New Deal for Consumers – new regulatory framework for a Digital Europe
What’s in store for (online) businesses? Is your company ready for the EU consumer protection update?
Following an initiative called the “New Deal for Consumers,” the European Commission issued the Enforcement and Modernisation Directive, informally referred to as the Omnibus Directive, in 2019, instructing EU Member States to strengthen consumer rights. The German drafts for the implementation of these rules in the form of the “Draft bill to strengthen consumer protection in competition law and trade law,” have been available since November 4, 2020. According to Federal Minister of Justice Christine Lambrecht, it is intended to improve consumer protection on comparison and brokerage platforms and in cases of promotional bus trips with product sales, while also creating more legal certainty for bloggers and influencers.
What are the major new rules in the current drafts?
Two key areas will be affected: The creation of new rules in competition law and the strengthening of consumer rights when purchasing digital content and services. Particularly online and offline retailers, platform operators, but also influencers and the companies behind them are now facing major challenges that call for urgent adjustments to business processes and compliance systems. Fines for infringements may be up to 4% of a company’s annual sales.
1. Online marketplaces (rankings and consumer ratings)
Some core provisions of the draft law affect online marketplaces and comparison portals. Numerous amendments in the Act against Unfair Competition are designed to expand operators’ obligations:
- In the future, online marketplaces and comparison portals will need to transparently show on their own websites the default main parameters and their relative importance for search results (“rankings”). That information should be succinct and made easily and directly available, even before the search results are displayed.
- Companies displaying consumer reviews will have to show whether and how they ensure that the published reviews originate from consumers who have actually used or purchased the reviewed products or services.
- These rules are accompanied by numerous other provisions prohibiting, for example, covert advertising in search results or fake consumer reviews.
2. Consumer rights for redress in the event of infringements of competition law
For the first time, the draft law amending competition law also provides for independent rights of consumer redress in the event of infringements of consumer protection rules under competition law. In the future, for example, consumers will also be able to claim compensation for damage suffered due to misleading advertising by manufacturers – even if they have not concluded a contract with the company.
3. New rules on marking requirements of influencers and bloggers
The draft law is also intended to “provide a legally compliant framework for the activities of bloggers and influencers where such bloggers and influencers recommend goods and services without themselves financially benefiting therefrom by way of a fee or similar consideration.” This provision is intended to eliminate previous uncertainties for influencers as to when and how advertising for third-party products should be marked. In the future, this obligation to mark posts as advertising will only apply if influencers receive a “payment or similar consideration,” such as free products.
Additional information is available in our article.
4. Numerous special rules
The draft law also provides for a number of other amendments:
- In the future, the resale of event tickets will be prohibited if resellers purchased the tickets by using bots, for example.
- When quoting prices as part of discount promotions, the lowest price previously charged for the relevant product within the last 30 days will also need to be listed.
5. Future infringements will be subject to large fines
The planned and first-time introduction of numerous penalty provisions in Section 19 of the new version of the Act Against Unfair Competition will be particularly relevant to businesses. In cases of “widespread infringements with a Union dimension” – such as unfair, aggressive, or misleading marketing or selling – fines of EUR 100,000 will be imposed for smaller companies, up to 4% of annual sales.
Consumer contracts on digital products
Implementing the Digital Content Directive, the German legislator is creating a new type of contract for digital products. Digital products refers to digital content and digital services.
- Digital content includes audio and video files, e-books, software, games, etc.
- Digital services include streaming services, cloud services, social media, etc.
It is irrelevant whether the product is transmitted digitally or via the use of hardware (DVD, USB flash drive, etc.).
The rules not only cover services for which financial compensation is paid, but also those for which data is the means of “payment.”
1. Defect-free provision of the digital product
The company must provide the digital product free of material defects and of defects of title. The draft provides for a detailed description of the digital product’s freedom from defects. In addition to the agreed quality, the product must also be suitable for standard use and meet the requirements for integration, so that it must be usable in the consumer’s digital environment.
2. Obligation to update
The company’s obligation to provide function-maintaining updates and security updates of the digital product is also expressly stipulated by law. In ongoing contractual relationships, this obligation for the entire term of the contract; in one-time contracts, it will only apply for the period reasonably expected by a consumer.
If businesses fail to comply with the contract, the consumer is entitled to warranty rights for defects, such as subsequent performance and contract termination.
What are the next steps?
The final provisions of the competition law amendments must be issued by November 28, 2021 while the law must enter into force by May 28, 2022. Given that the rules pose considerable challenges for businesses, all companies should start early to analyze their individual needs for implementation and then focus on taking the necessary steps. We are available at all times to assist in this process.