Introduction
In the first INDICARE Monitor of this year R. Grimm (2005) remarked: "virtual goods are made for purchase and usage". When using digital products, consumers will find that some uses are not possible as a result of DRM. DRMs are used to protect the interests of the distributors and artists; however at some level this will interfere with the interests of the consumer who expects that he can make certain uses of the content he obtained. This contribution discusses several legal instruments that might come to the aid of the consumer in relation to the consumption of digital goods (for an overview of European consumer protection law see De Witte 2004).

Preliminary question: are digital products goods or services?
In law it is important to establish if you are dealing with either goods or services, because in some cases there are different rules for the one and the other. The definition of "good" generally relates to physical appearance of something, while service provision concerns the performance of some sort of act other than the delivery of a good.

Digital content consists of bits and bites that are normally connected to a physical carrier such as a CD or a hard drive. If digital content is connected to a carrier, selling it can be characterised as the selling of a good, because a tangible changes hands. A digital delivery (for example via internet) merely consists of the transfer of bits and bytes. In that case, it becomes problematic to characterise such a delivery as the delivery of a good. In the past this topic has been addressed in relation to electricity (HR 23-3-1921) and computer data (Hof Arnhem, 27-10-1983). In case law these have been considered to be equal to a good, which can be stolen. However, this conclusion was drawn in relation to criminal proceedings. These solutions however cannot simply be transposed to private law issues.

In the discussion concerning the legal distinction between goods and services it is important that the context and the purpose of the rules of law are taken into account. In the context of consumer law, it seems unfair to treat a song differently, depending on the manner it is formatted or delivered. If consumer rights are dependent on the manner of distribution, this opens the possibility for distributors to choose the manner that favours their position. For practical purposes, it can therefore be preferable to consider the delivery of a digital product to be equal to the delivery of a good. Reference can be made to the analogy with sale of books and CDs, which are generally considered to be sale of goods, regardless of the fact that what is actually sold is copyrighted material. The discussion of rights and duties below will assume that the rules of sale of goods can apply to the selling of digital content, either because the product can be qualified as a good or, if this fails, by analogy.

Contract law
Non-compliance
In general, contract law requires that the seller should perform in conformity with the contract. English law in this respect requires that the goods supplied should be of satisfactory quality and specifies that this requirement is met if the sold good is as fit for the purpose for which goods of that kind are commonly bought or as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all other relevant circumstances. An exception applies when the buyer's attention was specifically drawn to the "defects".

Dutch law requires that a seller should deliver in conformity with the contract and specifies that this is the case if the good has the characteristics which are necessary for a normal use to be made of it and whose presence he did not have to doubt, as well as all the characteristics which are necessary for a special use which has been mentioned in the contract (for a comparison of Dutch law, English law and French law on this topic see Girot 2001).

A similar rule has been laid down in the European directive on sale of consumer goods (Directive 1999/44/EC). This directive states that goods are presumed to be in conformity with the contract:

  • if they correspond to the description given by the seller or to a sample or model shown to the consumer,
  • if the goods are suitable for the special use indicated in the contract,
  • if they are fit for the purposes for which goods of the same type are normally used,
  • if they show the quality and performance which are normal in goods of the same type and which the consumer can reasonably expect, given the nature of the goods and taking into account any public statements by the seller the producer or his representative.

Relevant factors to determine if there is breach of contract (either in England or in the Netherlands) can be the nature of the product sold, the knowledge the seller has about the intended use, price, the state of the market and reasonable expectations of the consumer.

Applying the legal norms to digital content equipped with DRM-techniques entails that it has to be established what can be considered "normal use" of digital content, what digital content is "commonly" bought for and what is reasonable to expect.

Unfair contract terms
Basing a claim on breach of contract is rendered difficult if the use of the DRM-techniques is accompanied by (pre-contractual) warnings by the supplier. In that case the consumer has fewer possibilities to argue that expectations were not met. However, this does not affect the possibility to base a claim on unfair contract terms. In this context one can think of the Unfair Contract Terms Act in England, and the rules regarding general terms in Dutch law, which include a black list of terms that are considered to be unreasonably onerous and a grey list of terms which are suspected to be unreasonably onerous. In both countries it is up to judges to further determine in the context of each particular case if certain terms are unfair or unreasonably onerous.

On European level there is the unfair contract terms directive (Directive 93/13/EEC) harmonising the laws of the member states with regard to this issue. According to this directive terms are unfair if, contrary to the requirement of good faith, they cause a significant imbalance in parties’ rights and obligations arising under the contract, unless the terms were individually negotiated.

Relevant in the assessment is the nature of the goods or services, and all other circumstances. Circumstances could be the price and the reasonable expectations of the buyer. Again, reasonable expectations turn up, as well as good faith and circumstances of the case. How does this translate to the supply of digital content with DRM? Opinions of what is "reasonable" can vary.

Unfair commercial practices
Related to the rules concerning contract law are the rules concerning unfair commercial practices. The laws of the member states will be harmonised on this point after the implementation of the recently adopted directive on unfair commercial practices (Directive 2005/29/EC). The directive protects the consumers’ economic interests against unfair practices that take place before, during or after a commercial transaction. The directive does not prescribe what is considered to be "fair", but instead indicates which practices are considered to be unfair:

  • if it is contrary to the requirements of professional diligence,
  • if it materially distorts or is likely to materially distort the economic behaviour with regard to the product of the average consumer whom it reaches or to whom it is addressed.

Professional diligence is defined as the standard of special skill and care which a trader may reasonably be expected to exercise towards consumers, commensurate with honest market practice and/or the general principle of good faith in the trader’s field of activity. An important factor in the determination if a certain practice is unfair is the amount and type of information that is provided to the consumer.

These open norms such as "good faith" and "reasonable expectations" make for flexible legal norms that can be applied to numerous situations. The downside is that little legal certainty is offered and the decision will depend on circumstances of the case.

Defective products
The European directive on product liability protects against material damages afflicted to persons (death and personal injury) and damage to property (Directive 85/374/EEC). Apart from the protection measures that are so aggressive that they will harm the consumers’ computer, the DRM-techniques will commonly not cause material or personal damage.

According to the directive a product is defective if it does not provide the safety, which a person is entitled to expect, taking all circumstances into account, including:

  • the presentation of the product;
  • the use to which it could reasonably be expected that the product would be put;
  • the time when the product was put into circulation.

Although many consumers may currently expect that some sort of DRM is connected to digital content, it is less likely that they will expect that such measures will cause damage, such as harm the hard-drive of a PC. Even if this is clearly communicated towards the consumer that damage might occur, it can be argued that a DRM-techniques should not harm the consumers’ computer. Although probably effective in protecting intellectual property rights, it can be argued that this does not pass the proportionality test: the punishment is far too grave in relation to the "crime" committed.

Besides the specific regime concerning defective products, consumers may rely on general liability rules such as tort of negligence in England or onrechtmatige daad in the Netherlands. Roughly speaking, general liability rules require that adequate duty of care is observed concerning the interests of others.

Transparency
In the previous paragraphs several references can be found to the presentation of the product, information provision and pre-contractual warnings. This relates to transparency: information with regard to the product and the contract terms is relevant in the determination of the lawfulness of the distribution of the product. The law also contains several explicit information duties that need to be fulfilled by the seller. The distant selling directive (Directive 97/7/EC) imposes pre-contractual and post contractual information duties which include amongst others the obligation to communicate the main characteristics of the goods or the services (note that no distinction is made between goods and services). Furthermore the e-commerce directive (Directive 2000/31/EC) requires that the price is clearly indicated and that the contract terms and general terms are presented in such a manner that they can be stored and reproduced.

These information requirements can assure that consumers know what they can expect, and prevent that consumers are disappointed or misled. However this cannot remedy the situation where the suppliers of digital content make use of contract terms unfavourable to the consumer, they merely oblige the suppliers to communicate these terms clearly to the consumer (compare Guibault and Helberger 2005).

Bottom line
Above discussed rules show that consumer expectations play a crucial role in the determination if a certain product or a contract relating to it is lawful. Related to this is the generally accepted practice in a certain domain. As the domain of digital content delivery is relatively new, it is hard to determine what is generally accepted in the domain and what consumers may or may not expect. The fact that a diversity of digital products combined with different manners of distribution are becoming available complicates the issue.
What an average consumer can expect today when he buys digital content is a right to use the content, which is subjected to more or fewer limitations. Whether these limitations are legitimate cannot be determined solely with the legal standards offered by consumer law. These legal standards contain open norms, which do not provide for a conclusive answer. The best instrument that is offered to the consumer appears to be the information duties of the seller. In case of lacking, inadequate or false information about the product, a consumer may successfully base a claim on breach of contract or unfair practices.

Although the information duties cannot remedy that sellers use unfavourable terms, clear information allows the consumers (or consumer organisations) to determine their positions and possibly take action concerning the acceptability of the digital products and the terms under which they are marketed. Tools to do so are handed to these players by the law.

Sources
  • Directive 85/374/EEC on the approximation of the laws, regulations and administrative provisions of the member states concerning liability for defective products, OJ L 210, 7-8-1985
  • Directive 93/13/EEC on unfair terms in consumer contracts, OJ L 95, 21-4-1993
  • Directive 97/7/EC on the protection of consumers in respect of distance contracts, OJ L 144, 4-6-1997
  • Directive1999/44/EC on certain aspects of the sale of consumer goods and associated guarantees, OJ L 171, 7-7-1999
  • Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market (Directive on electronic commerce), OJ L 178, 17-7-2000
  • Directive 2005/29/EC concerning unfair business-to-consumer commercial practices in the internal market, OJ L 149, 11-6-2005
  • Girot, C. (2001): User Protection in IT-contracts. Den Haag: Kluwer Law International 2001
  • Grimm, R. (2005): Where do DRM- and e-payment systems meet? INDICARE Monitor vol. 2, no 1 25 March 2005; http://www.indicare.org/tiki-read_article.php?articleId=86
  • Helberger, N. (2004): It’s not a right silly! The private copying exception in practice. INDICARE Monitor vol. 1, no. 5, 29 October 2004; http://www.indicare.org/tiki-read_article.php?articleId=48
  • Hof Arnhem, 27-10-1983, NJ 1984, 80 (Computerdata)
  • HR 23-3-1921, NJ 1921, p. 564 (Electriciteitsarrest)
  • de Witte, M., Vermeersch, A. (2004): Europees consumentenrecht, Apeldoorn: Maklu 2004
  • Guibault, M., Helberger, N. (2005): Copyright law and consumer protection. Report for the European Consumer Law Group, February 2005

About the author: Martien Schaub studied law in Nijmegen and wrote her Phd thesis at the faculty of technology and Management at the University of Twente. Currently, she is a legal ICT consultant. Contact: m.schaub@mitopics.nl.

Status: first posted 26/07/05; included in INDICARE Monitor Vol. 2, No. 5, 29 July 2005; licensed under Creative Commons
URL: http://www.indicare.org/tiki-read_article.php?articleId=123