Consumer guarantee law may extend to software under EU plans

Software trade bodies gave a cautious welcome to the proposals and one legal expert has said that the changes, if made, could force UK lawmakers to reconsider whether software should be classed as goods or services.

The European Parliament has not passed a new law. Instead, it passed a Resolution that endorsed a Green Paper on EU consumer laws (34-page / 126KB PDF).

The Green Paper was published by the European Commission in February. It examined various consumer laws, among them the Consumer Sales Directive (5-page / 121KB PDF). That Directive gives certain rights to consumers. It says that goods sold to consumers must conform to the contract; it provides remedies where they do not; and it says that where goods come with a guarantee, that guarantee should be legally enforceable.

The Consumer Sales Directive applies only to consumer goods – and it defines a consumer good as a "tangible moveable item".

The Green Paper stops short of saying that the definition should be extended; but it asks the question: should the Directive's scope be extended, "to include intangible goods, such as software and data"?

The concern that the Commission expressed in its paper is that the exclusion of software and data "may prompt professionals to try to avoid responsibility for possible damages/non conformity of such products through conditions in End User Licence Agreements (EULAs), preventing consumers from making use of remedies for non-conformity and invoking damages."

The Commission paper identifies this as a "potential consumer protection lacuna." It continues:

"With the increase in digital content consumption, questions of liability (e.g. when software damages hardware) and guarantee from defects will grow in importance. Several consumer complaints point, for instance, to problems with music downloaded from the internet or used in MP3 players, software and digital content to be used in mobile phones (e.g. ring tones). An extension of the coverage of consumer protection rules to such situations would allow consumers to make use of remedies for nonconformity and obtain damages. Such an extension of the scope of the Directive may, however, require specific rules since digital content is usually licensed rather than sold to the consumers."

The text adopted by the European Parliament in last week's Resolution acknowledges the need "to examine issues relating to the protection of consumers when they conclude contracts providing digital content, software and data, in the light of the protection afforded by [the Consumer Sales Directive]".

The Parliament Resolution also asks the Commission "to examine the matter in detail so as to determine whether it is appropriate to propose one or more specific rules or to extend the rules set out in that Directive to this type of contract."

The Consumer Sales Directive is not the only law to limit the rights of those who buy software.

Another key piece of consumer law, the Distance Selling Directive, gives consumers a cancellation period for most purchases. However, the right to cancel is excluded for the supply of audio or video recordings or computer software which have been unsealed by the consumer. The rationale behind the exclusion is that DVDs and CDs can otherwise be unsealed, copied and returned for a refund.

The exclusion, which is repeated in the UK's implementing Regulations, presents a practical problem for consumers who do not agree to the terms of the software licence agreement which are only presented upon loading a disc. Consumers have to break the seal to see the conditions, so they must rely on laws of contract if they want a refund, perhaps arguing that conditions were attached to the sale that were not made known to the consumer at the point of placing the order.

Reaction from the software industry

The Business Software Alliance (BSA) said it was keen to liaise with policymakers to move the issue forward.

Francisco Mignorance, BSA Director of Public Policy Europe, said: "We look forward to working with the EU Commission to examine whether there are circumstances under which existing consumer protection rules and software customer assistance – including reimbursement, warranties, product replacement, technical support, and customer assistance – do not provide redress."

The European Software Association (ESA) also backed the move, but cautioned against proposals which might have a negative effect on smaller software firms.

ESA Vice Chairman Eilert Hanoa said: "We will support fact-based policies that do not put European software companies at a competitive disadvantage – mostly to the detriment of Europe's small and medium sized enterprises – and that could have unintended consequences on product prices and choice for consumers."

Software as goods or services: the UK position

A change at the EU-level to the legal protection that is afforded to buyers of software could force a re-think of the legal protection under English law and Scots law, according to one IT law expert, because the position across the UK is somewhat unclear.

The UK implemented the Consumer Sales Directive with the Sale and Supply of Goods to Consumers Regulations of 2002. These Regulations for the most part amended existing legislation, notably the Sale of Goods Act of 1979 and the Supply of Goods and Services Act of 1982.

A DTI paper on EU consumer laws (21-page / 100KB PDF) of February 2006 said that the UK's implementation went further than the EU Directive required in several respects. But on the definition of goods, the UK Regulations refer to the definition in the Sale of Goods Act. That definition was written without digital downloads in mind and its application to software is ambiguous by comparison to the European Directive.

The Sale of Goods Act says 'goods' includes "all personal chattels other than things in action and money, and in Scotland all corporeal moveables except money; and in particular 'goods' includes emblements, industrial growing crops, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale; and includes an undivided share in goods".

"It's an out-dated definition," said David Woods, a lawyer specialising in IT disputes at Pinsent Masons, the law firm behind OUT-LAW.COM. "It is generally believed that packaged software is 'goods' while bespoke software and digital downloads are services," he said.

The distinction matters in determining the legal duties and protections that apply to buyer and seller, according to Woods.

"At the moment, legislation like the Sale of Goods Act is unhelpful when it comes to working out the legal status of software," he said. "We have to rely on case law to guide us on when software will be goods and when it will be services. There really isn't all that much case law on the point, though. If the EU forces the UK Government to re-think the legal protections afforded to software and digital downloads, we might get some clarity here, which should be helpful to everyone."