Mason Hayes prizewinning essay 2013 – Elena Taylor-Dix
Critically assess consumer rights in relation to digital products with particular reference to e-book devices such as the Amazon Kindle.
Introduction
The difficulties of companies such as HMV and Blockbuster is an indicator of the rapidly changing nature of commerce. We now live in a digital world where consumers have access to goods at the click of a button. Even electronic goods such as the Amazon Kindle can be purchased on line and delivered the following day. Upon delivery, e-books can be downloaded in seconds. Over a billion pounds was spent on downloads last year and ‘digital entertainment sales now account for almost a quarter of the market’.[1]
It is therefore disappointing that the current legal framework does not adequately protect consumers in some aspects of this digital market. Many people would be surprised to learn that the extensive consumer rights they have in relation to the purchase of a paper book do not apply to the purchase of the same title in e-book format.
This essay will analyse the provisions of the Sale of Goods Act 1979 (SGA) and an array of case law to illustrate the confusion that has arisen with the growth of modern technology. It will assess how software as a digital product is currently categorised and suggests how it should be categorised in future. This essay will outline the legislation which ensures that a Kindle is of satisfactory quality and fit for purpose and highlights the protection the consumer receives if it is not. These rights will be compared with the lack of protection afforded to the consumer when he ‘buys’ the e-book to go with it. Despite the pending Consumer Rights Directive[2] and a recent EU ruling[3] which appears to be a landmark decision for consumers, this essay will conclude that the law needs to change and adapt with the times. The fact that ‘it is not clear what manner of legal treatment should apply to disputes involving software’[4] is untenable in the twenty first century.
Is Software a Good and Why Does it Matter?
Generally, consumers in the UK are adequately protected under the provisions of SGA. The statutory implied terms require goods to correspond with their description, be of satisfactory quality and fit for the consumer’s purpose.[5] Furthermore additional protection is offered in s6 (2) of Unfair Contract Terms Act 1977 (UCTA) which prevents the seller excluding his liability where the buyer is a consumer. However, the key term in the first sentence is ‘goods’. In order for a purchaser of software to benefit from this protection the software needs to be categorised as a good. Under SGA a contract for the sale of goods is defined as:
‘a contract by which the seller transfers or agrees to transfer the property in the goods for a money consideration called the price’.[6]
Goods are defined as ‘including all personal chattels other than things in action and money’.[7]
It is clear that a Kindle, as a tangible item, would satisfy these criteria. Moreover, the implied terms have been classified as conditions so any breach would enable the consumer to reject the Kindle and the contract.
Unfortunately, the SGA was drafted long before the digital market developed which has led to conceptual difficulties.[8] The critical point is the exclusion of things in action, also known as intangibles. Whether software can be categorised as a good has been considered by the courts on several occasions. In Toby Construction Products Pty Ltd v Computa Bar (Sales) Pty [9] the Supreme Court of New South Wales found there had been a contract for the sale of goods. However, this was on the basis that both computer hardware and software had been delivered. Since a Kindle is supplied with the Oxford Dictionary incorporated any defect with this programme would be rectified under the provisions of the SGA.
The question of whether the same outcome would be given to software alone was left open but later considered in obiter comments by Sir Iain Glidewell in St Albans City and District Council v International Computers Limited.[10] In considering whether pure software would amount to a sale of goods it was held that where the software was provided on a physical medium such as a CD the provisions of SGA would apply but without the disc they would not. This decision has been criticised for preferring ‘form over substance, effectively making the package more important than the contents’.[11] Since the consumer of an e-book would receive essentially the same product as the consumer of a physical book, probably at the same price it is submitted that this reasoning is nonsensical.
Further case law has provided different approaches including the decision that a supply of software is a contract suis generis, having some of the characteristics of a sale and some of a licence.[12] Although this was a Scottish case without any binding authority a similar conclusion was voiced by the High Court in Southwark London Borough Council v IBM:[13]
‘what was provided by IBM was in effect a licence from Orchard to Southwark to use the software and, therefore, there [was] no transfer of property’.[14]
This lack of a transfer of property results in the transaction falling outside the boundaries of SGA.
These inconsistent authorities do not fulfil the requirements for the law to be ‘clear, accessible and comprehensive’ and by treating digital goods as something other than goods it ‘fails to meet the consumer’s reasonable expectations’.[15]
Licences and their Consequences
As the preceding analysis demonstrates, consumers buying copyrighted digital content do not acquire the ownership of the product; they are merely paying for access to the content under an end user licence agreement (EULA). Therefore, the owner of a Kindle will not actually own any of the e-books he has downloaded. One would suspect that many consumers will not be aware of this fact and it is arguable that the language used by the supplier is misleading as ‘Buy now with 1 click’[16] implies that the consumer is doing more than just renting the content.
Whilst it is understandable that the copyright holder would wish to place some limitations on the end user it is submitted that these often go a step too far. Although these restrictions are often placed in the contract by the supplier rather than the author, most consumers are not aware of the consequences of checking a box binding them to these terms, otherwise known as a “click-wrap” licence.
Whilst Amazon’s terms and conditions reserve the right to terminate the use of software at any time, it is submitted that few consumers would consent to allowing Amazon to delete their e-books without notice. This has happened to at least one consumer and therefore the lack of protection against faulty goods may be the least of the consumer’s worries.[17]
The American case of Vernor v Autodesk[18] highlighted the prohibition a licence can place on the end user. Mr Vernor purchased several copies of Autodesk’s AutoCAD programme from a business who had originally obtained the software from Autodesk. Mr Vernor then attempted to re-sell the discs. The US appellate court ruled that the original purchaser was bound by the terms of the licence not to re-sell the discs and therefore Mr Vernor obtained no rights when he purchased them, despite the fact he had received a physical product.
Fortunately there has recently been some positive news for consumers following the EU ruling in UsedSoft v Oracle.[19] In this case the German Federal Supreme Court (BGH) referred a number of questions regarding the interpretation of the Software Directive[20] to the Court of Justice of the European Union (CJEU). The CJEU ruled that when a customer downloads software and enters into a licence for an unlimited period in return for a fee, such a transaction will amount to a sale and will involve a transfer of the right of ownership in that copy.
This appears to be a remarkable decision which would effectively reverse the decision of Vernor. It has however been suggested that the ruling ‘has left unresolved questions’ and ‘the practical application of the judgment is unclear’.[21] The CJEU placed great emphasis on the fact that the licence was for an unlimited period and that without the right to use the software freely the download would be useless. Therefore, it would appear that a supplier may avoid this ruling simply by placing a time limit on the licence. Moreover, a prospective vendor of second-hand software is obliged to delete his copy of the software which may be difficult to prove. Therefore, it is submitted that this ruling will need further clarification to ensure customers are adequately protected against overly restrictive licences.
Another important difference for consumers is the rights they have upon death. Whilst the owner of a physical book can bequeath it to whomever they wish, the same is not true of an e-book due to the lack of ownership.[22]
Reform of the Law
In a detailed report prepared for the Department of Business, Innovation and Skills (BIS),[23] Professor Bradgate notes that the current law in relation to digital products is not sufficient to protect customers. Whilst recognising that well established rules of contract law allow a court to infer the implied terms at common law, he points out that this provides a lower level of protection to the consumer than SGA. Furthermore, he notes that the case law draws ‘illogical distinctions between equivalent transactions so like claims are not treated alike’.[24] Whilst recognising the difficulty in allowing certain digital products to be classified as goods due to their intangible nature, Bradgate argues that the definition should be extended and claims there ‘is no existing legal constraint which would prevent [this]’.[25]
Moreover Green and Saidov provide a good argument against the view that a software transaction only results in a licence by suggesting that there is the intellectual property and separately the goods transaction which ‘take the form of a licensing agreement and a sale respectively’.[26] This idea is illustrated with the example of the purchase of a book. The consumer gains a proprietary right despite the fact that he will not acquire the intellectual property rights. It is submitted that there is no logical reason to treat the digital transaction differently.
In July 2012, BIS published a report[27] on the reform of consumer law in light of the pending Consumer Rights Directive. The report notes that the current legislation is overly complex and recommends that the law governing the supply of goods, services and digital content supplied under a contract should be simplified. In relation to digital content BIS recommends the provision of implied terms based on those provided within SGA and the provision of statutory remedies where there is a breach of the quality standards. Several options for reform have been proposed for consideration in this report.
The office of Fair Trading supported the aims of the BIS report and emphasised the need for the law to be simple for businesses and consumers to understand.[28]
Conclusion
Latest figures show that e-books frequently outsell their hardback equivalent[29] and therefore it is unacceptable that the predictability which is offered to consumers of traditional physical goods is lacking when it comes to purchases of the digital products.[30] As a result, the reasonable expectations of consumers are not being met and the confusion surrounding the current legal framework urgently needs to be rectified.
Although the Government made a commitment to offer consumers of digital products a high level of protection in its White Paper in 2009,[31] it has so far failed to deliver its promise to ensure that ‘the core principles of consumer protection apply’.[32] Despite the global nature of digital content the UK is by no means alone in failing to provide adequate provision to consumers in this respect. It is submitted that the UK now has the opportunity to lead the world in this important area of law by being proactive rather than reactive. The Government pronounced its ‘strategic vision for ensure that the UK is at the leading edge of the global digital economy’.[33] Now it has the opportunity to turn this vision into reality.
Bibliography
Batchelor, D & Keohane, D (2012). “UsedSoft – where to now for software vendors?” European Competition Law Review 33(12) pp545-55.
Eden, P. (2000). “Electronic Commerce – Law and Policy”, in Walker, C. Wall, D. & Akdeniz, Y. (eds) The Internet Law and Society Harlow. Pearson Education. Page 352.
Green, S. & Saidov, D. (2007). “Software as goods”. Journal of Business Law pp161-181
Other Sources
Bradgate, R. Consumer Rights in Digital Products. BIS Report.
“Enhancing Consumer Confidence by Clarifying Consumer Law” BIS Report July 2012.
King, M. “Amazon wipes customer’s Kindle and deletes account with no explanation.” The Guardian, 22 October 2012.
Malik, S. “Kindle ebook sales have overtaken Amazon print sales, says book seller”. The Guardian, 6 August 2012.
National Audit Office Report. “Digital Britain One: Shared Infrastructure and Services for Government online.” HC 1589 Session 2010-2012. 9 December 2011.
OFT response to BIS consultation. Available at
http://www.oft.gov.uk/shared_oft/reports/oft_response_to_consultations/OFT1453resp.pdf
Sweney, M. “Digital entertainment downloads top £1bn for first time in 2012.” The Guardian, 2 January 2013.
Which magazine: http://conversation.which.co.uk/technology/digital-download-legal-rights-after-death-amazon-itunes-apple/ [accessed 20.02.13].
White Paper A Better Deal for Consumers: Delivering Real Help Now and Change for the Future. Cm 7669
[1] Sweney, M. “Digital entertainment downloads top £1bn for first time in 2012”. The Guardian, 2 January 2013.
[2] CRD 2011/83/EU
[3] Case C-128/11 UsedSoft GmbH v Oracle International Corp.
[4] Green, S & Saidov, D. (2007). “Software as Goods”. Journal of Business Law pp161-181 at p161
[5] ss12-15 SGA
[6] s2(1)
[7] S61(1)
[8] Eden, P. (2000). “Electronic Commerce – Law and Policy”, in Walker, C. Wall, D. & Akdeniz, Y. (eds) The Internet Law and Society Harlow. Pearson Education. Page 352
[9] [1983] 2 NSWLR 49.
[10] [1996] 4 All ER 481 (CA).
[11] Bradgate, R. Consumer Rights in Digital Products. BIS Report p41.
[12] Beta Computers (Europe) Ltd v Adobe Systems Ltd [1996] SLT 604.
[13] [2011] EWHC 549.
[14] Ibid. per Akenhead, J at p95.
[15] Supra n. 11 at p46
[16] http://www.amazon.co.uk/gp/product/B0052CK5TW/ref=s9_al_bw_g351_ir03?pf_rd_m=A3P5ROKL
[17] King, M. “Amazon Wipes Customer’s Kindle and deletes account with no explanation” The Guardian, 22 October 2012
[18] Vernor v Autodesk 555 F. Supp. 2d 1164
[19] Supra n.3
[20] 2009/24/EC
[21] Batchelor, D. & Keohane, D. (2012). “UsedSoft – where to now for software vendors?” European Competition Law Review 33(12) pp545-551
[22] Which magazine: http://conversation.which.co.uk/technology/digital-download-legal-rights-after-death-amazon-itunes-apple/ [accessed 20.02.13].
[23] Supra n.11
[24] Supra n.11 p.22
[25] Supra n.11 p.6
[26] Supra n.4 at p174
[27] Enhancing Consumer Confidence by Clarifying Consumer Law
[28] OFT response to BIS consultation. Available at http://www.oft.gov.uk/shared_oft/reports/oft_response_to_consultations/OFT1453resp.pdf
[29] Malik, S. “Kindle ebook sales have overtaken Amazon print sales, says book seller” The Guardian, 6 August 2012
[30] Supra n4
[31] White Paper A Better Deal for Consumers: Delivering Real Help Now and Change for the Future. Cm 7669
[32] Ibid
[33] National Audit Office Report. Digital Britain One: Shared Infrastructure and Services for Government online. HC 1589 Session 2010-2012. 9 December 2001
