E-books: a hybrid between goods and services?

Over the past decades, the commercial world has seen radical changes due to the rapid advancements of technology, and this has resulted to a new reality and a new era: the era of digital market and the so-called digital products. Within this context one may wonder whether e-books are legally classified as goods, and what remedies are available to consumers.


Are e-books ‘goods’?


Before diving into the question on whether an e-book is a good, it is necessary first to understand what e-books essentially are. Legally speaking, an e-book is much more complex when compared to any other ‘electronic’ or physical good, because it ascribes 'a digital object with textual and/or other content with features that can be provided in an electronic environment,' because 'e-books, typically have in-use features such search and cross reference functions, hypertext links, bookmarks, annotations, highlights, multimedia objects and interactive tools'.[i]


The above, two-partite definition is an attempt to delineate the 'driving wheel' of e-books: the impact of technology and its rapidly changing nature, through which e-books are read and delivered. The emphasis is that the first part of the definition describes a more general ground, whilst the second part will eventually require additions and adjustments to correspond to the rapidly - all evolving nature of technology.


Having an idea of what an e-book is, it is clearly necessary to know if it is also a good. The wording of the Sale of Goods Act 1979 (for B2B transactions) provides that goods are classified as all corporeal movables except money, and the Consumer Rights Act 2015 (CRA 2015) describes goods as all tangible movable items. The wording of the Acts leads us to the conclusion that goods must meet the requirement for tangibility and obviously be movables.

E-books, in turn, do not have this very specific element of tangibility, as they are digital in form, and subsequently intangible, as they are merely accessed by the use of an electronic device. Profoundly, this places e-books under a different umbrella of statutory protection: the recently enacted laws on digital content. Section 2(9) of the CRA 2015 provides that digital content means data produced and supplied in digital form. This essentially corresponds to the very nature of an e-book which is nothing less than a version of an otherwise printed book, made available through the internet in digital form (with all the special features this may include) that can be accessed through various electronic devices.


Consequently, as e-books are intangible in nature, they are regulated in Chapter 3 of the CRA. This legal regime treats digital content similarly but not identically to goods due to their very nature, as digital content encompasses features not commonly met within the traditional meaning of goods. E-books, as a form of digital content, are usually purchased online (in intangible form), but it is also possible that they can be acquired in tangible form (to be embedded in a physical object) e.g., through the purchase of a disc. Under the CRA 2015 most provisions for the sale of goods prescribe that they have to be of a certain standard and quality, conform several requirements and afforded protections; provisions also applied for digital content.


Remedies under the Consumer Rights Act 2015


Not all remedies available for goods are made available for digital content. The most obvious example is where the consumer does not have the right to reject faulty digital content, since it cannot be returned (except where it is purchased in tangible form as per s.16 of the CRA). For digital content, one has the right to ask for repairs and/or for replacement, as well as for price reduction. There is also a requirement for the trader to act within a reasonable time, without unnecessary delays.

Within this context, tangibility and intangibility play a fundamental role. This is because while digital content embodied in a tangible medium is regarded and treated as a good, digital content downloaded or accessed through the internet (being intangible in nature) is treated differently under the statute.

For goods, there is a limit for repairs or replacements, but this is not the case with digital content, as this practice is generally regarded as against the best interests of the consumers. Put differently, if there were limits on repairs, it could result in moderate performance(s): software for example, requires to be regularly updated and improvised following the development of technology. Therefore, by imposing a limit on repairs, this would have led to an expensive, burdensome practice with unfavourable outcomes for the consumer. Clearly, this might have resulted in costly or even useless digital content if updates (which usually function as repairs) required extra expense or were even limited because of the possibility that future technologies would render the software ineffective.


EU law on e-books


In 2015, the CJEU, in proceedings raised against France [ii] and Luxemburg [iii] regarding reduced VAT rates on e-books, held that e-books are digital services and subsequently cannot be products-goods. In the EU, physical books, newspapers etc., enjoy a reduced VAT rate; France and Luxemburg applied the same rates on e-books, on the assumption that the provisions for physical items were the same for the digital ones. [iv] The Court in its ruling was, however, clear that the reduced VAT rates were only available for books -the physical item- and that the reduced rates did not apply for e-books, which cannot be described as a product/good.


According to the CJEU ruling, e-books are electronically supplied services. The Court acknowledged that a physical device is required for e-books to be read but clarified that a device does not form part of an e-book but the means through which an e-book may be accessed. The Court further based its opinion on copyright grounds; by defining e-books and generally digital content as services instead of goods, it further restricted the right of resale of digital content.


A similar approach was taken by the English Courts in News Corp UK & Ireland Ltd v Revenue and Customs Commissioners [v] where it was held that that digital editions of printed newspapers were not goods but a supply for electronic services, according to national law.


In UsedSoft v. Oracle [vi] the CJEU provided that 'downloading a legally acquired file exhausts the distribution right for that copy'. Following CJEU’s ruling in classifying e-books as ‘electronically supplied services’,[vii] it can be asserted that there can be no reselling of a service, and subsequently, e-books cannot be treated as goods.

At the time the above decisions were decided, the EU had no uniform rules about the online purchasing of digital content in intangible form. There were, however, provisions regarding the purchase of digital content embedded in a tangible medium under the Consumer Rights Directive. In addressing matters concerning digital content both in tangible and in intangible form, two new Directives came into force as of June 2019: the Digital Content Directive (DCD) -electronically supplied/downloaded material- and the Sale of Goods Directive (for digital content incorporated in tangibles: e.g. smart TVs, watches, etc.).


The DCD introduced a uniform legislative regime on the law governing contracts for the supply of digital content throughout the Union, drawing upon rulings of the CJEU on the matter, and it includes digital service contracts. Emphasis must be placed on the fact that the Directive explicitly lists e-books, in paragraph 19, within the spectrum of digital content as it expressly distinguishes them from digital services. This comes in contrast to the earlier rulings of the CJEU, which deemed e-books as services.


Moreover, the current departure from the high standard VAT for services to a lower one for e-publications suggests that e-books are closer to being considered digital content than digital services. As technology gets more complex, the legal status of e-books might depend on the circumstances of each individual case. No doubt, the CJEU will presumably see itself clarifying the matter soon.


Further policy considerations

Of paramount importance is the way consumers understand their rights when purchasing e-books and it is important to highlight the distinction between the purchase of a physical book and that of an e-book, as it is commonly encountered for consumers to confuse their tangible book rights with these of their e-book. As it has been observed, e-books are not goods at the UK and EU level but services and according to the Digital Rights Management (DRM) when a consumer is acquiring an e-book is actually getting 'licence to access rather than purchase'[viii] under a rental agreement.


This is because when a acquiring an e-book there are certain uses that are restricted, or even prohibited do due to this very nature of e-books in being a service: a mere licence to access the text and its content than use it in a way not mentioned or forbidden by the terms of the contract (e.g., limit copying, sharing etc.), even where the e-book is downloaded and stored in the consumer’s device.

Another issue within this area might be that of the consumers privacy and data protection, as there have been instances where data have been collected from users, especially those readers using the cloud or other streaming services in their devices. EU law enactments have provided for such transparency under the e-Privacy Directive, and more recently under the General Data Protection Regulation (GDPR).


It is evident that even though consumers may believe that they are entitled to the same rights for e-books as those for physical-tangible books, the reality is different. It must be noted that in the UK as well as the EU, the approach taken is broadly the same, with the courts establishing that digital content and subsequently e-books are services and not goods. What is sure is that e-books now form an integral part of the commercial world and undoubtedly, further understanding of their nature and legal status will be required.


Endnotes

[i] Magda Vassiliou and Jennifer Rowley ‘Progressing the definition of the e-book’ (2008) Department of Information and Communications, Manchester Metropolitan University 363-64 [ii] European Commission v France (C-479/13) [iii] European Commission v Luxembourg (C-502/13) [iv] Peter Brantley, ‘E-books: Product or Service? Digital Spotlight 2015’ (Publishers Weekly, 14 Apr 2015) [v] News Corp UK & Ireland Ltd v Revenue and Customs Commissioners [2018] UKFTT 129 (TC); [2018] S.F.T.D. 858; [2018] S.T.I. 69 [vi] Case C‑128/1 [vii] European Commission v France (C-479/13), European Commission v Luxembourg (C-502/13)

Bibliography

Primary Sources

Legislation

  • Consumer Rights Act 2015

  • Consumer Rights Directive 2011/83/EU

  • e-Privacy Directive 2002/58/EC

  • Digital Content and Digital Services 2019/770

  • General Data Protection Regulation 2016/679

  • Sale of Goods Directive 2019/771

  • Sale of Goods ACT 1979

Caselaw

  • European Commission v France (C-479/13)

  • European Commission v Luxembourg (C-502/13)

  • UsedSoft v. Oracle Case C‑128/1

  • News Corp UK & Ireland Ltd v Revenue and Customs Commissioners [2018] UKFTT 129 (TC); [2018] S.F.T.D. 858; [2018] S.T.I. 69

Secondary Sources


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