Will there soon be material defects for digital content? Obligation to update software is coming!

From 2022, there could also be material defects within the meaning of the BGB for digital content. This is because the implementation of the Sale of Goods Directive (EU)2019/711), which will be adopted at the beginning of 2019 and will lead to the end of the Consumer Sales Directive from the beginning of the millennium, is expected to take place then. The directive must be implemented by July 21, 2021, and will then apply to contracts beginning on or after Jan. 1, 2022.

For me as an IT lawyer, one of the most exciting innovations is the change in the definition of material defects in the new § 434 BGB:

(1) The item is free of material defects if it meets the subjective requirements, the objective requirements and the assembly requirements of this provision at the time of transfer of risk.
(2) The item meets the subjective requirements if it
1. has the agreed quality,
2. is suitable for the use stipulated in the contract and
3. is handed over with the agreed accessories and the agreed instructions, including assembly and installation instructions.

The quality according to sentence 1 number 1 includes the type, quantity, quality, functionality, compatibility, interoperability and other characteristics of the item for which the parties have agreed requirements.

(3) Unless otherwise validly agreed, the item complies with the objective requirements if it is

1. Suitable for ordinary use,

2. has a quality that is customary for items of the same type and that the buyer can expect, taking into account
a) the type of item and
b) public statements made by or on behalf of the seller or another link in the contractual chain, in particular in advertising or on the label,
3. corresponds to the nature of a sample or model provided by the seller to the buyer prior to the conclusion of the contract, and
4. is delivered with the accessories, including packaging, assembly or installation instructions and other instructions that the buyer can expect to receive.

The usual characteristics according to sentence 1 number 2 include quantity, quality and other characteristics of the item, including its durability, functionality, compatibility and safety. The seller is not bound by the public statements referred to in sentence 1 number 2 letter b if he was not aware of them and could not have been aware of them, if the statement was corrected in the same or an equivalent manner at the time the contract was concluded or if the statement could not have influenced the purchase decision.

[…]

as well as the introduction of an item with digital content in a new § 475b of the German Civil Code (BGB)

(1) For the purchase of an item with digital elements, where the entrepreneur undertakes that he or a third party will provide the digital elements, the provisions of this regulation shall apply in addition. An item with digital elements is an item that contains or is connected to digital content or digital services in such a way that it cannot perform its functions without such digital content or digital services. When purchasing an item with digital elements, it shall be assumed in case of doubt that the trader’s obligation includes the provision of digital content or digital services.
(2) Anitem with digital elements is free from material defects if it complies with the subjective requirements, the objective requirements, the assembly requirements and the installation requirementsat the time of transfer of risk and with regard to an update obligation, even during the period referred to in paragraph 3 number 2 and paragraph 4 number 2.
(3) An item with digital elements meets the subjective requirements if
1. it meets the requirements of Section 434 (2) and
2. the updates agreed in the purchase contract are provided for the digital elements.
(4) An item with digital elements meets the objective requirements if
1. it complies with the requirements of Section 434 (3) and

2. the consumer during the period that he can expect, given the nature and purpose of the thing and its digital elements, and taking into account the circumstances and nature of the contract, updates necessary to maintain the conformity of the goods with the contract are provided and the consumer is informed of these updates.
(5) If the consumer fails to install an update provided to him in accordance with paragraph 4 within a reasonable time, the trader shall not be liable for a material defect resulting solely from the absence of that update if
1. the trader has informed the consumer about the availability of the update and the consequences of failing to install it and
2. the fact that the consumer has not installed the update or has installed it incorrectly is not due to faulty installation instructions provided to the consumer.
(6) An item with digital elements complies with
1. the assembly requirements if it meets the requirements of Section 434 (4), and
2. the installation requirements if the installation
a) of the digital elements has been carried out properly or
b) has been carried out improperly, but this is neither due to improper installation by the contractor nor to a defect in the instructions provided by the contractor or the person who provided the digital elements.

Especially the legal obligation to provide updates for software in order not to be liable for material defects and possibly have to exchange goods with an extended period of time can create numerous new obligations for retailers and manufacturers. Consequently, the new § 475c BGB will jump on this bandwagon:

(1) If, when purchasing an item with digital elements, a permanent provision for the digital elements has been agreed, the provisions of this provision shall apply in addition. If the parties have not determined how long the provision is to last, section 475b paragraph 4 sentence 1 number 2 applies accordingly.
(2) In addition to sections 434 and 475b, the trader is also liable for ensuring that the digital elements comply with the requirements of section 475b paragraph 2 during the provision period, but at least for a period of two years from delivery of the goods.
(3) The obligation to provide updates in accordance with Section 475b (3) and (4) and to inform the consumer thereof shall apply during the provision period, but at least for a period of two years from the delivery of the item.

A software or hardware manufacturer (with software components), must therefore regularly maintain software, make it interoperable, update it regularly and demonstrably inform users about these updates. Software obligations also include updates for security, for example, to defend against viruses or unauthorized intrusion. The hardware elements affected include all “smart” devices from cell phones to smartwatches to televisions, refrigerators or other smart home devices that can be controlled, operated and maintained remotely using apps or similar functions. The obligation to update is to be measured against the usual period of use, i.e. it is likely to be longer for a smart TV or a refrigerator than for a current cell phone. However, the details will have to be clarified by the courts, because the recitals and the directive do not provide much information, except that the regulation is supposed to be flexible.

This is likely to be problematic for online retailers in particular, because not only will the new § 477 para. 1 BGB to increase the previous reversal of the burden of proof from6 months to one year, but it is important to note that all these update obligations affect the dealer (because contractual partner), not the manufacturer, who will usually only be technically capable of updating. This means that supply agreements will have to be adapted in good time so that dealers can in turn commit their own contractual partners. And technological precautions will have to be taken in order to be able to offer these very updates of the manufacturers SELF at all SECURELY.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.