The Digital Content Directive – Cautiously Embracing the Digital Era in Austria

Untapping the Potential of Cross-Border E-Commerce

A wider choice of products, at more competitive prices and a market of up to 70 million online cross-border buyers were promised by the European Commission¹ when it touted its proposals for the Digital Content Directive² and
Sale of Goods Directive³ back in December 2015. Almost six years and several heated discussions later, the Austrian government presented its light at the end of a bumpy tunnel – the Warranty-Directives-Transposition Act
(Gewährleistungsrichtlinien-Umsetzungsgesetz “GRUG“).

Along with a handful of amendments to the Consumer Protection Act (“KSchG“) and the Civil Code (“ABGB“), the GRUG introduces the Consumer Warranty Act (Verbrauchergewährleistungsgesetz “VGG“) as its centrepiece. Even though several novelties were inevitable due to the mandatory nature of the EU-Directives, the existing warranty regime was retained as much as possible.

Assuming that further steps will be completed as scheduled, EU consumers and entrepreneurs should benefit from the harmonised regulations by 1 January 2022.

Distinguishing the Cloud from the Smartphone

The provisions of the Digital Content Directive shall be applicable to contracts concluded between entrepreneurs and consumers on the supply of digital content or digital services in exchange for consideration either in money or personal data. Whereas digital content is to be understood as data which are produced and supplied in digital form, digital services either allow the consumer to create, process, store or access data in digital form or share any other
interaction with uploaded or created data in digital form. For the sake of simplicity, the recurrent terms of “digital content” and “digital service” were cumulated under the term of “digital performance” within the GRUG.

Considering the mandatory particularities established by the Digital Content Directive, an entire chapter of the VGG is dedicated to special provisions applicable to contracts on the supply of digital performances only, such as
videos, music, e-books, computer programmes as well as apps, cloud services, social media or streaming services.

Then again, digital performances are excluded from the applicability of such provisions where they form a part of “goods with digital elements”. Digital performances qualify as such, if they are incorporated in or inter-connected
with tangible movable items in such a way that their absence would prevent the goods from performing their functions. Such “goods with digital elements” like smartphones or tablets are subjected to another chapter of the VGG which is solely dedicated to the sale of goods. In this light, it will be crucial to distinguish “simple” digital performances from those that are of “essential” importance for the function of other products.

“Taking into account the myriad of products which are connected to digital performances in one way or another, the practicalities will be left to the courts to determine.”

Data is the new gold

Although personal data is becoming increasingly important as the digitalisation of our world is advancing and thus is gaining more and more commercial value, specific regulations of contracts where the “buyer” provides personal data in
exchange for contractual performance have mostly been notable by their absence in Austria. In fact, the Austrian civil law repeatedly distinguishes between gratuitous and non-gratuitous contracts to the effect that this classification is decisive for the applicability of considerably different legal provisions. Ensuing from this clear distinction, the legal assessment of contractual rights by means of the existing legislation is not always stringent and unproblematic, where personal data is provided as consideration.

“The Digital Content Directive provides impetus for establishing a new set of rules specifically tailored to the particularities of such contracts.”

By referring to the widespread use of business models that are built on the concept of “paying” with personal data, the Digital Content Directive is the first legislation that emphasises the commercial value of personal data. Concurrently, it recognises the necessity of granting contractual rights that are originally reserved to non-gratuitous contracts also based on contracts, where the consideration is not paid in money but in personal data of the consumer. Irrespective of this rapprochement, the Government Bill of the GRUG was not used to take up this impetus, and a holistic approach of clarifying the legal implications of data as consideration has not been followed yet. Instead, the warranty rights due to “payment” with personal data were limited to contracts between entrepreneurs and consumers on the supply of digital performances only.

Catching a first glimpse

Divergent: Supply and Right to Termination

Entrepreneurs will be required to supply digital performances without undue delay after the contract was concluded, unless agreed otherwise. In the event of default, consumers may demand immediate supply. As soon as the entrepreneur once again fails to supply without undue delay after the demand has been made, the consumers may declare their withdrawal from the contract, unless the parties expressly agreed on an additional grace period. This new rule departs from the general provision according to which a creditor may declare to withdraw from the contract as soon as the debtor is at default, but must set a reasonable grace period for supply in any case before the withdrawal from the contract becomes effective. As this new rule is proposed to be implemented in the KSchG, different delay regulations will need to be observed as regards of B2B and B2C relations.

Specified: Conformity to agreed and “normal” features

Corresponding with the already established warranty regime which requires the contractual object to have the agreed and the “commonly required” characteristics, digital performances will need to conform to requirements that were expressly agreed upon and have features that are usual for digital performances of the same type and may reasonably be expected by the consumer. By explicitly referring to specific features, the Digital Content Directive introduces a defined minimum standard of quality that needs to be fulfilled.

Moreover, within contractual relationships between entrepreneurs and consumers, several formal requirements must be met as regards of deviations of the digital performance from the objective requirements. The entrepreneur not only needs to specifically inform the consumer of any such deviation before the contract is concluded, the consumer must also expressly and separately accept that deviation when concluding the contract. Any failure of the entrepreneur to provide the proper information or to obtain the consumer’s consent may render the supplied digital performance defective. These specific formal requirements are a novelty in Austrian law. Although the consumer may also give oral consent, it is recommended for purposes of proof to obtain the consent in a written form (e.g. ticking a specific box).

Introduced: Obligation to Provide Updates

Suppliers of digital performances are obliged to provide updates that are necessary to maintain conformity of the digital performance (e.g. security updates). Where continuous supply over a period of time is agreed (e.g. cloud
storage), the supplier must provide and inform about such updates throughout the entire duration of that period. In the case of a single act of supply (e.g. download of an e-book) this obligation exists as long as a buyer “may reasonably expect” the supply of such updates.

This obligation is a novelty under Austrian law as well. As this obligation is considered expedient not only with respect to contracts between an entrepreneur and a consumer, it was proposed to extend this obligation under the VGG also to contracts between two entrepreneurs. However, in contracts between entrepreneurs this new obligation is not mandatory and thus it might be derogated or modified.

Already Known: System of Remedies

As previously mentioned, the existing fundament of warranty remedies remains unchanged. As a rule, consumers are initially entitled to demand that the digital performance is brought into conformity. Only in the second instance or if there are additional justifying grounds, the consumer may demand a proportionate price reduction or termination of contract. Price reduction is not available where data, but no money has been paid as consideration.

Deviating from the general rule and assuming that consumers are primarily interested in the functioning of the digital performance, the choice between repair or replacement is shifted to the entrepreneur within the scope of the Digital Content Directive. It should be recognised that the buyer will still be able to choose between repair or replacement when contracts are concluded between either two entrepreneurs or two consumers, since this new provision has been proposed to be adopted within the VGG and not the ABGB.

Extended: Reversal of the Burden of Proof

The entrepreneur must prove conformity during the entire contract period where supply takes place continuously or within one year after the time of supply in the case of single act of supplies. An exemption from this reversal of the
burden of proof is made where the entrepreneur demonstrates that the consumer was informed of certain technical requirements in a clear and comprehensible way before the conclusion of the contract and that the digital environment of the consumer is not compatible with those technical requirements. In order to enable the entrepreneur to produce the necessary proof, the consumer is obliged to cooperate to a reasonable extent.

Accordingly, the current six-month period for the reversal of the burden of proof stipulated under the Civil Code will be significantly extended where the contract falls within the scope of the VGG. However, a general extension of this time period has not been envisaged, thus the six-month period is still retained with respect to contracts concluded between two entrepreneurs or two consumers.

Rearranged: Warranty Period and Statute of Limitation

The aspect of the warranty period has not been fully harmonised by the Digital Content Directive, which only requires a minimum warranty period of two years in the case of a single act of supply. In cases of continuous supply, the
warranty period will last over the entire contract period. While the Austrian government adopted corresponding provisions regarding the continuous supply, it did not extend the already established warranty period of two years regarding material defects, partially reasoning that no additional burden should be imposed on the entrepreneurs considering their already strained economic situation due to the pandemic.

Moreover, the Digital Content Directive provided impetus for the revision of the warranty period and the statute of limitation in general. The ABGB should be amended insofar as, with respect to material defects, the limitation period will end three months after the warranty period. Thus, buyers will be given an additional three months to claim their rights before the court, if sellers refuse to comply with their request for remedy of defects. In addition, it is clarified that
the parties may in general agree on an extension or limitation of the warranty period as well as the statute of limitation.

Simplified: Assertion of rights

In the future, a simple declaration of the buyer made within the warranty period should already suffice in order to properly assert any right to remedy of defects, irrespective of whether the claim was asserted in the capacity of a consumer or entrepreneur. The declaration is not tied to any formal requirements, thus oral declaration will be just as admissible as written declarations. However, for evidence purposes, written declarations (e.g. via email) are recommended. Even without having asserted any right to remedy of defects within the warranty period, the buyer will still be entitled to bring a warranty claim before a court within the statute of limitations.

This significantly differs from the current Austrian provision, according to which any warranty claim must be brought before a court within the warranty period in order to prevent its preclusion and comes along hand in hand with the rearrangement of the warranty period and statute of limitation.

Derogated: Unilateral Modification

Eventually entrepreneurs will also be entitled to unilaterally modify digital performances beyond the necessary extent, where continuous supply was agreed and provided such modification does not entail any costs for the consumer, the modification is based on a valid reason and the consumer is provided with information about this modification in a clear and comprehensible way. Should any modification negatively impact the access to or use of the digital performance, the consumer is entitled to terminate the contract, unless the entrepreneur enables the consumer to maintain the digital performance without such modification and without additional costs.

Due to its specific prerequisites, this right to unilateral modifications of digital performances takes precedence over the corresponding general provision of the KSchG. Pursuant to that provision, an entrepreneur may only be entitled to
unilateral modification of the contractual object, if such right has been individually agreed on between the entrepreneur and the consumer.

¹ Digital Contracts for Europe – General Factsheet, Publications Office of the European Union 2015.

² Directive (EU) 2019/770 on certain aspects concerning contracts for the supply of digital content and digital services.

³ Directive (EU) 2019/771 on certain aspects concerning contracts for the sale of goods