Increased consumer protection with impact on B2B relationships
Within the framework of the American Bar Association’s (ABA) monthly meeting of the International M&A Joint Venture Committee, KUNZ partner Hermann Knott will present on Tuesday, December 7th, on"The new EU Digital Content and Sale of Goods Directives – Increased consumer protection with impact on B2B relationships".
The two Directives need to be implemented into the domestic laws in all EU member states. In Germany implementing legislation will become effective on January 1, 2022. They are based on the EU's legislative competence on consumer law issues. From the transactional lawyer's perspective it is important to assure that the higher responsibility of the commercial seller – as a target in an M&A context – results in corresponding recourse claims in the supply chain.
The Sale of Goods Directive strengthens consumer rights particularly by introducing a broader concept of defects of goods sold encompassing both qualities agreed between the parties and objective standards. Thus, the commercial Seller should strengthen his rights in the supply chain correspondingly. That will be an important factor in future due diligence work. So-called 'negative quality agreements' will be an important instrument to mitigate the effects of the extensive notion of defects. The new law also contains a pro-sandbagging provision for consumer rights in case of defects.
The Digital Content Directive introduces an entire new type of contract, i.e. one regarding digital products – relating to either digital content or digital services. The principal areas which are legally relevant relate to the provision of digital products, warranty stipulations and – as part of the latter – the duty to update the digital products. From the commercial seller's perspective it is important to pass his extended responsibility towards the consumer on to his supplier. However, some of the typical consumer rights, such as the shifting of the burden of proof in favor of the customer, is more difficult to argue in the relationship between two commercial partners. The same is true for restrictions on individual agreements deviating from the statutory (consumer protective) scheme.
Therefore, it seems that the new laws based on the two Directives results in some kind of squeeze of the last commercial buyer in the supply chain, an important conclusion regarding M&A transactions with such companies as targets from 2022 onwards.
Your contact for all international questions:
Dr. jur. Hermann J. Knott LL.M. (UPenn)
Attorney-at-Law (Germany and New York)