The Omnibus Directive: A New Deal for EU Consumers – Part 2 – The objectives and provisions of the Omnibus Directive in focus

On 7 January 2020 the European Commission’s Enforcement and Modernisation Directive (EU) 2019/2161 (informally referred to as the Omnibus Directive) came into force and must be implemented in Member States by 28 November 2021. This is the second of three blogs exploring the Omnibus Directive and what it means for stakeholders at all levels. In Part 1 we looked at the background to the directive, its key features and the next steps in its implementation. In this Part 2 we look in more detail at the objectives and specific provisions of the directive and in Part 3 we will look at the potential implications of the directive for consumers, traders and other stakeholders.

As touched upon in Part 1 of our Omnibus Directive blog series, the Omnibus Directive is a piece of amending legislation which introduces significant changes to four existing pieces of consumer protection legislation, namely:

  • the Unfair Commercial Practices Directive (2005/29/EC);
  • the Consumer Rights Directive (2011/83/EU);
  • the Unfair Contract Terms Directive (93/13/EEC); and
  • the Price Indications Directive (98/6/EU),

(collectively referred to in the rest of this blog as the “Existing CR Legislation”). In this Part 2 of we will explore some of the key changes to these directives in more detail.

Harmonisation of consumer rights in respect of physical and digital goods and services

Firstly the Omnibus Directive seeks to expand the scope of the existing consumer rights legislative framework applying to physical goods and services so as to cover digital goods, content, and services.

Digital content, services and “free” digital services

The directive introduces new definitions (such as ‘online marketplace’ and ‘ranking’) and amends existing definitions (including ‘product’, ‘sales contract’ and ‘digital service’) so as to bring digital goods, content and services within the scope of the Existing CR Legislation whilst at the same time aligning the Existing CR Legislation (as it relates to digital goods and services) with other pieces of digital legislation such as the Directive Concerning Contracts for the Supply of Digital Content and Digital Services.

The aim is to create a joined-up set of protections from which consumers can benefit regardless of whether they are purchasing or using physical or digital goods, content or services and irrespective of whether those goods and services are delivered online or offline.

Also drawn within the ambit of the Existing CR Legislation will be any transactions in which an individual provides their personal data as consideration for digital content or services, meaning that consumers who are party to such transactions will now be able to benefit from traditional consumer rights such as the right of withdrawal within fourteen days and the right to receive necessary pre-contractual information. The only exceptions to this will be where the personal data is provided and processed exclusively for the purpose of supplying the digital content (which is itself not supplied on a tangible medium) or pursuant to a legal requirement on the trader. This change now equates personal data with fiat money or digital currency as valuable consideration in the online marketplace in some circumstances.

Enhanced transparency and consumer review requirements for traders and online marketplaces 

As discussed in our ‘Future of Consumer’ series, increased transparency in the online marketplace is a key objective of the Omnibus Directive.

Online marketplaces will now be under an obligation to make clear, based on information provided by sellers of goods and services (which is not subject to any verification obligation), whether a seller is a “professional” trader (and is therefore within the ambit of the consumer protection legislation) or is a private individual (who would not be). In addition and by reference to that distinction, online marketplaces must make clear what consumer protection provisions will apply to any given transaction and how responsibility for compliance with consumer law is shared between the seller and the online marketplace. These changes are designed to provide consumers with greater up-front awareness of their rights and of the entity or entities to whom they can complain if they believe their rights have been infringed. It should also be noted that Member States are entitled to introduce additional information requirements.

Allied to this is a requirement on online marketplaces to make clear what parameters have been used to rank search results (e.g. price, rating, purchase history, or a combination of the same) and the relative importance of each of those parameters in determining ranking. Given that consumers often only review the top-rated search results, these changes will illuminate the often obfuscated reasoning behind how different traders, products, and services are presented to consumers as a result of online searches.

Transparency in respect of consumer reviews is also an area targeted by the Omnibus Directive, with traders required to provide information on whether and how they have ensured that consumer reviews have been generated by verified consumers who have bought and used the products. Such checks will need to be reasonable and proportionate.

Additionally some trader activities in relation to consumer reviews have been blacklisted. The manipulation of reviews such as by way of posting false reviews, deleting negative ones, transferring endorsements from one product to another, not disclosing paid-for search rankings, or stating that consumer reviews have been authenticated when they have not are now all prohibited activities. These changes seek to keep the consumer as informed as possible when making online purchasing choices, particularly given the extent to which consumer reviews can influence purchasing decisions.

Price manipulation

The Omnibus Directive imposes greater rigour and transparency in relation to the manner in which prices are presented to consumers. In particular, where a trader suggests that a discount is available, the base price against which the discount is being applied must have been available for at least a thirty day (or longer) period prior to the discount being publicised. This is intended to deter the practice of traders artificially manipulating prices to suggest a discount against a price which is effectively fictitious. There is a narrow exception in relation to goods which are liable to deteriorate or expire rapidly.

Furthermore, traders will be under a new obligation to indicate where the price of a particular good or service has been altered for a consumer based on automated decision-making. This could capture a range of scenarios, such as automatic price alternations to reflect demand during seasonal periods (e.g. price increases on hotels during the Summer), or automatically-targeted price alterations based on individual consumer data (e.g. price increases on certain products for a particular consumer based on personal data relating to e.g. birthdays or recent purchasing history). Indeed, this new requirement will have material implications for all dynamic pricing mechanisms, perhaps most notably for those used as part of contextual commerce platforms.

Finally, where before traders looked to circumvent limits imposed on the numbers of tickets an individual could purchase for an event (e.g. a football match, concert, or theatre production) by utilising automated means to acquire more tickets and then resell them, such activity is now explicitly blacklisted. The introduction of this new prohibition looks to address the high-profile issue of third party ticket resellers gaining a monopoly on limited, sought-after event tickets and often artificially inflating their value to the detriment of the average consumer.

Interactions between traders and consumers

The Omnibus Directive has introduced more flexibility in respect of the methods of communication which traders can use when they communicate with consumers. Traders may utilise any method of online communication provided that that customers are able to maintain a written record of any correspondence and that such method enables quick and efficient communication. This aligns with the intention of the European Commission to modernise consumer law by facilitating alternative means of communication such as chatbots, speech-based assistants, or other conversational AI.

Additionally, the Omnibus Directive seeks to clarify the position regarding the ownership of content as between traders and consumers where online services allow consumers to create content. In such situations the trader will have limited rights of use in respect of the content created by the consumer and, should the consumer request such content, will be obliged to make the content available to the consumer, free of charge within a reasonable timeframe, for as long as the contract between the trader and consumer subsists.

The consumer’s position in respect of repair services has also been altered. Now, where a consumer has requested that a trader visits their home to undertake a repair (subject to consent for the work having been given, a contract obligating payment having been agreed, and the work then being performed), the consumer will lose their right of withdrawal from the contract. It should be noted that, while perhaps of limited applicability in practice to most online traders, this is one of the few explicitly pro-trader changes brought in by the Omnibus Directive.

Dual-quality products

Traders are now under an obligation, where they market a product across different Member States in an identical manner or imply that the product is identical (e.g. by marketing the product under the same brand), to ensure that the product is not manufactured with significantly different compositions or characteristics. There is a limited exception to this requirement if such differences can be justified by legitimate and objective factors, but this may be a substantial hurdle to overcome.

This obligation only applies to goods rather than services and is aimed particularly at traders in the food product market (pursuant to the European Commission’s study into the issue) who may market products of differing quality across Member States while looking to take advantage of a cross-territorial brand image. This is also an area subject to the same European Commission reporting requirement discussed below.

 Prevention of misleading marketing and selling practices

The Omnibus Directive also permits Member States to introduce provisions which restrict:

  • aggressive or misleading marketing and selling practices where traders make unsolicited visits to consumers’ homes; or
  • any excursions organised by a trader to promote or sell its products.

While the directive does not itself introduce new provisions in respect of such activity, it should be noted that the European Commission is under an associated obligation to produce a report (by 2024) on the prevalence of events organised by traders away from their premises which emphasises that this is an area of concern for the EU and over which scrutiny will be applied, potentially with future legislative consequences.

Enforcement

Perhaps the most eye-catching change brought about by the Omnibus Directive is the introduction of GDPR-style penalties for infringement of consumer rights, which provides real teeth should traders not comply with their obligations. The directive introduces the same penalty regime across three of the Directives forming part of the Existing CR Legislation and a slightly altered version for the fourth Directive.

Potential penalties under the Unfair Commercial Practices Directive, the Consumer Rights Directive and the Price Indications Directive

A breach of any of the provisions of the Unfair Commercial Practices Directive, the Consumer Rights Directive, or the Price Indications Directive will be capable of resulting in a fine. In determining whether to apply a fine Member States must take into account a range of considerations, including (amongst others) the nature of the offending activity, its scale and gravity, whether there are any mitigating or aggravating factors, the financial implications the activity had for the trader, and the trader’s previous behaviour.

Following analysis of the severity of the breach, the Member State will then be able to apply a fine up to a maximum of at least 4% of the annual turnover of the trader ‘in the Member State or Member States concerned’. If the annual turnover figure cannot be calculated, then Member States can apply a fine up to a maximum of at least €2,000,000.

By way of comparison, this is a narrower position than that under the GDPR which sets a maximum fine of €20,000,000 or 4% of the infringing entity’s total worldwide annual turnover (i.e. this is not limited to turnover in the Member States ‘concerned’), but fines under the Omnibus Directive could nevertheless be substantial, particularly since Member States are given leeway to introduce fines which exceed the thresholds stated in the Omnibus Directive.

The position in relation to the Unfair Contract Terms Directive position

In relation to the Unfair Contract Terms Directive, a fine can be applied by a Member State following the above approach, but rather than being applied in respect of breaches of the directive, fines are capable of being applied in relation to the use of any contractual term which:

  • is expressly deemed to be unfair pursuant to national law; or
  • has been found to be unfair by a final court decision.

Clearly this gives rise to the possibility of differing approaches between Member States as to what is considered unfair and the level of any resulting fines.

Additionally, where a consumer is harmed by an unfair commercial practice which has been performed in breach of this directive, where before only national authorities could take action against such practices, the changes brought in by the Omnibus Directive will empower consumers themselves to pursue compensation for damage, receive a price reduction, or terminate the contract as a result of such activity.

Hayley Brady
Hayley Brady
Consultant, Head of Digital and Media, London
+44 20 7466 2079

James Balfour
James Balfour
Associate, London
+44 20 7466 7582

Jeremy Purton
Jeremy Purton
Senior Associate, Digital TMT and Sourcing, London
+44 20 7466 2142
Terence Lau
Terence Lau
Senior Associate, Digital TMT and Sourcing, London
+44 20 7466 2441

Alasdair McMaster
Alasdair McMaster
Associate, London
+44 20 7466 2194

The Omnibus Directive: A New Deal for EU Consumers – Part 1 – Background, key features and next steps

On 7 January 2020 the European Commission’s Enforcement and Modernisation Directive (EU) 2019/2161 (informally referred to as the Omnibus Directive) came into force and must be implemented in Member States by 28 November 2021. This is the first of three blogs exploring the Omnibus Directive and what it means for stakeholders at all levels. In this Part 1 we look at the background to the directive, its key features and the next steps in its implementation. In Part 2 we will look in more detail at the objectives and specific provisions of the directive and in Part 3 we will look at the potential implications of the directive for consumers, traders and other stakeholders.

How we got here

The Omnibus Directive is the result of an initiative originally adopted by the European Commission in early 2018 called the ‘New Deal for Consumers’, which aimed to modernise EU consumer law and strengthen its enforcement in light of an increasingly-globalised consumer marketplace and, in particular, the rise of e-commerce. The initiative included proposals for two new directives:

  • the first would contain measures aimed at enabling consumers across the EU to seek collective redress in respect of the same infringement by a trader; and
  • the second would contain measures designed to reinforce and modernise existing consumer legislation.

The second proposal forms the basis of the Omnibus Directive. The first proposal (known as the ‘Representative Actions’ proposal) is still making its way through the EU legislative process.

The New Deal for Consumers initiative was conceived as a solution to two interrelated policy issues. The first concerned the growing trend of large-scale abusive practices affecting consumers across the EU, which the European Commission considered was undermining consumer trust in the Single Market (two prominent examples were the ‘Dieselgate’ scandal and the inclusion of unfair terms in mortgage contracts). The second stemmed from a 2017 Commission evaluation of consumer protection laws and regulations known as the REFIT ‘Fitness Check’. Following consultations at various levels of the value chain, the Commission concluded that, whilst the consumer protection framework broadly remained fit for purpose, it was nevertheless in need of updating and better application and enforcement.

What is the Omnibus Directive

As part of the REFIT ‘Fitness Check’, four pieces of existing EU legislation were identified as needing some form of update, enhancement or reinforcement:

  • the Unfair Commercial Practices Directive (2005/29/EC);
  • the Consumer Rights Directive (2011/83/EU);
  • the Unfair Contract Terms Directive (93/13/EEC); and
  • the Price Indications Directive (98/6/EU).

The Omnibus Directive is a piece of amending legislation that amends each of these four directives. The amendments focus on various consumer issues, including penalties for infringements, transparency in online marketplaces, protection for consumers of ‘free’ digital services, the right of withdrawal and dual quality of products. In particular, the Omnibus Directive introduces five significant changes to existing consumer protection legislation:

  1. expansion of the definition of goods and services to include digital content and services;
  2. harmonisation of the rules applying to the sale of: (i) physical goods and services; (ii) digital goods, services or content; and (iii) physical goods and services which are made available or sold online;
  3. the treatment of services provided in exchange for customer data on the same footing as paid-for services under a contract;
  4. the building-out of existing, and introduction of new, obligations on traders and online platforms designed to give further protection to consumers; and
  5. introduction of GDPR-style penalties for breach of the rules. The minimum penalty under the Omnibus Directive is 4% of the trader’s annual turnover in the Member State(s) where the breach occurred, or €2m where such figures cannot be calculated. Member States are also able to introduce higher fines if they see fit during the implementation period.

In making these changes, the Omnibus Directive seeks to ensure that all consumers, regardless of the method of sale or type of product or service, benefit from a harmonised approach to consumer rights. In particular, the new penalties offer consistency for consumers across the trading bloc by ensuring that their enhanced rights can be enforced fairly and proportionately.

It is worth noting that in an attempt to future-proof the Omnibus Directive and ensure long-lasting benefit to consumers, the legislation has been drafted in a technology-neutral way to ensure that it is not rendered obsolete by technological developments.

Part 2 of our blog on the Omnibus Directive will look in more detail at the key provisions contained in the Omnibus Directive and their likely impact on stakeholders.

Next steps

Though not technically part of the European Commissions’ separate Digital Single Market strategy (which was primarily aimed at facilitating cross-border trade and access to goods and services as well as combating anti-competitive practices) the Omnibus Directive (and EU consumer protection law more generally) is seen as a fundamental piece of the Digital Single Market puzzle going forward, particularly when it comes to the supply of digital content, e-commerce, and associated enforcement measures. This is reflected in the Commission’s new ‘Shaping Europe’s digital future’ strategy, one of whose central pillars is to create a fair and competitive digital economy (which encompasses ongoing activity falling under the New Deal for Consumers initiative as well as new proposals such as the Digital Services Act which is expected to focus on upgrading safety and liability rules for digital platforms – more on this in a future blog).

The Omnibus Directive has already entered into force. However, Member States have until 28 November 2021 to implement the directive into national law and can use this time to carry out internal consultations concerning potential derogations (including as to the level of penalties that can be imposed for breach – see above). Member States’ implementing legislation must enter into force by 28 May 2022.

In light of Brexit, the UK will not be obliged to implement the Omnibus Directive (particularly since, subject to any COVID19-related delay, the Brexit transition period is due to expire prior to the Omnibus Directive’s implementation deadline). However, even before the Omnibus Directive came into force, the UK Department for Business, Energy and Industrial Strategy (BEIS) had already published (in April 2018) a Green Paper entitled ‘Modernising Consumer Markets’ which has a very similar remit to the Omnibus Directive. Interestingly, the Green Paper includes a proposal for a cap on financial penalties of 10% of a firm’s worldwide turnover – this is substantially higher than the fines contemplated by the Omnibus Directive. The Green Paper also clarifies that, Brexit notwithstanding, BEIS is committed to preserving ‘an open, liberal, modern economy, built on the core principles of competition, free trade and high regulatory standards’. The UK government ran a consultation on the Green Paper from April 2018 to July 2018 and is currently analysing responses.

It should be noted that, even if the UK eventually adopts measures which are less stringent than those set out in the Omnibus Directive, UK-based companies that wish to continue to trade in the EU will need to be compliant with the Omnibus Directive (and the local implementing legislation applicable in the relevant EU Member State(s)).

Hayley Brady
Hayley Brady
Consultant, Head of Digital and Media, London
+44 20 7466 2079

James Balfour
James Balfour
Associate, London
+44 20 7466 7582

Jeremy Purton
Jeremy Purton
Senior Associate, Digital TMT and Sourcing, London
+44 20 7466 2142
Terence Lau
Terence Lau
Senior Associate, Digital TMT and Sourcing, London
+44 20 7466 2441

Alasdair McMaster
Alasdair McMaster
Associate, London
+44 20 7466 2194

Punching above its weight: Tech Nation report highlights strength of UK Tech on the global stage

On 14 May 2019, Tech Nation published its Annual Tech National Report, setting out the ‘state of the nation on tech’. The report makes it clear that the UK is a ‘critical hub’ in the global technology ecosystem and a strong economic performer. In particular, the report provides a number of key statistics on the UK tech sector and offers a number of recommendations on how the UK can continue to operate as a global hub for tech entrepreneurs. Continue reading

First Digital Economy Act Commencement Regulations Published

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Digital Economy Act 2017: The pick ‘n’ mix assortment of provisions receives Royal Assent

The Digital Economy Act (the “Act“) finally received Royal Assent on 27 April 2017 and the final text was published at the beginning of May. First introduced in the House of Commons in July 2016, it has been the subject of much scrutiny and debate by both Houses of Parliament. In the run up to the General Election, the legislation was passed in a final sweep as part of the so-called “wash up” period before the dissolution of Parliament.

It covers a wide assortment of areas falling under the “digital economy” umbrella but at its heart it seeks to “modernise the UK for enterprise” – focusing on improving access to digital communication services (including through improved connectivity and infrastructure), supporting new digital industries and enhancing protections for citizens using those services.

Continue reading