Friday, 3 May 2019

To what extent is there in Scots law a satisfactory legal framework with respect to digital content?

This post is something a bit different from my usual content, so if you aren't particularly interested in law then please check out any of my other posts! I just thought this might be interesting for those studying the law relating to digital content, so here are my thoughts on the topic.

The Sale of Goods Act 1979 (SGA) does not deal with digital content and the relative scarcity of judicial authority on the matter means that it is not clear what manner of legal treatment should apply to disputes involving software. This leaves uncertainty regarding business-to-business transactions especially with English and Scots law differing. However, the introduction of the Consumer Rights Act 2015(CRA) was described as a “timely introduction in order to simplify and strengthen the consumer protection laws in the UK” (Althaf Marsoof). I will first consider the law applicable to consumers and then businesses in order to show that the law relating to business transactions in both Scotland and England is unsatisfactory.

Image source: 
https://mashable.com/2017/10/31/apple-iphone-x-review/?europe=true 


Consumers and digital content
The CRA seeks to ensure that consumers are not prejudiced due to their lack of expertise in transactions compared to traders. Importantly, it made specific provision for digital content transactions (J Patient), however the content must be supplied in exchange for a price. If the supply is gratuitous then the consumer is unable to rely on the Act (O Bray). This is arguably justifiable, as it would be inconsistent with the transactional nature of the Act. Furthermore, freemium software has been included. This is when free digital content is provided but money is charged for proprietary features, functionality, or virtual goods (JEL Gayo).  This filled a major gap in consumer rights, as a 2010 study showed that over 24% of UK adult Internet users played freemium games regularly with 1/3 of players having spent money on them (Vili Lehdonvirta)The highest grossing game on the Apple App Store in March 2016 made over £1 million per day(GoCompare).

A downfall of the CRA however is that it makes no provision for when access to digital content is provided in exchange for personal data, something that is becoming increasingly valuable (Competition and Markets Authority). Some authors, including Acquisti, rightly consider that personal data may have a greater value than money to some. Therefore consumers may have to turn to tort law if they suffer loss with lack of protection from the CRA.

Controversially, under the CRA, regarding digital content, a consumer cannot return “in any meaningful sense” unless it is supplied on a tangible medium (explanatory note 205), which is distinct from s19. Significantly, the trader is therefore entitled to effect an unlimited number of repairs until the goods conform. This is justifiable, as restricting the number of repairs could have resulted in consumers reporting trivial faults in an effort to attain a price reduction, in turn leading to digital content prices being increased, or a decrease in its availability due to production processed taking longer in order to ensure that the goods were sufficiently fault free (explanatory note 204). This may also have had the effect of more primitive digital content being released because innovative content would be more likely to contain faults and smaller producers being forced out of the market.

Digital content in business-to-business (B2B) transactions
Purchasers of software have, in general, the same expectations as those purchasing items with which the law is more comfortable. A refusal to classify software as “goods” fails to protect these expectations. The SGA and the Sale and Supply of Goods Act 1994 provide legal assurance to those contracting to buy “chattels personal other than things in action and money”. Whether software is covered by this definition is an interpretive question for the common law, however the common law provides no easy answer. 
The issue of whether software was classed as ‘goods’ under S61 of the SGA was first dealt with in St Albans City and District Council v International Computers (English case) Scott Baker J adopted a description of a computer system; “…A program in machine readable form must be contained on a machine readable medium…” Non-binding Obitar Dicta of Sir Iain Gildewell also considered that where software is delivered in a disk, as such a disk in tangible, it will be a good. Consequently, if software is downloaded it is not tangible and therefore the protections of terms implied by the SGA will not apply.

Green and Saidov however, argue that software is a tangible product, meaning that transfer of possession is possible. They referred to a case in the Supreme Court of Louisiana, in which it was agreed that: “in defining tangible, ‘seen’ is not limited to the unaided eye, ‘weighed’ is not limited to the butcher or bathroom scale, and ‘measured’ is not limited to a yardstick”. They therefore argue that something tangible does not need to be observed by the unaided senses, which is plausible, as bacteria is an example of such tangibility. Therefore the decision was unsatisfactory, especially as different jurisdictions should not be reaching different conclusions.

The legal framework that governs transactions relating to intellectual property that is an intrinsic part of digital content has been the source of much controversy. Green and Saidov argue that there are two distinct contracts: one for the supply of the content and another for the intellectual property rights relating to that contract, however, Lord Penrose rejected this in Beta Computer Ltd v Adobe Systems which concerned a shrink-wrap licensing scenario. Lord Penrose disliked Gildwells argument that the principal thing, the software, was being subordinated to the object on which it was delivered. Therefore it could not be a sale of goods contract. Penrose instead decided that there was a sui generis innominate contract, which required consensus in idem regarding all of the terms. It has been rightly submitted that this approach brings the law in line with reality (Dr. Aymen Masadeh), especially as the rights of the parties should not depend upon the medium of supply.

This decision is convenient, as it avoids the difficult issues raised by attempting to force software into one of the existing categories (D.A Poyton). Reed and Angel however believe that the decision is “heavily dependent” upon Scottish law doctrine, jus quaesitum tertio, regarding 3rd party rights and is thus “dubious value” as authority in England, creating further uncertainty with the law in both legal systems varying, and as to whether use of Scottish doctrine will prevent reception into English law.

In Mayor and Burgesses of the  London Borough of Southwark v IBM UK the Court determined that for the statutory implied obligations under the SGA to be enforced, there must first exist under S2(1), a "transfer" of "property in goods". As the requirements of a "transfer" were not satisfied, the question of whether software fell within the definition of goods was discussed obiter. Justice Akenhead was of the view that S.61 is inclusive, meaning that things strictly not personal chattels could still be goods. He explicitly recognises that this is contrary to the previous view and notes that, “in principle software could be “goods” within the meaning of that Act”. The issue that this creates is that there are now two contradictory obiter statements, leaving English Law in a difficult place and lacking clarity.

Overall, the well-established framework of the 1979 Act protects transactions for digital content supplied on a tangible medium. For content that is not supplied in this way there is regrettably far less certainty, as rights will depend on the parties’ contractual dealings. This may pose the greatest difficulties for businesses that
contract for the supply of digital content infrequently. This creates uncertainty for commerce, such as the resources that will have to be diverted to meet legal expenses, therefore the law regarding business transactions is unsatisfactory. Whereas the CRA on the other hand has been a significant step forward in relation to the rights of consumers and digital content, as it brought clarity and coherence to the law. However, it is still insufficient due to a failure to address issues surrounding personal data.


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3 comments

  1. Very thoughtful post on a topic like digital content! Very impressive.
    Nice Post! Have a great day!
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  2. I remember at college we learn about digital content in B2B. Thank you for new information about it. This was very interesting to read.

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