January 12, 2022
We take a look back at the key consumer law developments affecting the digital entertainment space over the course of 2021, and look forward to what’s on the horizon
1. Regulatory activity: Auto-Renewing Contracts
What: In October 2021, the CMA published a set of compliance principles following its investigation of certain antivirus software firms’ use of auto-renewing consumer contracts (contracts that roll on indefinitely, renewing at regular intervals until the consumer requests an end to the contract).
Impact: The wide-ranging principles set out the CMA’s view of what businesses need to do to comply with consumer law in the context of auto-renewing contracts. Among the CMA’s expectations are: the provision of clear and transparent pre-contract, post-contract, and post-renewal information; fair and genuine pricing claims; notice and reminder obligations; and various consumer rights including opt-in, opt-out, cancellation, and refund rights.
Who is impacted: Although issued in the context of a particular sector, it’s likely that some – if not all – of the principles will apply to other consumer-facing businesses who use auto-renewing contracts, since the ‘harms’ the CMA is seeking to limit are not unique to the antivirus software sector. This is particularly true for the video games sector, where PlayStation, Xbox and Nintendo have been the subject of similar CMA investigation.
For more information, you can read our longer analysis and comment here.
2. Case law: Green v Betfred
What: The seismic High Court judgment in favour of Mr Green, a customer of Betfred who sought recovery of £1.7m in winnings to which he claimed to be entitled. Betfred argued that they were not obliged to pay Mr Green because the winnings arose from a game defect, and the terms of the contract between them (i.e., the customer T&Cs) excluded their liability to him in those circumstances. Betfred lost on each and every attempt to rely on their contractual exclusions for wins attributable to the defect, and Mr Green recovered his game winnings in full plus interest and costs against Betfred.
Impact: There can no longer be any doubt as to the critical importance of clear drafting, presentation, incorporation and ‘signposting’ of customer T&Cs. Simply put, if any of these factors are deficient, businesses cannot confidently expect to rely on and enforce their T&Cs against customers when things go wrong.
Who is impacted: Whilst the case involved an online gambling operator and its customer, the judgment warrants real attention by all businesses with direct-to-consumer (D2C) offerings since the legal principles at play are by no means limited to online gambling.
What businesses should be doing:
Following the judgment, D2C businesses should be carefully auditing their processes and taking appropriate steps such as:
- overhauling their customer T&Cs with the ‘Betfred principles’ in mind;
- reviewing their customer journeys to ensure that the right information is being given at the right time and with the appropriate prominence;
- reviewing customer acceptance processes for T&Cs and for individual game/product terms (particularly when a game/product is first accessed); and
- producing a plain-English summary of key terms (particularly exclusion and similar terms) which are made clearly known to the player and which the player can easily access at any time.
For more information, you can read our in-depth case analysis and comment here.
3. Legislative changes: Omnibus Directive
What: The so-called “Omnibus Directive” (OD) forms one strand of the European Commission’s “New Deal for Consumers” initiative, which strengthens consumer rights and the enforcement of EU consumer protection rules.
Impact: The changes brought about by the OD are complex and wide-ranging, but particular changes that businesses in the interactive entertainment space should be aware of include:
- significantly enhanced penalties for consumer law breaches – these will include fines, which under the OD must be up to at least 4% of the business’ annual turnover in the member state(s) where the breach occurred (or €2m where turnover information isn’t available);
- extending certain consumer laws which previously applied only to paid-for services (i.e. paid for with money) to “free” digital services which are ‘paid for’ with consumers’ personal data;
- new rights for consumers to seek redress directly from infringing businesses;
- changes to pre-contract information obligations;
- new transparency obligations where businesses publish user reviews (including four new ‘blacklisted’ practices relating to fake or misleading reviews);
- restriction on business’ ownership and rights over user-generated content once the contract has come to an end (irrespective of any contrary term in the T&Cs); and
- extended consumer cancellation rights for digital services.
Who is impacted:
- For businesses based in EU countries, the OD (or, rather, the relevant local implementing laws) will be directly applicable.
- Following Brexit, the UK is not required to implement the new measures. However, UK businesses that ‘direct their activities’ (i.e., offer services) to consumers residing in EU countries could still be subject to consumer claims and regulatory action in those EU countries for breach of local OD-implementing laws, and they may therefore be subject to penalties for breach of local implementing laws, including the potentially high fines noted above.
What businesses should be doing:
Member States were required to transpose the OD changes into their national law by 28 November 2021 and must apply those measures by 28 May 2022, so businesses should be readying themselves. First steps should include familiarisation with the local implementing legislation in each territory in which services are provided to consumers.
4. New Guidance: Unfair Commercial Practices Directive
In December 2021, the European Commission published extensive guidance of the applicability of the Unfair Commercial Practices Directive (UCPD) to several industries. The Guidance stressed how games are a particular focus of attention (para 4.2.9: “Video games, mobile games and online games feature a variety of commercial practices that may raise fairness concerns under the UCPD, in particular for vulnerable consumers such as children and teenagers, who merit special protection under Article 5(3) UCPD”).
You can read our longer summary of the Guidance here.
5. Horizon Scan – What’s Coming
In July 2021 the UK Government issued a consultation on its proposed reforms to consumer policy, signalling (and reiterating) its clear intention to update and strengthen consumer rights to keep pace with markets, and to strengthen the enforcement of consumer law by individuals and regulators. In October 2021, the CMA responded to the consultation, welcoming its proposals and calling it “perhaps the most important review of … consumer policy in a decade”.
The Government’s proposed reforms would, if implemented, significantly change the consumer protection landscape. Of particular interest to businesses in the interactive entertainment sectors will be the proposed strengthening of enforcement, most notably the proposals for the CMA to wield stronger and faster-acting enforcement powers for consumer law infringements – moving away from the current model of enforcement via the courts (which can be slow and costly) towards an administrative model under which the CMA would be able to make authoritative decisions as to whether a breach has (or is likely) to take place, could directly instruct the infringement to stop or order redress/compensation for affected consumers, and could directly issue financial penalties. And those financial penalties are potentially very significant – under the proposals, the CMA would be able to fine businesses up to 10% of global turnover for consumer law infringements.
The consultation is now closed and the Government is analysing the feedback. For now, then, we must wait to see which of the proposed reforms will become law – but there’s no doubt that change is coming, and probably on a significant scale.