Ten risks associated with the new EU Digital Content Directive

There is hardly any other industry with such a vigilante customer base such as the video games industry.

Over recent years it seems to have become a popular trend amongst gamers and some news outlets to 'call out' video games companies for so-called 'broken promises' or alleged 'false marketing'. Video games are getting review-bombed and downvoted on all kinds of consumer-faced platforms, with some developers even getting insulted or threatened personally.

Despite the general impression one could get from this sentiment, there have only been very few cases where laws were actually broken or the borders of 'false marketing' crossed. In most cases, video games companies simply gave in voluntarily at some point and refunded consumers for their purchase.

However, with the new EU Digital Content Directive the legislative landscape is changing and becomes more challenging.

The Directive will likely affect a large number of established business practices with regard to the provision of video games to consumers and the corresponding advertisement. According to many legal advisors, the Digital Content Directive is considered as one of the most impactful regulations for the video games and software industry in the last few years.

This is a short run-down of the main risks associated with the Digital Content Directive:

1. Publishing incomplete game versions and patching them after release

It is a reality that game development is subject to tight deadlines and publishing schedules. To mitigate the time pressure and to make use of as much time as possible until the release date, it has become a common practice to immediately update a game with a Day-1 patch. This allows the game developer to work on the final product until the very day of publication.

However, the work that an unfinished title might still need for completion until release can be difficult to predict. This sometimes results in even the Day-1 patch not being able to bring a game in a fully functional state. Wherever this risk materializes, consumers will have additional rights in future.

The Digital Content Directive is considered as one of the most impactful regulations for the video games and software industry in the last few years

The Directive requires suppliers of digital content or digital services to comply with certain objective requirements for conformity. Such objective requirements include that the digital content or digital service shall possess the qualities and performance features, including in relation to functionality, compatibility, accessibility, continuity and security, normal for digital content or digital services of the same type. In other words, a game that does not function as it can be expected by the consumer does not meet the requirement.

In case of non-compliance, consumers can be entitled to have the digital content or digital service brought into conformity, to receive a proportionate reduction in the price, or to terminate the contract. In the event the consumer is entitled to terminate the contract, the video games company has to reimburse the consumer for all sums paid under the contract.

2. Not delivering on advertised and publicly communicated qualities and features

In future, any public statement made by or on behalf of the video games company (e.g. on social media) can be considered an objective requirement for conformity that the consumer may reasonably expect and on which the game company has to deliver. This applies in particular (but not exclusively) to statements made in advertising or labelling. The consequences of non-compliance are same as previously outlined under No.1.

Examples for public communication or advertisement that is subject to an increased risk include:

• a game trailer which emphasizes/shows certain graphics, cutscenes and features that altogether provide a different impression on how the final game might look like or function
• announcing that a game will be available on a certain platform but withdrawing it later (after pre-orders have started) due to an exclusivity deal with another platform
• 4k resolution and other technical features which are not included in the final service

3. Demo versions providing an inaccurate impression

The same as outlined under No.2 applies to demo version that might provide a different impression on how the final game might look like or function. The Directive specifically sets out that the digital content or digital service has to comply with any trial version or preview of the digital content or digital service, made available before the conclusion of the contract. For consequences, please see No.1.

4. Not meeting consumer expectations on collector's edition items

The Directive explicitly sets out that the objective requirements for conformity (see No.1 and 2) also include any accessories and instructions which the consumer may reasonably expect to receive.

Games companies are bound to their public statements and advertisements throughout the lifespan of their live service game

Thus, any public statement made by or on behalf of the video games company which might result in consumers reasonably believing that a certain quality item comes with the game can result in non-compliance if the item is not included or (more importantly) the quality of the item does not meet the communicated standards.

An example would be publishing a picture of a collector's edition which shows a goodie that is made of a high-quality material (e.g. metal) while the actual item is manufactured with lower quality material (e.g. plastic).

5. Modifying service games in contradiction to earlier public communication and advertisements

Long life service games belong among the most successful video games products. These games are subject to constant change, additions, upgrades, and so on. However, not all modifications are popular among the player base.

In addition to the aspects already outlined under No.1 and 2, the Directive explicitly states that where the contract provides for a continuous supply of digital content or digital service over a period of time, the digital content or digital service shall be in conformity throughout the duration of that period.

In other words, provided no public correction was made to a statement, video games companies are bound to their public statements, advertisements and reasonable expectable product standards throughout the lifespan of the service game.

Examples for public communication or advertisement that is subject to an increased risk can (depending on the exact circumstances) include:

• not implementing the content of a publicly communicated road map for a service game (e.g. because the development team is still working on bug fixing, see risk No.1)
• announcing on social media that microtransactions will be cosmetic only with later changing them to include gameplay-affecting items

Ceasing support of a game too early is subject to an increased risk under the Digital Content Directive

The consequences of non-compliance are the same as outlined under No.1 with the (important) difference that the consumer can only demand reimbursement for the time period of non-conformity (i.e. since the unpopular update was implemented).

However, while this reduces the risk in terms of reimbursements, the more relevant risk actually lies with the consumer potentially being entitled to have the digital content or digital service brought into conformity. Such a claim would require the game company to remove unpopular modifications again.

Players can demand this unless re-establishing the original state of the game would be impossible or would impose costs on the game company that would be disproportionate, taking into account all the circumstances of the case including:

1. the value the digital content or digital service would have if there were no lack of conformity
2. the significance of the lack of conformity

Both these requirements establish a flexible standard that on the one hand provides game companies with a solid ground to defend against a conformity claim but on the other hand is subject to uncertainty and interpretation by local courts.

6. Modifying service games in general

During its lifespan, a live service game can be subject to significant modifications and -- over time -- move more and more away from the initial product. New characters, maps and modes are added and old ones removed. Not all modifications are popular within the existing playerbase. Video games companies typically reserve the right to modify a game by means of its terms of service.

However, the Digital Content Directive sets out additional requirements that must be met in case a game is modified beyond what is necessary to maintain the digital content or digital service in conformity.

Under the Directive, general modifications are only allowed if all of the following requirements are met:

1. the contract allows, and provides a valid reason for the modification
2. the modification is made without additional cost to the consumer
3. the consumer is informed in a clear and comprehensible manner of the modification
4. where the modification negatively impacts the consumer's access to or use of the digital content or digital service, the consumer is informed reasonably in advance on a durable medium (e.g. email) of the features and time of the modification and of the right to terminate the contract, or (if applicable) of the possibility to maintain the digital content or digital service without the modification.

Note, however, that the option to terminate the contract and the corresponding information requirement does not apply in case the modification's negative impact for the player is only minor.

7. Ceasing support of a (failed) game or season passes

It is an inevitable fact that not every game can be successful. Where a game fails that was designed for being supported over a long time, video games companies are often in the need to cut the support once it is not feasible or reasonable anymore and to dedicate the resources to other projects.

Typically, video games companies reserve the right to cease a game's support by means of the terms of service. Where it is abundantly clear that a game will not meet the commercial expectations, ceasing the support of a game can sometimes happen fast or even immediately after launch.

The Directive also targets free-to-play business models where the consumer 'pays' with personal data instead of money

However, the Digital Content Directive explicitly sets out that the consumer has to be supplied with (and informed of) updates, including security updates, that are necessary to keep the digital content or digital service in conformity, for the period of time that the consumer may reasonably expect, given the type and purpose of the digital content or digital service and taking into account the circumstances and nature of the contract.

This applies where the contract provides for a single act of supply or a series of individual acts of supply. Thus, depending on the circumstances, ceasing support of a game too early is subject to an increased risk under the Digital Content Directive. This applies all the more where the support is terminated during the time period of a season pass.

8. The Directive also applies to F2P games

The directive also applies where the consumer is not required to pay a purchase price for the game but instead provides or undertakes to provide personal data to the trader. With this requirement, the Directive targets business models where the consumer "pays" with personal data instead of money.

This applies in particular where the data provided by the consumer is used for advertisement purposes, a business model that is often used for F2P games (e.g. for targeted in-game advertisements). The requirement does not apply, where the personal data is only used for the purpose of supplying the video games or to comply with legal requirements.

9. Being located abroad will not help escaping the regulation

Once implemented into national Member State law, the regulations of the Digital Content Directive apply to foreign companies as well. Contracts concluded by a consumer with a video games company are governed by the law of the country where the consumer has his/her habitual residence, provided that the game company either pursues its commercial or professional activities in that country or by any means directs such activities to that country or to several countries including that country.

Video games companies should track the implementation efforts in key EU markets and ones that are notorious for a strict stance on consumer law violations, such as Germany, Italy and France

A typical example for directing professional activities to a certain country is offering the service in the local language and/or currency and running advertisements tailored to the market.

10. The Directive cannot be excluded through the game's terms of service

The Directive has mandatory nature. Any contractual term which, to the detriment of the consumer, excludes the application of the Directive's regulations or derogates from them or varies their effects is not be binding on the consumer.

What's next?

EU Member States are required to implement the Directive into national law until 1 July 2021. Typically, national law implementations can vary in terms of strictness and interpretation by local courts. Thus, the risk from a consumer law perspective based on the implementation of the Digital Content Directive might ultimately vary depending on the EU Member State.

Video games companies should track the implementation efforts at least in key EU markets and EU markets that are notorious for a particular strict stance on consumer law violations (e.g. Germany, Italy and France). Germany, for instance, has published a first draft to implement the Digital Content Directive on 3 November, 2020.

Games companies should also prepare and start early enough with the implementation of compliance structures such as the communication of updates and training of marketing personnel, development teams and others with regard to the new rules on public communication.

Furthermore, future or planned marketing campaigns should be re-evaluated keeping in mind the stricter rules on public statements.

Lastly, on business level it will be important to factor in the additional risk that comes with publishing a game in an incomplete state in order to meet certain publication deadlines, financial targets and shareholder expectations.