The Consumer Rights Act 2015[1] (the “Act”) has been given Royal Assent and will come into force on 1 October 2015. The Act marks the next phase of UK consumer law reform following the introduction last year of the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013[2] (“Consumer Contracts Regulations”). The Act consolidates much of the existing consumer law, including provisions of the Sale of Goods Act 1979, the Supply of Goods and Services Act 1982 and the Unfair Contract Terms Act 1977. The Act also revokes and replaces the existing Unfair Terms in Consumer Contracts Regulations 1999.

A key facet of the Act is the introduction of a new category of sales contract – namely, contracts between a trader and consumer in relation to ‘digital content’, as distinct from goods and services. The rights and remedies for digital content are dealt with in Part 1 of the Act.

What is ‘digital content’?

The Act looks to harmonise the definitions used across consumer law – both in the UK and at EU level. As such, the Act has adopted the definition of ‘digital content’ used in the Consumer Rights Directive (2011/83/EU)[3] (the “Directive”) to mean ‘data which are produced and supplied in digital form’. This allows a wide range of products to be classified as digital content under the Act, including mobile apps, e-books, computer programs and software, films supplied online and in other digital formats (such as Blu-Ray and DVD), online games and virtual items purchased within such games, and most modern day music formats.

Digital content need not always be supplied by digital means. For example, it can exist in a tangible format (such as on a disc). However, a distinction must be made between digital content available online, and the online sale of non-digital products or services through a website – the former would be a contract for the supply of digital content, the latter a contract for sale and supply of the relevant goods or services. In other words, the term ‘digital content’ does not apply to the mode of purchase, delivery or supply.

A new definition of ‘consumer’ has also been included in the Act to remedy the inconsistencies across existing consumer laws. However, unlike the definition of digital content which has been adopted directly from the Directive, the definition of consumer as used in the Act is intended to have a wider definition than the corresponding definition in the Directive. “Consumer” for the purposes of the Act means ‘an individual acting for purposes which are wholly or mainly [emphasis added] outside that individual’s trade’ which can be contrasted with the Directive which refers to ‘natural persons who are acting outside [emphasis added] their trade, business, craft or profession’. This will likely increase the scope of persons who are able to assert rights under the Act as a ‘consumer’, as opposed to the more narrow interpretation at EU law level.

What rights do consumers have in respect of digital content?

For the first time under UK consumer law, specific standards will apply to every transaction for the supply of digital content, and consumers will have specific remedies available if the digital content is not supplied to the prescribed standard. The standards applicable to digital content are that it should be[4]:

• of a satisfactory quality
• fit for a particular purpose
• in compliance with description

In addition, certain other pre-contract information which must be provided to consumers under the Consumer Contracts Regulations[5]will be treated as an implied term of any contract to supply digital content under the Act. This includes the trader’s identity (such as trading name) and geographical address; total price of the goods or services, inclusive of taxes; arrangements for payment, delivery, performance, and the time by which the trader undertakes to deliver the goods or services; conditions, time limit and procedures for exercising a right to cancel; and any circumstances where the right to cancel might be lost[6]. The Act also imposes an implied term that the trader has the right to supply the relevant digital content[7].

The standards outlined above will also apply to digital content as modified, where there is a contractual right of the trader or a third party to modify the digital content.  In practice, this means that a trader can upgrade, fix, enhance and improve the features of, or add new features to, digital content so long as the digital content continues to match any description given by the trader and continues to conform with any pre-contract information as to main characteristics, functionality and compatibility provided by the trader, unless varied by express agreement.

Where goods (as defined in the Act) are an item which includes digital content, the digital content will be treated separately from the item itself for the purposes of applying the prescribed standards applicable to digital content, but any failure of the digital content to comply with the prescribed standards will result in a failure of the goods as a whole to conform to the contract to supply goods.  This provision is likely to apply in the context of goods (such as a digital camera) which contain malfunctioning software.

What if the digital content is free?

Generally the prescribed standards apply to paid-for digital content only and do not apply where digital content is being provided for free. Payment in this sense can be monetary, or by some other facility such as vouchers or in-game tokens[8].

However, the Act does not completely relieve a trader of all liability when digital content is provided without payment. The Act recognises consumer’s rights where:

• digital content is supplied free together with paid-for goods or services or other paid-for digital content; and
• digital content is not generally available to consumers unless they have paid a price for it, or for goods or services or other digital content.

In such cases, the digital content will be treated as part of the overall contract for such goods, services or digital content and the prescribed standards will apply.

What remedies do consumers have in respect of digital content?

Consumers have specific remedies in respect of digital content where their statutory rights have been breached. The remedies available will depend on the type of media used to deliver the digital content, and whether the content was paid-for or free.

Where digital content has been provided in a tangible format, the general rules applicable to contracts for the sale of goods will apply. So, for example, the customer will have a 30 day right to reject the goods, and full rights in respect of defective goods. However, the standards applicable to the underlying digital content on the tangible media will be those outlined for digital content, rather than the standards applicable to goods.

Where digital content is supplied through an intangible media, the remedies available to consumers are:

• right to repair or replacement, where the digital content fails to comply with any of the prescribed standards;
• right to a reduction in price (up to the full price), if repair or replacement is impossible or not carried out within a reasonable time without significant inconvenience to the consumer. What is considered a ‘reasonable time’ or ‘significant inconvenience’ in this context will depend on the type of content and means of supply;
• right to recover costs (up to the full price paid) incurred as a result of any breach of pre-contract information provided under the Consumer Contracts Regulations, other than information relating to the main characteristics, functionality or compatibility of the digital content; and
• limited automatic right to a full refund, where the trader in fact has no right to supply the digital content.

Provided the consumer is not claiming twice for the same loss, he/she may seek other remedies (such as damages or specific performance) in addition to or in place of any of the above. However, the consumer is not entitled to treat the contract as terminated purely on the basis of a trader’s breach of statutory standards or the right to supply.

The trader will also remain responsible for any damage caused to a device or to other digital content by digital content it supplies – whether for payment or free of charge – where the trader has failed to exercise reasonable care and skill. In such cases the consumer may require the trader to either repair the damage or compensate the consumer for the damage.

Finally, traders should also to consider the terms of the Consumer Contracts Regulations (with particular regard to the rights of cancellation) and the Consumer Protection from Unfair Trading Regulations 2008 which continue to apply in respect of digital content.

 How will the Act affect businesses supplying digital content?

The  Act looks to close the gap on some of the uncertainty that exists around the rights of customers in relation to digital content, and resolve some of the key issues that have arisen. However, the Act also imposes specific obligations on suppliers of digital content, including both free and paid-for content and whether supplied on tangible or intangible media.

A trader cannot exclude or restrict its liability for breach of any of the prescribed standards or obligations, and likewise cannot restrict the customer’s statutory remedies. To this end, suppliers of digital content should now:

• make themselves familiar with, and ensure their digital content conforms to, the standards prescribed by the Act
• be aware of the distinction between goods containing digital content, and digital content supplied in its own right
• understand the remedies available to consumers where digital content does not conform to the prescribed standards, including the obligation to repair, replace or refund
• note that they will remain liable for damage to any device or other digital content owned by the consumer where such damage is caused by digital content supplied – even where it is supplied for free
• ensure that any limitations on liability or restrictions on a consumer’s remedies that are included in a contract for goods, services or digital content, are reasonable and justifiable in the circumstances, and remain consistent with the protections set out in the Act[9]which replace those contained in the Unfair Consumer Contracts Terms Act 1999[10].

For more information, please contact Calum Murray or Emily Featherstone. 

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