With the arrival of the Three Kings, on 6 January 2023, the highly anticipated and until then the most extensive amendment to civil law came into force, which is called the Three Kings amendment and/or the button amendment in connection with part of its content. It was published in the Collection of Laws under No. 374/2022 Coll. (hereinafter the “Amendment”).
The Amendment primarily aims to implement selected EU Directives, in particular, Directive (EU) 2019/770 of the European Parliament and of the Council of 20 May 2019 on certain aspects of contracts for the provision of digital content and services and Directive 2019/771 of 20 May 2019 on certain aspects of contracts for the sale of goods. The extensive amendments have been reflected not only in Act No. 89/2012 Coll., Civil Code, as amended (hereinafter the “Civil Code”) but also in Act No. 634/1992 Coll., Consumer Protection Act, as amended.
Although the Amendment is mainly known in the media for the selected changes it brings in the area of consumer protection law (primarily a change in the legal rules for discount promotions), in this article, we will discuss another practical and just as important novelty for entrepreneur who mainly develop their software solutions and provide them to their customers. The amendment formulates and introduces a completely new and hitherto unknown type of contract for the Civil Code – a contract for the provision of digital content.
General Introduction to the New Contract Type
The contract for the provision of digital content is governed by the provisions of Sections 2389a to 2389u of the Civil Code. The subject matter of a digital content contract may be the provision of:
- digital content (provisions of Section 2389a(1) of the Civil Code)
digital content is a set of data created and provided in digital form (digital content). Typically, this will be applications, computer programs, e-books, or digital games. However, the provision of digital content does not apply to certain selected services that are further enumerated in the provisions of Section 2389u in (a) to (e) of the Civil Code; or - digital content services (provisions of Section 2389t of the Civil Code)
digital content service means a service that enables a user to create, process, store, or access data in digital form, to share data in digital form uploaded or created by that user or by another user of the service, and/or to interact in any other way with such data.
Relation to Software as a Service Contracts
Given the current lack of regulation of the type of contract, the subject of which could be digital content, the parties to the contract often concluded an unnamed contract in the relationship of providing digital content by the provisions of Section 1746(2) of the Civil Code, the subject of which was the provision of Software as a Service (hereinafter the “SaaS”).
The subject matter of a SaaS contract is generally the provision of digital content – software solutions accessible via an internet browser, which are usually hosted on the remote storage. This is an elegant way of distributing software where it is not necessary to download and install the application on the user’s device to use it – a simple internet connection is sufficient (examples include email applications, legal, learning and accounting systems, music and other applications, etc.).
The Amendment introduces a fundamental change about SaaS contracts in particular, as the new provisions of the digital content contract are already directly applicable and applicable to them. Therefore, it is no longer entirely up to the parties to negotiate custom dimensions of the content of their contractual obligation, since the relevant provisions of the digital content contract set out the specific rights and obligations of the parties and other obligations that now also apply to SaaS contracts by Section 2389t of the Civil Code.
Systematics of Legal Regulation between Entrepreneurs and Entrepreneur and Consumer
In order to identify any necessary changes, as well as to distinguish the freedom of the contracting parties also when seeking to exclude a statutory provision within the content of a digital content contract, it is quite crucial to distinguish between a entrepreneur-to-consumer (hereinafter the “B2C”) and/or a entrepreneur-to-entrepreneur (hereinafter the “B2B”) relationship. However, the drafting of the new statutory provisions in the Civil Code helps distinguish between these regimes by explicitly telling us which provisions specifically relate to the consumer when:
- Subsection 1 (Sections 2389a – 2389f of the Civil Code) applies to both B2B and B2C legal relationships,
- Subsection 2 (Sections 2389g – 2389s of the Civil Code) applies only to B2C legal relationships,
- Subsection 3 (Sections 2389t – 3289u of the Civil Code) applies to both B2B and B2C legal relationships.
While in the case of a relationship where both parties are entrepreneurs, who have the contractual freedom to modify the content of their obligation arbitrarily (e.g. to exclude certain statutory provisions so that they do not apply in their contractual relationship), the Civil Code applies significant restrictions to the relationship between an entrepreneur and a consumer – e.g. in accordance with Section 2389s(1) of the Civil Code, an agreement that the user’s rights are limited or extinguished, made before the user has complained about the defect of the digital content or the delay in making it available and/or before the user has been notified of the change, is disregarded. It can be concluded that a consumer’s rights arising from the regulation of the provision of digital content cannot be excluded in advance.
Shared Arrangements for B2B and B2C
Updates to digital content
The provider is obliged to update the digital content to the agreed extent in accordance with Section 2389d(1) of the Civil Code. At the same time, however, according to paragraph 2 of the same provision, in addition to the agreed updates, the provider shall ensure that the user is provided with the updates that are necessary to keep the digital content free of defects for the duration of the commitment and that the user is notified of their availability. However, if the user does not perform an update that has been notified to the provider and which is intended to ensure that the digital content is provided without defects, the user does not have rights under the defect resulting from the failure to perform the update – in other words, if the provider offers the user an update but the user does not download it, the user will not have rights under the defective performance.
The technical parts of the content of the contractual obligation (inter alia, software updates) are usually regulated in the terms and conditions that are an integral part of the digital content contract or SaaS contract. It is, therefore, necessary to identify which updates the provider has committed to and, if this is not satisfactory to the provider, to change the terms and conditions – if the provider does not provide updates to the agreed extent, the provider will perform defectively and the user will be entitled to rights under the defective performance.
Rights from defective performance
By Section 2389c(1) of the Civil Code, the provider is liable to the user for the fact that the digital content is free of defects for the duration of the obligation. If a defect appears during the term of the obligation, the provider has the burden of proving that the digital content is provided without defects. However, if the provider proves that the defect was caused by inadequate technical or software equipment or network connection for access to or use of the user’s digital content necessary for the proper functioning of the digital content, even though the user was clearly and understandably made aware of the need for such equipment or network connection before the conclusion of the contract, the provider’s obligation to prove that the digital content is provided without defects shall not apply.
In the case of a one-off performance, the provider is liable by the provisions of Section 2389f of the Civil Code for defects in the digital content that the digital content had when made available. The provider’s obligation to provide updates is not affected. In this context, the law expressly provides for the provider’s obligation to ensure the provision of updates for as long as the user can reasonably expect it and at the same time sets out criteria for this.
In order to clarify the form that defects in digital content may take, it is necessary to define the elements of performance and the requirements for the characteristics and quality of the digital content provided, failure to comply with which gives rise to defective performance rights for the user. Broadly speaking, these characteristics can be categorised according to the following criteria:
- subjective criteria
are the functional requirements or features of the digital content that the parties may directly agree upon, such as the scope and description of the services provided, compatibility and functionality, and, where applicable, updates beyond mandatory maintenance. These may also appear, for example, in user support documents or usage instructions, etc. If the provider provides the user with content that does not have the agreed features or functionality, or if the promised updates are not provided to the user, the provider performs defectively and the user thereby acquires rights of defective performance. - objective criteria
are those characteristics that may reasonably be expected of particular digital content, even if not expressly agreed, and which are inferable from the nature and purpose of the content.
The Special Statutory Regulation in Relation to the Consumer (B2C)
In addition to the obligations set out above, the Civil Code in provisions 2389g to 2389p imposes additional obligations on the entrepreneur/provider, when entering into a contract for the provision of digital content to a consumer (B2C).
Consumer’s right to withdraw from the contract
The consumer may withdraw from the contract for the provision of digital content in accordance with provision 2389m(1) of the Civil Code on the grounds of the provider’s failure to remedy a defect in the digital content, if the defect continues to manifest itself after its remedy or if the defect is a material breach of contract. Similarly to distance contracts with consumers, in the case of digital content contracts, the consumer will also have the right to withdraw from the contract within 14 days of the conclusion of the contract, without giving any reason, if the contract was concluded by distance in accordance with the provisions of Section 1820 of the Civil Code – however, this may cause practical difficulties.
One can imagine a situation where a user buys digital content from a provider, it is made available to him immediately, and after 10 days user wants to withdraw from the contract and the provider has to return all the services provided. In order to prevent potential abuse by the user, the right of withdrawal within the 14-day period can be excluded.
The provider may do so if it obtains the consumer’s express voluntary consent to provide the digital content before the 14-day withdrawal period has expired, thereby extinguishing the consumer’s right to withdraw within that period. The consumer must explicitly agree to this when entering into the contract – again, a tick-box can be used if appropriate, if the contract is concluded online.
Consumer’s rights from defective performance
While the Civil Code stipulates in relation to B2B relationships that the provider should provide a digital service without defects, in relation to contracts with consumers (B2C) we find a more detailed regulation. In particular, the provider is responsible, in accordance with Section 2389i of the Civil Code, for ensuring that the digital content:
- conforms to the agreed description and scope, as well as quality, functionality, compatibility, interoperability, and other agreed characteristics,
- it is suitable for the purpose for which the user requests it and to which the provider has agreed, and
- is provided with the agreed accessories and instructions for use, including installation instructions, and user support.
Beyond the above, however, the Civil Code imposes selected additional requirements on the provider, stating that the provider is liable to the user that, in addition to the agreed characteristics:
- the digital content is suitable for the purpose for which digital content of that kind is normally used,
- the digital content corresponds in scope, quality, and other performance parameters, including functionality, compatibility, accessibility, continuity, and security, to the usual characteristics of digital content of the same kind that the user can reasonably expect, even taking into account public statements made by the provider or another person in the same contractual chain, in particular advertising or labeling,
- the digital content is provided with the accessories and instructions for use that the user can reasonably expect, and
- the digital content corresponds to the trial version or preview made available by the provider before the conclusion of the contract.
Changes to digital content
If the provider wishes to change some of the functionality of the digital content during the duration of the digital content provision (not to update the content to the extent permitted by law or contract), for example, to change from online to offline mode, to change the display method or to change certain functions, it must reserve this possibility of change in its terms and conditions by the law. These changes must then be justified in concrete terms, such as compliance with legal requirements, the addition of new features and functions or their improvement, etc.
As regards the possibility of changing the digital content, in accordance with Section 2389q of the Civil Code, if the digital content is to be provided for a certain period of time and if the change is not necessary to keep the digital content free of defects, the provider may change the digital content:
- if so provided in the contract together with a just reason for such change,
- if no additional costs are incurred by the user as a result of the change, and
- if it notifies the user of the change in a clear and comprehensible manner.
Updates in relation to the consumer
The provision of Section 2389d(2) of the Civil Code that in addition to the (contractually) agreed updates, the provider shall ensure that necessary updates are provided to the user can only be excluded in relation to the consumer if the conditions set out in Section 2389s(2) of the Civil Code are met, which states that necessary updates can only be excluded if the provider has specifically notified the user prior to the conclusion of the contract that updates will not be provided and the user has expressly agreed to this when concluding the contract.
If the service is concluded online (the usual way of concluding a SaaS contract), consent can be demonstrably obtained, for example, by placing a tick-box where, by entering the consent given in the database, it can be retrieved if necessary.
Bindingness of the Amendment to Previously Concluded Contracts
Contracts B2B
If a provider in a B2B contractual relationship has entered into a contract with another entrepreneur before 6 January 2023, the nature of their contractual relationship will not be affected by the Amendment. If they do not voluntarily choose to do so, the Amendment will not apply to them. However, if these entrepreneurs enter into a contract after 6 January 2023, the new provisions of the Amendment will automatically apply to the contractual relationship.
Contracts B2C
Regardless of whether the contract between the provider and the consumer was concluded before and/or after the Amendment came into force, the new rules will always apply to the contractual relationship in question, irrespective of the will of the contracting parties.
Conclusion
The introduction of a new type of contract – the contract for the provision of digital content – affects a wide range of contractual relationships not only between entrepreneurs but also between entrepreneurs and consumers. In particular, the hitherto very common SaaS contracts are acquiring the legal framework of a digital service contract and it is necessary to take this into account, either in the contract itself or in the terms and conditions which are an integral part of these contracts. The new rules on the exercise of rights of defective performance, withdrawal from the contract, modification of digital content and other key issues will therefore need to be addressed as soon as possible – the changes are effective from 6 January 2023 and, in the case of contracts concluded with consumers, directly apply to contracts concluded before that date.
If you have any questions about contracts for the provision of digital content or other related issues, we are at your disposal, so please do not hesitate to contact us.
Mgr. Tomáš Maux, junior lawyer – maux@plegal.cz
Ráchel Kouklíková, legal assistant – kouklikova@plegal.cz
Mgr. Jakub Málek, managing partner – malek@plegal.cz
15. 02. 2023