Mason Hayes Solicitors

Ian Dick 2016 University of Sussex Mason Hayes Essay prize winner evaluates the provisions of the Consumer Rights Act 2015 relating to contracts to supply digital content to a consumer.

 

Introduction

The emergence of technology as a commodity to buy, sell and licence in trade has acted as a significant vehicle for economic development.’ Until 1 October 2015, the supply of digital content to the consumer was governed largely under the Sale of Goods Act 1979 (herein SGA). Chapter 3 of the Conszoner Rights Act 2015 (herein CRA) now governs the area. In practice, the provisions contained in it fail to provide a comprehensive framework to govern supply, or omit to govern important aspects of the digital content market altogether.

Firstly, this paper will discuss the strain between the first sale doctrine and the CRA. It is argued that the Act fails to implement the doctrine appropriately in relation to copyright legislation and CJF,1.3 case law. Recourse to the approach of the USA will be made to establish that the CRA is inadequate. Secondly, this paper will examine the ‘satisfactory quality’ provisions of the CRA in relation to digital content, focusing on the threshold of ‘satisfactory’, and the ongoing obligations of the supplier. This paper will conclude that Chapter 3 of the CRA has been a significant disappointment for consumers. Nevertheless, the legislature has made an optimistic start in recognising the need for statutory reform.

First Sale Doctrine

There is a tension between licensing digital content to a consumer and the rights supplied under the first sale doctrine. The CRA has failed to clarify the legal position on how licensing is to be governed in the consumer rights framework. The Copyright, Designs and Patents Act 1988 makes it an infringement of copyright for anyone, other than the rights holder, to make copies of a work without the copyright proprietor’s consent.2 This extends to transmitting copies digitally as it essentially entails making a copy.3 Restrictions on copying when the consumer has a mere license

1 John Dunning, Multinationals, technology f competitiveness (A I .F international business) (Routledge 2013) p.10

2 Copyright, Designs and Patents Act 1988, s 17

3 ibid. s17(2)

 

to use digital content has implications on the use of the first sale doctrine whereby it is lawful to sell a copy of a copyright protected work without permission from the copyright proprietor. The CJEU in UsedSoil v Oracle held that the right to resell a licence is conferred when, inter alia, the rights holder grants a perpetual licence to the user.4 Although the grantee of the licence in this case was a trader, it is feasible that a similar approach would arise between trader and consumer. In theory, a consumer would be able to exercise rights of resale with a mere licence over the digital content. Albeit, in practice, the requirement of a perpetual licence to exercise rights of resale are easily circumvented by digital content suppliers if the infinite requirement of a license is revoked by inserting a clause into the licence terms that give a specific time or date that the licence expires.’

s39 CRA governing supply by transmission and continued transmission has disregarded the principles of the first sale doctrine and pushed aside the decision in UsedSoft v Oracle. Software developers are now moving towards a system of expressly capping the duration of a licence in the click wrap terms of the consumer contract, Microsoft’s Office 365, a popular consumer software product, provides a typical example. A licence is granted by Microsoft to consumers for the use of its Office 365 software for a fixed and renewable time period,6 thus the licence cannot be transferred from one consumer to another. This is bad news for consumers hoping to transfer their licences, and for EU free market principles alike. s39(5) CRA sets out that a processing facility ‘must be available to the consumer for a reasonable time, unless a time is specified in the contract’ (emphases added). Consequently, this means that under the CRA, the first sale doctrine as exercised in UsedSoft v Oracle becomes almost impossible for consumers to exercise. ‘Reasonable time’, as stipulated in the Act, does not equate to perpetual time. This makes it impossible to exercise the first sale doctrine under the digital content provisions of the CRA particularly in the context of supplying software whilst also failing to implement the approach of the CJEU.

Recourse to the doctrine of first sale jurisprudence in the USA may be made to establish whether the CRA is failing to consider the doctrine adequately. In the USA, the first sale doctrine

1- Case 0-128/11 UsedSofi GmbH a Oracle International Corp. [2012] EGR .1-0000

CREATE, ‘The htture implications of the Medi& 1 Decision (Working Paper 2014/2, 2014) p.7

See: ‘Supplement to Microsoft Services Agreement: Microsoft Office 365 Consumer Subscription Service and Software: Microsoft Office 365 Home; Microsoft Office 365 University; Microsoft Office 365 Personal’ <https://wwwmicrosoff.conVen-gb/itseterms> accessed 2nd April 201(3

 

applies only to copies owned, not licensed.? The Ninth Circuit’s decision in Vernor v Azttodesk held, that software is supplied by license if, inter alia, the click wrap terms significantly restrict the user’s ability to transfer the software.8 Immediately, this approach differs from the CJEU as the ‘licensed, not sold’ theory was disfavoured in UsedSoil v Oracle (by allowing sale of a licence under specific circumstances), but adhered to in Vernor v Autodesk.9 The CRA is silent on the first sale doctrine and on the ‘licensed, not sold’ theory. The USA’s first sale doctrine allows a software user to install software onto hardware and sell that hardware with the software installed on it. The CRA is once again silent. s41 CRA provides that the supplier must have the right to supply. Previously, it would be limited to copyright proprietors to enforce their rights under the CDPA against the supplier, but this provision allows for consumers to bring an action of their own, increasing the scope of consumer protection. Beyond that, the section is brief and deficient, and fails to consider the implications of the first sale doctrine and CJEU case law.

Satisfactory Quality

s34 of the CRA governing satisfactory quality for digital content is to quite an extent a reflection of s14 SGA governing implied terms about quality or fitness. The CRA provisions have, however, failed to recognise the difficulties with software that require a more tailored set of rules. s34 CRA provides an implied term that digital content supplied to a consumer must be `satisfactory’ and ‘free from minor defects’.18 Digital content can contain defects which have a sliding scale of delirious consequences; a minor inconvenience to integral ruin, the latter rendering the digital content useless. The Parliamentary debate on 28 January 2014 recognised that it is in the nature of the digital content business that complex products will have ‘flaws’,11 yet

7 17 USC Code §109.

8 Tremor v Autodesk, 621 E3d 1102 (9th Cir. 2010) 1111

9 Girish Agarwal, Implementing a digital .fird sale doctrine: Compennac study of the EU (Anchor Academic Publishing 201_5) 37

Consumer Rights At 2015,, s34(3)(b)

House of Commons and Westminster, ‘House of commons Hansard debates for 28 Jan 2014 (pt 0001)’ (28 January 2014) <110p: / /www.publications,parlia m en t. uk/pa / cm201314/ cmh ansrd / crn 140128 / debtext / 140128-0001.htm#14012854000002> accessed 10 April 2016

 

the CRA fails to expressly govern the complexities of satisfactory quality for digital content supplied to the consumer for several reasons.

The role of, and dependency on, the digital content and therefore the varying importance of high quality is not reflected in the Act. For example, it would be expected that a patient whose life depends on the pacemaker inserted in his heart chamber should expect higher quality than, for example, a consumer who uses his smartphone for the purposes of leisure. It is not an issue of lowering the threshold for less important digital content, but instead raising it for the more so. This in itself poses difficulties. Placing a value on specific digital goods would be subjective and complicated to do. Further, it increases the burden on the supplier and would increase the cost of more valuable digital content. This would need to be balanced with the interests of consumers. When interpreting the Act, the judiciary may have to address this difficulty when cases concerning supply of digital content to consumer reach the courts. Until then, the Act relies on a `one-size-fits-all’ approach and arguably does not address these concerns.

Consumers will to some extent have to tolerate minor defects when they do not render the digital content unsatisfactory. Where this line is to be drawn needs to be clarified in the CRA. In 2015, a defect in Boeing’s 787 Dreamliner digital equipment was found which would cause a total electrical shut down of the aircraft if the its electrical generators were not restarted at least every 248 days.12 It is not clear in the Act whether in a situation such as above, having to reset the systems which control the electrical generators as a patch fix repeatedly before the 248 day mark would deem it unsatisfactory for the purposes of s34. Admittedly, the above example is a B2B supply of digital content, but it equally raises concerns about the shortfalls of the satisfactory quality provisions for consumers. s34(2) objectively asks if the reasonable person would consider the digital content to be satisfactory, suggesting that a digital product will be in conflict with the Act if it does not reflect a consumer’s expectation. It is apparently disregarding whether the supplier had the possibility of foreseeing the defect when supplying the digital content.13 s34 is

12 Samuel Gibbs, ‘US aviation authority: Boeing 787 bug could cause ‘loss of control” (77n Guardian, 1 May 2015) <hap: / /www. theguardian.com /business /2015 / m ay / 01 / us- aviation-auth ori ty-b oeing-787-dreamliner­bug-could-cause-loss-of-control> accessed 15 April 2016; Mike James, ‘Reboot your Dreamliner every 248 days to avoid integer overflow’ (I Programmer, 6 April 2016) <http://www.i-programminfo/news/149-security/ 8548-reboot-your-dreamliner-every-248-days-to-avoid-integer-overflowlitml> accessed 15 April 2016

IS An observation adapted from: Stojan Arnerstal, ‘Licensing digital content in a sales of goods context’ (2015) 10(10) Journal of Intellectual Property Law & Practice 750, 755

 

thus trying to shift away from a regime of caveat emptor to caveat vendetor,14 but is far too vague in practice.

The duration of the obligations on a supplier to update digital content, and thus ensure it is of ongoing satisfactory quality, are void of certainty in the CRA. s34(3) CRA lists ‘durability’ as an aspect to consider when assessing quality. This arouses issues as to the duration of obligations on suppliers and software developers to supply software updates, or equivalent, to maintain digital content. This is less of an issue for digital files such as MP3s and PDFs, and more applicable to complex software containing code, such as computer and smartphone operating systems and plug ins. As discussed, digital content suppliers are exponentially favouring licenses in contracts to supply digital content. Referring back to Windows 365 licensing regime, it seems logical that s34(3) would apply to ensure updates to the software are supplied to the consumer where defects affect its satisfactory quality. This period of obligation on Microsoft would last the period of the relevant consumer’s subscription period to the software. This is merely an assumption and one that the CRA failed to clarify.

What is similarly lacking clarity is what the obligations are on the seller if the seller is not the supplier, and the supplier becomes insolvent after supplying the digital content and so essential updates to ensure the digital content operates satisfactorily can no longer be supplied to the consumer, Under these circumstances, the CRA is silent as to who should bear the responsibility. Given the costs imposed on a supplier or developer of digital content to write and push updates for consumers, it makes business sense that there should be a cut off point for when suppliers should be obligated to fulfil these update obligations to ensure the digital content is satisfactory. This must be balanced with protecting the interests of the consumer. The Limitation Act 1980 states that the right to sue in contract expires 6 years after the date of the cause of action.15 Whether this should be engaged to govern software updates required to maintain digital software is absent of supervision in the digital content provisions of the CRA. Another possibility would be to differentiate between digital content containing code which is bought off the shelf and its tailor made counterpart. Whether it would be disproportionate to impose the same lengthy duration

Althal Marsoof, ‘Digital content and the definition dilemma under the Sale of Goods Act 1979: Will the Consumer Rights Bill 2013 Remedy the malady?’ (2014) 9(4) Journal or International Commercial Law and Technology 285, 285

15 Limitation Act 1980, s5

 

obligations, to supply necessary software updates to tailor made software due to its minimal utility in cost-befit analysis, is not accounted for in the CRA and should have been addressed accordingly,

s34(4)(c) of the CRA provides that the implied terms of satisfactory quality do not apply when a reasonable examination of the trail version would have drawn the consumer’s attention to the unsatisfactory quality. This provision fails to take into account that digital content updates are often pushed to devices after the consumer buys the full product which unintentionally lower the quality of the product or make it temporarily unusable. These defects could not have been `apparent’ to the consumer during the trial period simply because the defects would not have existed at that time of using the trial. This provision reflects s15 SGA governing Sale by Sample. At the time of legislating the SGA, the goods the legislators had in contemplation were not digital. The CRA, in mirroring the SGA, thus fails to consider the unique nature of digital content, particularly software, whereby the seller has the ability to change the quality of the product after it has been transferred to the consumer.

Concluding thoughts

Legislating on the complexities of supplying digital content is not a simple task. That said, the CRA lacks clarity on several major issues. The first sale doctrine has been omitted from overdue codification in the Act; a surprise given the bold judgment of the CJEU to discard the `licensed, not sold’ theory. s34 issues relating to satisfactory quality are particularly troubling, The Parliamentary debates on the legislation were notably lacking detail. For Parliament to recognise the ‘flaws’ in the nature of digital content16 yet still fail to circumvent these problems in the Act is disappointing.

The CRA is a new piece of legislation. The Supply of Goods and Services Act 1989 similarly had a period of difficulties arising from lack of clarity when it was first enacted. Since then, the framework around the Act has developed considerably. Upon reflection of this it is hoped that the CRA provisions governing digital content will blossom in a similar vein.

10 op. cit. 11

 

Bibliography

US Cases

Vernor v Atttodesk, 621 E3d 1102 (9th Cir. 2010) 1111

Statutes

Copyright, Designs and Patents Act 1988

Limitation Act 1980

US Statutes

17 USC Code §109.

EU Cases

Case C-128/11 UsedSoft GmbH v Oracle International Corp. [2012] ECR I-0000

Books

Agarwal G, Implementing a digital first sale doctrine.. Comparative study of the E. U. (Anchor Academic Publishing 2015)

Dunning j, Multinationals, technology & competitiveness (RLE international business) (Routledge 2013)

Journals

Arnersthl S, ‘Licensing digital content in a sales of goods context’ (2015) 10(10) Journal of Intellectual Property Law & Practice 750

Marsoof A, ‘Digital content and the definition dilemma under the Sale of Goods Act 1979: Will the Consumer Rights Bill 2013 Remedy the malady?’ (2014) 9(4) Journal or International Commercial Law and Technology 285

 

Working Papers

CREATE, ‘The Future Implications of the Usedsoft Decision (Working Paper 2014/2, 2014)

Wcbsites

House of Commons and Westminster, ‘House of commons Hansard debates for 28 Jan 2014 (pt 0001)’ (28 January 2014) <http://wwwpublications.parliament.uk/pa/cm201314/cmhansrd/ cm140128/debtext/140128-0001.htm#14012854000002> accessed 10 April 2016

Supplement to Microsoft Services Agreement: Microsoft Office 365 Consumer Subscription Service and Software: Microsoft Office 365 Home; Microsoft Office 365 University; Microsoft Office 365 Personal’ <https://www.microsoft.com/en-gb/useterms> accessed 2nd April 2016

Newspapers

Samuel Gibbs, ‘US aviation authority: Boeing 787 bug could cause ‘loss of control” (The Guardian, 1 May 2015) <http: / /wwwtheguardian. com/business /2015 /may /01 / us-aviation-authority­boeing-787-dreamliner-bug-could-cause-loss-of-control> accessed 15 April 2016

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