Adapting the legal framework to the digital economy requires a continuous assessment, in order to make sure that a proper balance between innovation and user protection is maintained while technology evolves. One of the aspects deserving attention is the definition and application of the principle of conformity with the contract. The interplay between the subjective and the objective requirements for conformity should not be a closed topic, because whether the latter is well suited to the complexity and dynamism of digitalization and artificial intelligence can be discussed.
An article by Ricardo Pazos
In the following years, more and more contracts will relate to goods with digital elements, digital content, and digital services. The presence of artificial intelligence systems will be broader, too. Therefore, continuous discussions on how to adapt the legal framework to an evolving digital economy will be needed, in order to strike a balance between fostering innovation and user protection. One of the issues to monitor is the definition and application of the principle of conformity with the contract. Taking as reference the 2019 European Union Directives on the supply of digital content and digital services (‘Digital Content Directive’) and on the sale of goods (‘Sale of Goods Directive’), the following paragraphs provide an overview of the interplay between the subjective requirements for conformity (anchored in the agreement of the parties) and the objective ones (based on consumer expectations and legal standards), and the difficulties while putting in practice some of them.
Directive 1999/44/EC on the Sale of Consumer Goods
Let us take a step back to recall Directive 1999/44/EC (‘Consumer Sales Directive’). Right after setting out the obligation of the seller to deliver goods which are in conformity with the contract, it established a presumption of conformity if the goods met certain conditions. Both the subjective and the objective requirements were contained in the same provision. Such requirements basically were:
- Compliance with the description, and matching the qualities of the eventual sample or model presented to the consumer.
- Fitness for the particular purpose sought and agreed.
- Fitness for the normal use of goods of the same type.
- Showing the normal quality and performance in goods of the same type.
The Consumer Sales Directive was commonly understood to take a rather subjective approach to conformity. Surely, there was some minimum protection (e.g. Arts 2(3) and 7(1)), but Recitals 7 and 8 highlighted both the importance of freedom of contract, and that the required conformity was, first and foremost, with the contractual specifications. Consequently, when assessing whether the goods were in conformity, a certain process seemingly had to be followed. Firstly, it was the terms of the contract that had to be analyzed. Secondly, the subjective requirements, for they found their content in the contract. Lastly, the objective criteria were explored. It is true that, in theory, all the criteria enumerated above had to be applied simultaneously. Yet, following the order just outlined was meant to solve potential conflicts between the different requirements for conformity, thus giving more weight to the agreement of the parties.
The 2019 Directives on Digital Content and on the Sale of Goods
The Digital Content Directive and the Sale of Goods Directive changed the approach. The interplay between the subjective and the objective requirements for conformity is very different now.
In a nutshell, the subjective criteria consist on:
Corresponding to the description, quantity, quality, functionality, compatibility, interoperability and other features, and type (in the case of goods), as stipulated by the contract.
- Being fit for the particular purpose sought and agreed.
- Being supplied or delivered with the accessories, instructions, and customer assistance (in the case of digital content and services), as stipulated by the contract.
- Being updated (digital contents and services) or supplied with updates (goods), as stipulated by the contract.
For their part, the objective ones are:
- Fitness for the normal purposes for which goods, digital content, or digital services of the same type are used.
- Compliance with any trial version or preview, or with the description of a sample or model, eventually made available before the conclusion of the contract.
- Supply or delivery along with any accessories and instructions the consumer may reasonably expect to receive.
- Being of the quantity and possess the qualities and features (e.g. durability, functionality, compatibility and security – for goods, and functionality, compatibility, accessibility, continuity and security – for digital content and services) which are normal for assets of the same type, and which the consumer may reasonably expect.
The 2019 Directives abandoned the presumption of conformity. In the new framework, it is clearly stated that goods, digital content and digital services must meet both the subjective and the objective requirements. The former are to be fulfilled ‘when applicable’, whereas the latter are to be respected ‘in addition to complying with any subjective requirement for conformity’. Moreover, the objective requirements can be regarded as mandatory standards whose particularization depends on consumer expectations and the type of item dealt with. The certain preference given in 1999 to the contract, leaves way to the predominace of legal standards farther from the transaction at issue, anchored on the more generic reference of ‘expectations’ and ‘type’. Some flexibility is granted, thus making it possible not to meet the objective requirements while complying with the principle of conformity. But the conditions are quite demanding, and meeting them seems hardly attainable in dynamic contracting.
What Way Forward?
The interaction between the subjective and objective approaches to conformity is not alien to philosophical insights and broader debates on the market, economic policy, or consumer law.
For instance, one may argue that legal standards based on ‘expectations’ and related to the ‘type’ of asset facilitates contracting. Actors do not have to design the applicable standards and consumers know that there will be some minimum protection guaranteed. But there are two questions that somehow point in a different direction. First, how much do we want traders to think ‘inside the box’ while offering goods, contents, and services? In other words, if traders must respond to current expectations and existing types, we might not be encouraging creativity and innovation. Second, how wary it would be good for consumers to be? Put in a different way, should the legal framework nudge people into borrowing, spending and consuming easily because they feel very safe, or rather into acting prudently, saving and investing?
In a similar vein, it is reasonable to affirm that, if subjective criteria were given preference, traders would have the power to put all the risks on consumers. The risks brought by digitalization and artificial intelligence are substantial to say the least, so it would seem logical to conclude that such preference should be avoided. Again, two points can be raised. First, if the law prevents traders from putting risks onto consumers but they cover themselves with price increases, can we be sure that welfare rises? Second, let us assume that all risks have been placed on consumers and imagine the next phase. This scenario would give traders (both actual and potential ones) room to play a free-riding role, signal its rogue competitors, assume some of those risks, convince sceptic consumers, and reap the benefits thereof. And the higher the risks initially transferred to the consumer, the larger such room (and thus the danger for exploitative traders) because more consumers would have been reluctant to use complex digital elements and AI.
This is not to say that subjective conformity must always, in every case, at any time, prevail. The aim is only to show that whether subjective or objective conformity should take preference, and how much one should be favoured over the other, can be discussed from many angles. For instance, the two different positions mentioned in the previous paragraph, can ultimately be explained because of the different ways to capture the notion of ‘bargaining’. Sticking to the classical view of an individual negotiation, there certainly is an asymmetry between traders and consumers. But if we are dealing with mass contracting, maybe we should be thinking in terms of ‘mass bargaining’. When one isolated consumer decides not to contract, it can be seen as a tacit or indirect act of bargaining, whose results will eventually be percieved by other consumers in the future. From this perspective, and considering that most of the goods and services offered in the market are not vital, the respective forces of traders and consumers may not always be so uneven.
Furthermore, the application of the requirements for conformity is not easy, be them of a subjective or an objective nature. Regarding the first group, the fact that such standards are anchored in the contract entails the problem of transparency. But the second group must also face significant obstacles. For example, it is difficult to identify the ‘average’ consumer when people’s preferences and attitudes with regard to new technologies are extremely heterogeneous. Such heterogeneity and the fast development in digital matters make it difficult to determine the expectations to be satisfied, especially if they do not concern the main characteristics and features. It will not be easy, either, to define the ‘normal’ purposes for which fitness is required, nor the ‘type’ of asset, although the mandatory requirements for conformity somehow lead progress towards certain models. All this is even more so when machine-learning and autonomous AI systems enter the picture, due to their complexity and unpredictability.
In sum, the 2019 Directives should not lead us to think the discussion on conformity is closed. And conclusions may vary as the digital environment and the market evolve.
Published under licence CC BY-NC-ND.
