Liability concerns stemming from consumer law reforms could lead to fewer business apps being produced, says GC100

In its response to the Government's consultation on the draft Consumer Rights Bill (13-page / 792KB PDF), the Association of General Counsel and Company Secretaries of the FTSE 100 (GC100) said that liability concerns could put businesses off producing apps if they were to fall within the scope of the proposed new framework.

Under the Bill, 'digital content' is defined as "data which are produced and supplied in digital form". The rules around digital content apply to contracts "under which a trader provides or agrees to provide digital content to a consumer, if the digital content is provided or to be provided [either] for a price paid by the consumer, or free with goods or services or other digital content for which the consumer pays a price".

"In light of the wide definition of digital content the GC100 would welcome clarification on the status of apps provided by businesses for the purposes of online access to the business’s website or for use of its primary services (that is, their primary business is not the creation of digital content)," GC100 said in its response paper.

"For example, many banks provide or sell apps for their customers to access their accounts or for consumers generally to use payment services and retailers provide similar apps for direct online shopping. As currently drafted, such apps seem to fall within scope of these rules, and expose such businesses to additional liability (this is particularly an issue with regard to clause 48). Businesses considering providing apps to enhance their customer offering, or to attract new customers, may be reluctant to enter the digital content market as a result," it said.

Under Clause 48 of the Consumer Rights Bill, consumers would be entitled to receive a payment covering the cost of replacing a device or digital content if digital content provided under contract to a consumer by a business "causes damage to a device or to other digital content". The device or digital content that is damaged would have to belong to the consumer and the damage would have to be "of a kind that would not have occurred if the trader had exercised reasonable care and skill" in order for the consumer to be eligible for the payment.

GC100 highlighted problems with Clause 48. It said that the limitation on payment of costs only fails to account for the fact that "very large numbers of consumers may be affected", thus leaving businesses selling the digital content with a large compensation bill to pay.

"With tangible goods, a fault may be limited to a particular batch of products, allowing the manufacturer to determine (roughly) the potential financial risk where there is a fault in the batch," GC100 said. "By contrast, with digital content, a virus or fault, until removed, would affect all downloads of the digital content, but the number of downloads cannot be quantified in advance by a business."

In addition, GC100 said that businesses should be given the chance to fix problems before they are required to pay compensation for damages caused by digital content.

"Clause 48 provides for only one remedy (payment) to the consumer, but it may be that the damage to the device or other digital content could be remedied by fixing (or removing) software or the digital content," it said. "We would like BIS to consider providing an intermediate step which would allow the business to attempt to fix the damage. We believe consumers would also benefit from this stage, as their primary concern would be to have a device or other digital content which works."

Clause 48, as currently framed, would lead to businesses creating less digital content for consumers, and discourage new entrants to the market "given the potential liability they may face".

"This is particularly the case for creators of free digital content, who may be entering the market for the first time and testing the demand for their product (particularly SMEs)," GC100 said. "The clause does not take into account the different relationship digital content creators may have with their consumers. Sometimes, digital content (such as games) is released with known defects for users to suggest fixes via beta testing, or even simply to test whether there is a demand for such a product. They may choose not to release early versions, or not to release at all, rather than risk liability under this clause."

"Even though the consumer’s rights lie against an 'app marketplace' trader under the contract, rather than the creator, the app marketplace would seek to recover its loss from the creator. Such marketplace traders are likely to be in a much stronger bargaining position than the creators. Despite the lack of privity between consumer and creator, there is likely to be a significant effect on digital content creators," it warned.