Consumer Rights re Digital Content

It has long been a tricky legal question whether software counts as "goods" or "services".  The distinction matters for a number of purposes, including that different terms are implied by law in contracts for the supply of goods and contracts for the supply of services.

The new Consumer Rights Act 2015 (the "Act") sidesteps the question by creating an entirely new category of "digital content" and stating exactly what terms are implied into a contract for the supply of digital content.  However, the Act only applies to a contract between a "trader" and a "consumer"and the key terms are only implied if the consumer pays for the digital content.  So for business to business ("B2B") contracts or contracts for genuinely free content, the old law still applies.  But where the Act does apply, businesses will need to review their terms and conditions.

The relevant provisions of the Act are expected to come into force on 1 October 2015 and there is some excellent guidance produced by the Trading Standards Institute here, which I will not repeat in detail.

In summary "digital content" is widely defined as "data which are produced and supplied in digital form", which the guidance explains includes:

• computer games
• virtual items purchased within computer games
• television programmes
• films
• books
• computer software
• mobile phone apps
• systems software for operating goods - for example, domestic appliances, toys, motor vehicles, etc.

There are implied terms that the digital content must be:

• of satisfactory quality
• fit for a particular purpose
• as described

These terms are subject to some limitations, which are explained in the guidance.  The consumer's remedies for breach of these terms are initially the right to repair or replacement, and then the right to a price reduction if this is not practical.

The trader cannot contract out of these implied terms.  This all sounds like a big change, but the reality is that the scope to contract out of liability to consumers is already severely limited by the Unfair Terms Act 1977 and the Unfair Terms in Consumer Contracts Regulations 1999, and the sort of digital content covered would probably have been considered "goods" under the existing law and therefore subject to equivalent implied terms and remedies in any event.  The Act therefore really just clarifies the legal position - which is important as it helps prevent unscrupulous traders taking advantage of the legal "grey area" to deny consumers their rights and deter them from seeking a remedy.

Standard terms and conditions for business to consumer ("B2C") contracts will need to be reviewed for consistency with the new law, especially if it was assumed that the terms implied in a contract for the sale of goods did not apply.  If one of the exceptions or limitations described in the guidance are applicable, it would be helpful to spell this out.  For example the guidance explains that "Most computer systems' software, games and apps have minor defects that are corrected over time with fixes or upgrades. Therefore a 'reasonable person' might expect the defects to be present and judge any items containing them to be of satisfactory quality."  This is something that suppliers may well wish to highlight in their Ts & Cs.

There is more scope for excluding liability in a B2B contract, but standard terms must still satisfy the test of "reasonableness" under the Unfair Terms Act 1977.  Will a statement that no term shall be implied as to satisfactory quality, fitness for purpose or correspondence with description be considered "reasonable" by a Court given that such terms are now clearly implied in consumer contracts, or will a more nuanced approach to the drafting be more likely to be upheld?