Germany introduces new EU consumer protection rules

The Federal Ministry of Justice and Consumer Protection has published a draft act to implement the "Directive on certain aspects concerning contracts for the supply of digital content and digital services" as well as a draft act to amend the Civil Code and the Introductory Act to the Civil Code to implement the “Directive for better Enforcement and Modernisation of Union Consumer Protection Rules”. According to Federal Minister of Justice Lambert, both legislative amendments are intended to provide more legal certainty and transparency in the digital world.

Digital Content and Digital Services Directive (Directive (EU) 2019/770)

Directive (EU) 2019/770, which was adopted in May 2019, is a cornerstone of the "Digital Single Market Strategy" the European Union has been pursuing for several years. The aim of the Directive is a partial harmonization of Member States’ contract law concerning contracts for digital content (e.g. music and video files, e-books, apps, games and other software) and digital services (e.g. social networks, cloud applications and cloud storage services). The regulations also apply to physical data carriers on which digital content is stored (e.g. music CDs, DVDs, etc.). The EU wants consumers to have better access to digital content and digital services and businesses to be able to better provide digital content and services, which in turn should lead to boosting the Union's digital economy and growth overall. Article 4 of the Directive provides for full harmonisation, Member States consequently may not maintain or introduce stricter or less stringent rules unless explicitly allowed by the Directive. The transposition period ends on 1 July 2021, and the Member States' transposition provisions must be applied to contracts concluded on or after 1 January 2022.

Implementation into German law

The German draft act published yesterday provides for the primary integration of the European requirements into general contract law. For this purpose, among other things, a new Title 2a will be added to Section 3 of Book 2 of the German Civil Code. This ensures the application of the regulations regardless of the type classification of the contract (e.g. sales contract, service contract or rental contract).

In accordance with the Directive, the implementation act stipulates the following key points:

• The draft provides for comprehensive warranty rights for digital content and digital services. Irrespective of the type of contract, consumers will be granted warranty rights, which have so far only been provided for sales contracts, contracts for work and services or rental contracts under German law (for example the right to supplementary performance, to a price reduction and to termination of the contract). In addition, the draft contains a reversal of the burden of proof at the expense of the trader for up to one year after provision of the digital content or service in the case of a one-off exchange of services, and for the entire duration of the contract in the case of continuing obligations.
• In the future, consumers will also be entitled to these warranty rights in contracts where personal data is provided instead of payment of a price ("payment with data"). This applies, for example, to the use of social networks and a number of “free” apps.
• The draft imposes an update obligation on the providers of digital products. If consumers have purchased a digital product, the provider will owe the provision of function-maintaining updates and security updates. In the case of ongoing contractual relationships, this obligation applies for the entire duration of the contract; in the case of contracts to be fulfilled once, such as sales contracts, it applies for a period that consumers can reasonably expect.

Providers of digital content should carefully familiarise themselves with the new rules and adapt their contracts accordingly, especially in the area of general terms and conditions. It is also expected that companies will face an increased number of warranty cases due to the upcoming changes.

Directive for better Enforcement and Modernisation of Union Consumer Protection Rules (Directive (EU) 2019/2161)

Through a review of existing consumer protection rules in terms of their effectiveness, the Commission identified the need to modernise several pieces of consumer protection legislation and to improve the means of enforcing consumer protection law. To this end, Directive (EU) 2019/2161 was adopted in 2019, which amends the following four existing Directives:

• Directive on unfair terms in consumer contracts (Directive 93/13/EEC),
• Directive on consumer protection in the indication of the prices of products offered to consumer (Directive 98/6/EC),
• Directive concerning unfair business-to-consumer commercial practices (Directive 2005/29/EC) and
• Directive on consumer rights (Directive 2011/83/EU).

The Directive is part of the Commission's 2017 New Deal for Consumers package of measures and was proposed together with the Collective Redress Directive. Member States are required to adopt and publish the measures necessary to comply with the Directive by 28 November 2021. The Directive strengthens consumer rights and provides for sanctions for unfair commercial practices and the use of invalid general terms and conditions. The Consumer Rights Directive basically follows a full harmonisation approach. However, the amendments introduced by the Directive contain individual opening clauses that allow Member States some discretion on the level of consumer protection.

Implementation into German law

The implementation act published yesterday is intended to transpose those parts of the Directive that amend and supplement Directive 93/13/EEC (Directive on unfair terms in consumer contracts) and Directive 2011/83/EU (Directive on consumer rights). In implementing these parts of the Directive, provisions of the German Civil Code and the Introductory Act to the German Civil Code are amended and supplemented.

The German draft Implementation Act regulates the following key points:

• For online marketplaces such as eBay or Amazon, the following essential information obligations will apply for the benefit of consumers in the future:
• The platform operators are obliged to disclose the essential parameters of the ranking of search results and their weighting before the conclusion of the contract. According to the explanatory memorandum to the draft implementation act, this includes all general criteria, processes and specific signals that are integrated into algorithms or other adjustment or downgrading mechanisms that are used in connection with the ranking. Examples are the number of views of the offer, the date the offer was posted, the rating of the offer or the provider, the number of sales of the product or the use of the service ("popularity"), commissions or fees, the use of editor programmes and their ability to influence the ranking of these goods or services, as well as elements that do not affect the goods or services themselves or only remotely, such as presentation features of the online offer.
• Consumers must be informed whether their potential contractual partners are traders or consumers.
• The German draft act also makes use of the optional measure to create an obligation of the platform operator to provide information on further circumstances that are of material importance for the purchase decision. This, in particular, concerns any economic interconnections and market coverage, which the German Federal Cartel Office identified as a problematic area in its final report of its sector enquiry into online comparison portals. Further information obligations therefore include the information on significant interconnections of the operator of an online marketplace with a provider on its marketplace, in the case of comparison portals, the information on the provider taken into account when creating the comparison presented to the consumer in response to a search query and - in particular with regard to the secondary ticket market - the information on the original ticket price set by the organiser.
• In addition, providers will have to disclose if a price has been personalised on the basis of an automated decision.
• The regulations on the requirements for the cancellation policy are also changing. Particular attention must be paid to an exact wording that complies with the new regulations.
• The draft lastly provides for stricter sanctions in case of infringements. Europe-wide violations of regulations of consumer contract law are to be punishable with a fine in the future. Sanctions will be imposed in particular for the use of abusive general terms and conditions (insofar as there is a violation of Sect. 309 BGB or as the use of a clause has been prohibited due to a legally binding judgment based on an action by an association), but also for violations of many other provisions, such as the violation of the trader’s obligation not to assert a claim against the consumer when sending unsolicited goods, violations of various information obligations and violations of obligations to return goods after withdrawal of the contract.
  
  German law already provides for instruments to sanction violations of the regulations enacted in implementation of the Consumer Rights Directive. However, these are primarily sanctions under civil law, such as the granting of claims for damages, rights to terminate contracts or claims for rescission, which must be enforced individually in court. The Injunctions Act (Unterlassungsklagegesetz) and the Unfair Competition Act (Gesetz gegen den unlauteren Wettbewerb) also provide for warning and legal action options, especially for consumer protection associations.
  
  However, the new Directive further requires that fines may also be imposed when taking enforcement action in the context of coordinated actions under the Regulation (EU) 2017/2394 on cooperation between national authorities responsible for the enforcement of consumer protection laws to punish widespread infringements. The new provision in Sect. 246e of the Introductory Act to the German Civil Code provides in principle for fines of up to EUR 50,000. However, a higher fine may be imposed if a company has achieved more than a EUR 1,250,000 annual turnover in the Member States of the European Union affected by the infringement in the business year preceding the decision by the authorities; the fine may not exceed 4 percent of the annual turnover. If there are no indications for an estimate of the annual turnover, the maximum fine is EUR 2,000,000. Penalties are imposed for intentional and negligent violations.

To date, there has been no comparable area of regulation in German law in which the violation of civil law could be fined. The draft states that the government cannot estimate the probable number of future sanctioning proceedings; in the context of estimating the costs associated with the implementation, the draft provisionally assumes two sanctioning proceedings per year.

Overall, the new regulations are far-reaching. The use of unlawful provisions in general terms and conditions and unfair competition are associated with significantly greater risks than before. Companies will have to fundamentally revise, among other things, their general terms and conditions, the way they provide information and their advertising and communication strategies.