German Contract Law becomes more digital

Bizar Male

Germany very recently transposed the Sale of Goods Directive (EU 2019/711) and the Digital Content and Services Directive (EU 2019/770) into national law. The transposition laws contain far-reaching amendments to the German Civil Code (BGB) – likely the most far-reaching reform of the German contract law since 2002. The new provisions will apply to contracts concluded from January 1, 2022.

The new BGB provisions apply, in particular, for companies offering goods (with digital elements) or digital products to consumers. Companies offering such goods/products to business customers need to consider the new provisions for their individual business.

In sum, the German contract law becomes more digital. At least in theory, consumer protection is strengthened. The flip side of the coin is that the obligations for businesses are increasing considerably, some of which raise unresolved questions.

Background

The EU’s Directives intend better consumer protection and enforcement of such.

  • The Sale of Goods Directive aims to strengthen consumer rights in the purchase of goods and in the purchase of goods with digital elements (e.g. smart TV, smartwatch but also a car with integrated navigation).
  • The Digital Content Directive deals with a completely new subject matter. It standardizes consumer contracts on digital content (e.g. computer programs, audio files, video games) and digital services (e.g. cloud computing, streaming services).

Consumer contracts on digital content/services (products) can be distinguished from goods with digital elements as follows: A good with digital elements cannot fulfil its functions without the digital element (e.g. a smartwatch).

What is new?

New concept of defects: A good/product must meet the subjective requirements (what has been specifically agreed) as well as the objective requirements (fit for the purposes for which goods of the same type would normally be used) and installation requirements.

New: Even if a good complies with what has been specifically agreed, a good can be still defective under the new BGB.

This applies in the field of business-to-consumer (B2C) and business-to-business (B2B). Deviations are only permissible under strict conditions in B2C constellations. It is easier to deviate from the concept in B2B constellations.

Updating obligation for digital elements towards consumers: A seller must provide updates for the digital elements. The duration of the update obligation is not specified in the new BGB. It rather depends on the objective consumer expectation.

Further, it is unclear to what extent a seller can practically update the digital element. A seller of a good is rarely also the manufacturer of the good and/or the digital element.

Example: A department store is typically not able to update the operating system of a smart TV.

Contracts on digital products: The BGB introduces new provisions for contracts on digital products. These are included in the general part of German contract law (i.e. the framework provisions) that apply to all existing types of contracts.

In particular, business owners selling or distributing digital products must update these products (function-maintaining updates and security updates). The update obligation does not specify the duration.

The new BGB contains further new obligations.

Companies are advised to prepare sooner rather than later for the new and increasing obligations.

In particular, companies are advised to review and update their standard contracts (including standard business terms) and assess how the update obligations can be complied with.

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