Developments in the Digital Single Market Strategy

By Mark Owen

The European Commission has announced the first major legislative developments in the DSM Strategy, aimed at modernizing and harmonizing EU copyright rules, as well as modernising digital contract rules to simplify and promote access to digital content and online sales across the EU.

The Commission has published:

  1. A draft Regulation on ensuring the cross-border portability of online content services in the internal market;
  2. A draft Directive on certain aspects concerning contracts for the online and other distance sales of goods; and
  3. A draft Directive on certain aspects concerning contracts for the supply of digital content.

Additionally, the Commission has published an action plan for the coming year, which includes a review of the Satellite and Cable Directive and possible legislative proposals on EU exceptions, closing the so-called “value gap” and remedies available for copyright infringement.

 

Portability of Online Audiovisual Media Services

 

The proposal for a Regulation on ensuring cross-border portability of online content services in the EU aims to remove barriers to cross-border portability to more effectively meet the needs of travelling consumers whilst at the same time maintaining high levels of protection for rights holders. The proposal concerns various audiovisual media content services, including for films, sports, news and debates, but not other types of creative content services, such as music streaming services or e-books.

One of the key aims of the DSM strategy is to allow cross-border portability of online content services to which consumers currently have lawful access in their country of habitual residence, through on-going subscription, purchase or rental, and to which they want to have continued access when they are “temporarily present” in other EU Member States.

Under certain conditions, service providers will be obliged to enable cross-border portability but will not be required to obtain the relevant rights in each Member State in which the subscriber is temporarily present. This is achieved by stipulating that access to online content provided by the service provider when the subscriber is visiting another Member State will be deemed to occur in the Member State of the subscriber’s habitual residence. Relevant service providers are those that are in a position to verify the Member State of residence of their subscribers, whether the subscribers pay the service provider for access to content or not, although it is presumed that service providers who charge their subscribers will always be in a position to verify this information.

The scope of the Regulation is limited to online audiovisual media services within the meaning of the Audiovisual Media Services (AVMS) Directive (2010/13/EU) or defined as “a service the main feature of which is the provision of access to and use of works, other protected subject matter or transmissions of broadcasting organizations, whether in a linear or an on-demand matter”. The recent decision in Media Online GmbH v Bundeskommunikationssenat, in which the CJEU ruled that the concept of a programme within the AVMS Directive includes video under the sub-domain of a newspaper website, has the potential to broaden this definition considerably.

The Regulation will apply to pre-existing contracts and rights acquired before its date of application, but does not require re-negotiation of existing contracts between service providers and consumers. Instead, the Regulation will simply render unenforceable any contractual provisions which are contrary to the obligation to provide for cross-border portability. In order to allow sufficient time for rights holders and service providers to adapt to the new regime and, in the case of service of providers, to amend the terms of use of their service, the Regulation will not be applicable until 6 months following its publication in the Official Journal of the European Union, though it will come into force twenty days after publication.

The Regulation also expressly confirms that service providers will not be obliged to undertake any level of quality control on their services when accessed in other Member States, as the costs of this would be wholly disproportionate.

 

Directives on Harmonization of Aspects of Digital Content Supply and Online and Distance Sale of Goods to Consumers

 

The Commission has also published two draft Directives, the first on certain aspects concerning consumer contracts for the supply of digital content (Digital Content Directive) and the second on certain aspects concerning consumer contracts of the online and other distance sales of goods (Online Goods Directive).  The Commission is concerned that a lack of harmonization (and in many cases, a lack of applicable legislation) creates lack of consumer trust and hampers cross-border sales.

 

The key proposals are:

 

Digital content

  • supplier liability for defects – the consumer can request a remedy in relation to defective digital content.  This will not be subject to a time limit as digital content is not subject to wear and tear;
  • reversal of burden of proof – the consumer will not have to prove that a defect existed at the time of supply.  It will be up to the supplier to prove that was not the case;
  • termination rights – consumers will have the right to terminate long-term contracts and contracts to which the supplier makes major changes;
  • data as consideration – personal data given in exchange for digital content, beyond what is necessary for performance of and to ensure conformity with the contract, is considered to be “counter-performance other than money” and treated in the same (or similar) way to financial consideration.  In addition, where the consumer gives the supplier personal data in order to obtain digital content, the supplier must stop using the data when the contract is terminated.

 

Goods

  • reversal of burden of proof – under current EU rules, for a certain period of time after supply, the consumer is not required to prove a defect was present on delivery; it is, instead, up to the supplier to prove it was not.  This period of time will be harmonized to a standard two years;
  • no duty to notify – the consumer will not lose the right to a remedy if they fail to report a defect within a certain period of time as is currently the case in a number of Member States;
  • minor defects – if the seller is unable to repair or replace a defective product, consumers will have the right to terminate the contract and be reimbursed.  This will apply in case of minor as well as major defects;
  • second-hand goods – consumers will have rights in relation to second-hand goods purchased online for a period of two years rather than the current one-year period which applies in some Member States.

 

While the introduction of harmonized rules in these situations makes sense, these Directives are unlikely to be welcomed by the UK which recently introduced the Consumer Rights Act 2015 (CRA) to deal with rights and remedies in relation to the supply of goods, digital content and services.  Some of the rules proposed by the Commission are broadly in line with the CRA, others are not.

In terms of the digital content Directive, even the definition of “digital content”, which was taken from the Consumer Rights Directive, is different to the one used in the CRA.  The supply of non-essential personal data is treated in more or less the same way as financial consideration for digital content in the new draft Directive but not in the CRA which is particularly relevant as much of the CRA applies only to paid-for digital content.  This, therefore, looks likely to extend the scope of the regime significantly in the UK and will affect a broad range of businesses (although there is a certain lack of clarity to the provisions).

There is a presumption that digital content is to be supplied immediately after conclusion of the contract, whereas under UK law (derived from the Consumer Rights Directive), the consumer must explicitly request immediate supply and acknowledge that they will lose their cooling off period as a result.  While the two provisions are not mutually incompatible, they do appear to be pulling in different directions.

Crucially, the rules on burden of proof are different.  Under the CRA, the digital content is only presumed not to have conformed to the contract on point of delivery, for a period of six months after supply.  Under the draft Directive, this presumption applies permanently.  There is also a statutory termination right which does not exist under the CRA.  In addition, under UK law, remedies may only be claimed up to six years from supply.  Under the draft Directive, there is no time limit.

The draft Online Goods Directive on the online and distance sale of goods is going to cause similar issues in the UK if adopted in its current form.  While the remedies available are similar, there is no short-term right to reject as under the CRA.  Instead, the consumer moves straight to repair or replacement and can only terminate if repair or replacement is unsuccessful.  And again, the burden of proof rules are different.

Both these Directives require Member States to implement equivalent provisions of a standard which must be no higher and no lower than those in the Directives.

Of course, it is a long way from initial publication to enactment and these drafts may well change significantly.  If they do not, UK consumer law, which has recently undergone major change, will have to change again.

 

Next Steps for Cross-border Distribution of AV Media Services and Closing the “Value Gap”

 

When announcing the proposal on portability, Günther H. Oettinger, EU Commissioner for Digital Economy and Society, described it as being the “appetizer”, with the proposals to follow next year being “the main course”. The remaining legislative proposals are expected to require intense deliberation in Council and in Parliament and with the disparity between the interests and arguments of the Member States and the creative sector, could take up to two years to finalize.

The Commission is currently considering legislative proposals for adoption in spring 2016 aimed at enhancing cross-border distribution of television and radio programmes online, possibly through a review of the Satellite and Cable Directive, and supporting negotiation of cross-border content access. There has been suggestion that this may prove necessary, at least in part, in order to effectively implement the Commission’s broader portability proposals.

In order to provide enhanced access to knowledge, education and research, the Commission will consider legislative proposals on other EU exceptions to increase harmonization between and across the borders of Member States. For example, it will look at allowing public interest research organizations to carry out text and data mining of content, to which they have lawful access, for the purpose of scientific research and will clarify the “panorama exception” (i.e. permitting the use of works made to be permanently located in the public space) to take into account new dissemination channels.

The Commission will consider measures in respect of the sharing of the value created by new forms of online distribution of copyright-protected works, in particular, addressing the unintended “value gap”, which, in the Commission’s view, needs to be closed. The term “value gap” refers to the disparity between revenue generated by content sharing platforms and royalties paid to the owners of the copyright-protected works making up that content. Closing the “value gap” is intended to ensure fair remuneration for authors, thereby contributing to economic growth, competitiveness and the full development of the DSM. The idea is to achieve this by clarifying that those who distribute or intervene in distribution are active and responsible for obtaining licences, so are not neutral carriers who can benefit from the so-called “safe harbour”.

The Commission will also consider a review of the definitions of the “communication to the public” and “making available” rights and will look at, for example, news aggregation services in this context.

 

The Long-Term Future of the DSM

 

By autumn 2016, the Commission will look at the rules for identifying infringers and remedies available for infringement, as well as carrying out a full consultation on online platforms, intended to cover the use and effectiveness of “notice and action” mechanisms.

Beyond that, the ultimate goal of the DSM Strategy is full harmonization of copyright in the EU, in the form of a single copyright code and a single copyright title. There are, of course, numerous hurdles to overcome before this vision can be realized and we expect many more facets of the DSM Strategy to be announced over the next year and beyond.

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