them, and return any tangible media on request.
  • You will be able to modify digital content during the contract as long as this is free of charge, and you give your customers notice and a right to terminate.
  • The remedies your customers will be entitled to will be broadly similar to those for physical goods and services, except that:
    • You can choose between repair and replacement if the option the consumer selects is not possible or would be too difficult to provide
    • If repair or replacement is impossible, the customer only has a right to a price reduction not termination (but this may be a reduction that amounts to the full price)
    • The customer can only get a refund if you didn’t have the right to supply the digital material.

What next?

If your business needs to amend your contracts and agreements ahead of the DCD, our commercial solicitors can help.

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