Consumer Rights Bill

Baroness King of Bow Excerpts

Monday 20th October 2014 Grand Committee

[Baroness King of Bow (Lab)]

My Lords, this is an interesting group of amendments. “Oh no, it’s not”, I hear you say. Oh yes, it is. It is interesting because it relates to the fact that digital content is different from most other retail goods in so far as consumers cannot hold it in their hands. However, these amendments add more exemptions to areas where digital goods must be of satisfactory quality.

I will not speak at length on this amendment or the other amendments in the name of the noble Lord, Lord Clement-Jones, but it seems worth reiterating the peculiar nature of digital content, which is why these amendments arise. It is hard to imagine any other area of retail where a manufacturer would sell you a good when they know it is almost certainly going to have problems—it is almost certainly going to be defective in some way. Digital software is a strange anomaly because, as we heard, computer coding means that there are virtually always bugs to fix. We do not think it is abnormal any more, for instance, when Apple releases a new operating system such as iOS8 and, for whatever reason, our computing equipment is—to use the technical term—stuffed. My iPad is no longer working ever since I downloaded iOS8. There was actually an even more appropriate technical term to use but I did not think it was parliamentary.

The point here is that the Bill must tread a careful balance. On the one hand, we must not create a legal framework which is permissive towards digital content providers selling products that are simply not fit for purpose. On the other, we do not want to stop innovation and modification in the fast and frenetic world of technological advance and software downloads. In light of this, will the Minister ensure that any amendments of this nature do not tip the balance away from the consumer and towards the digital content provider? Most consumers struggling with technology feel that it is already unevenly balanced. My noble friend Lord Stevenson used the term “asymmetry”, which is very apt. Notwithstanding this, however, we recognise that with complex software it is impossible to give 100% guarantees. Therefore, it seems reasonable to say that where minor defects in software do not affect the overall functionality of the product, that digital content should not be deemed unsatisfactory. We look forward to the Minister providing further clarity on this issue because, as she pointed out, this is about getting the rulebook right for the 21st century. At present, we are not entirely clear what the rules are.

[Lord Knight of Weymouth]

My Lords, last Tuesday I facilitated part of an event at BAFTA organised by Innotech. One of the speakers was a young man, Jamie Woodruff, who has autism but probably earns a good income from being what I think is described as a white-hat hacker. He is a benign hacker who hacks into computer systems but has an ethical agreement whereby he gives people 28 days’ notice to resolve the security problems. If they do not resolve them, he can publish the problems. He did a live hack during the event to show how easy it is to hack into websites and expose the weaknesses that many sites have. That raises a question in my mind about quality.

I raise this issue to give the Minister an opportunity to say a little more about Clause 34(3) in respect of how quality is defined in this context. The word “safety” is used in Clause 34(3)(c). A company may have a business-to-consumer relationship in the course of which it collects a whole bunch of data. The service may be of very high quality in terms of what is described and what the consumer pays for. Indeed, the whole experience may be fine but subsequently it transpires that that business has not bothered to make the consumer’s personal data secure, it is hacked into and they lose their personal data. Does the word “safety” cover that scenario so that the consumer is protected and can have proper redress against that company?

--- Later in debate ---

[Lord Clement-Jones]

My Lords, I am very pleased to have the support of the noble Lord, Lord Sugar, for Amendment 34A. I do not know whether he is going to make a personal appearance today, which would excite us all, but let us see. I see that his name is on other amendments so you never know.

Traders often use third-party software in their digital content products. This software is usually provided to the trader on a no-warranty basis, meaning that the third party will not guarantee that the software works or is free from bugs. However, Clause 34 inserts a term into the contract between the trader and the consumer that the digital content is of satisfactory quality. This means that in effect the trader has to guarantee the first party’s content even when it does not have the same guarantee from the third party whose content it is. This creates a liability for the trader which is beyond its control. The clause risks stifling innovation as it would prejudice SMEs which have less negotiating power with third parties and may have to stop using third-party software that is provided without warranty.

Let me provide an example. An app provider creates a consumer-facing app using software that it has licensed in from a third party. The software licensor provides its software on standard terms which state that no warranty is given. The app provider must then make its app available to consumers subject to the provision in the Bill that the app is of satisfactory quality, even though it does not have that warranty upstream and even though it has no control over the software licensor’s portion of the app. If the app does not work because of the software licensor’s software which the app provider has no control over, and for which it has no recourse against the software licensor, the app provider will still be liable to the consumer. That is an illustration of the impact and I hope very much that my noble friend will take it into account when considering the merits of this amendment. I beg to move.

[Baroness King of Bow]

My Lords, this amendment would provide further exemptions to the providers of digital content, freeing them from the need to guarantee the third-party software they use. I understand the argument put forward by the noble Lord, Lord Clement-Jones; namely, that the trader may not have a warranty from the third party, and I am sorry that my contribution will be a disappointment to him. It appears to me none the less that it would reduce consumer protection, but after all, this legislation is called the Consumer Rights Bill. Again, this is a question of balance. The key point is that if the trader benefits financially from the use of the third-party software, surely it is inappropriate to load the risk on to the consumer. It is the trader’s decision to buy and use third-party software, so if that trader is unsure of its quality, it must be a risk that it undertakes and consequently should be liable for, not the consumer. The consumer cannot control the trader’s relationship with its suppliers; third-party software is very much the responsibility of the trader, and therefore we cannot support the amendment.

As I have already mentioned, if a business is selling digital content for profit, it is up to that business to ensure that all elements of the final product are of a reasonable quality. I hope to hear that the Minister shares this view.

[Baroness Jolly]

My Lords, the Bill aims to create confident consumers who are more likely to try new products and new providers, and as such, help to drive growth and innovation. With this aim in mind, our position is that there should be no gaps in consumer protection for digital content. It is only right that when a consumer buys digital content they can expect it to be of satisfactory quality, fit for purpose and as described. If not, they can expect the fault to be put right. The concerns of traders who may find their ability to claim back costs from third-party providers limited by their business-to-business arrangements need to be balanced against the needs of consumers who should be able to shop with confidence. I understand that B2B relationships may be particularly complex in the area of digital content, but complex arrangements are not a defence against faulty digital content, and consumers should not be left without adequate protection.

I shall pick up on a point made by my noble friend Lord Clement-Jones, that it was not fair on SMEs since intermediaries may limit their liability in a B2B contract. I understand the problem that some smaller traders may lack bargaining power with larger companies, and that is why we have other protections in law such as the Unfair Contract Terms Act 1997. However, beyond that basic protection and other protections, such as the Sale of Goods Act, where appropriate, we believe it is important to allow businesses the freedom to make contracts with each other without state interference. My concern is the potential for this amendment to significantly undermine consumer protection, because it would seem to have such very broad implications.