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9 November 2023

Ukrainian Digital Content And Digital Services Law: A Missing Piece In The Regulatory Puzzle Of The Digital Sector?

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To improve regulation of the digital sector in Ukraine and further harmonise Ukraine's legislation with that of the European Union, the Law of Ukraine "On Digital Content and Digital Services"...
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To improve regulation of the digital sector in Ukraine and further harmonise Ukraine's legislation with that of the European Union, the Law of Ukraine "On Digital Content and Digital Services" ("Digital Content Law") was adopted on 10 August 2023.

The Digital Content Law aims to shape the legal framework governing relations regarding the supply of digital content and services through a contract. It also seeks to legislatively establish an effective legal toolkit for consumers to protect their rights concerning the supply of digital content/services.

New Consumers Protection Law, Cloud Services Law, and Virtual Assets Law have already been adopted. E-Commerce Law is also in place. Does Ukraine really need Digital Content and Digital Service Law?

The Digital Content Law serves multiple essential purposes and has a special place in the structure of the Ukrainian laws:

  • alignment with the relevant EU standards. First, the adopted Digital Content Law is aimed at aligning Ukrainian laws with the EU standards, particularly with Directive (EU) 2019/770 of the European Parliament and of the Council of 20 May 2019 on certain aspects concerning contracts for the supply of digital content and digital services ("Directive 2019/770").
  • correlation between the Digital Content Law and the Ukrainian Consumers Protection Law. One of the primary rationales behind the Digital Content Law is to bolster consumer protection in the realm of digital content and digital services. The Digital Content Law is designed to regulate B2C relations. It is not for B2B relations.

    Compared to the Consumers Protection Law, the Digital Content Law provides a structured mechanism for safeguarding consumers' rights and interests, emphasising the digital sector and delineating clear rules for issues such as warranties, refunds, and dispute resolution.
  • correlation between the Digital Content Law and the Cloud Services Law. The Cloud Services Law primarily pertains to B2G relationships; particularly, it establishes specific provisions for the use of cloud services by government authorities, local self-government bodies, entities with regulatory powers, and other entities to whom such powers are delegated. In its turn, the Digital Content Law extends to cloud services, but it governs relationships with consumers (i.e., it is for B2C).
  • correlation between the Digital Content Law and the Virtual Assets Law. With the enactment of the Law of Ukraine "On Amendments to the Civil Code of Ukraine Regarding the Expansion of the Scope of Civil Rights Object", dated 10 August 2023, it is now clear that virtual assets and digital content are two different types of digital thing (digital item) (in Ukrainian: цифрова річ) that are regulated by different laws.
  • Correlation between the Digital Content Law and E-Commerce Law. These two laws should be applied together. The trader is treated as an e-commerce actor in the meaning of the E-Commerce Law.

What are digital content and digital services?

By definition, digital content means data created and provided in digital form (Article 2 of the Digital Content Law). A non-exhaustive list of digital content includes:

  • computer programs,
  • mobile applications,
  • video files,
  • audio files,
  • digital games, and
  • e-books.

Notably, the digital content definition given in Directive 2019/770, as well as recitals in it (e.g., recitals 19, 26, and 28), also mention the following services/products among the digital content:

  • downloaded or streamed movies on the Internet,
  • software-as-a-service,
  • web-based email and online messaging services,
  • word processing or games offered in social media,
  • word processing or games offered in cloud storage,
  • 3D printing visual modeling files.

Digital service means a service that enables consumer to create, process, store or share data in digital form or get access to such data, as well as take any other actions with respect to digital data that was created or uploaded by a consumer or another user of such service.

By way of an example for the digital service, the digital service definition mentions hosting of files and processing texts or games offered in cloud computing environments and social media.

It is worth highlighting that the Digital Content Law extends its scope to encompass digital content and services delivered through physical means (e.g., DVD, CD, USB sticks and memory cards, etc.), but only when the sole purpose of the tangible medium is to serve as a carrier of the digital content.

The Digital Content Law also applies where digital content and/or service is developed per the consumer's specification.

Cases when the Digital Content Law is not applicable

Considering the regulations under Directive 2019/770, certain products and services fall outside the regulation under the Digital Content Law. More specifically, the Digital Content Law does not apply to:

  • supply of goods with digital elements which rely on integrated digital elements or inter-connected digital content or digital services to operate (Article 1 of the Digital Content Law and recital 21 of Directive 2019/770).

    For instance, it will not apply to pre-installed apps ecosystem on tablets and smartphones (camera, alarm apps). Another possible example is a smart TV that was advertised as including a particular video application, regardless of whether the video app is pre-installed or has to be downloaded subsequently on another device and is only inter-connected to the smart TV. In turn, the Digital Content Law will likely apply to standalone operating systems, apps, and games that consumers subsequently download.
  • free and open-source software, provided that it is not supplied in exchange for a price and that the consumer's data are exclusively used for improving the security, compatibility or interoperability of the software (Article 1 of the Digital Content Law and recital 32 of Directive 2019/770).
  • contracted services where the digital component is only used for transmitting or communicating the service to the consumer and is not crucial to the interaction with the consumer. For example, the delivery of professional services such as translation services, architectural services, legal services or other professional advice services, notarial acts, public services, such as social security services or public registers (Article 1 of the Digital Content Law and recital 27 of Directive 2019/770).
  • supply of digital content to a public audience, such as digital cinematographic projection or an audiovisual theatrical performance, except for the cases when such digital content is provided to a public audience by signal transmission such as digital television services (Article 1 of the Digital Content Law and recital 31 of Directive 2019/770).
  • digital representations of value such as electronic vouchers or e-coupons (recital 23 of Directive 2019/770). Still, it needs to be seen whether it would not conflict with the Virtual Assets Law as, to some extent, electronic vouchers are e-coupons may fall within the meaning of virtual assets or
  • services that are subject to distinct regulations. Notable exceptions from the scope of the Digital Content Law include e-communications, medical services, financial services, and gambling services (Article 1 of the Digital Content Law).

Compared to Article 3 of Directive 2019/770, it is not entirely clear from the Digital Content Law whether it applies to the supply of digital content and/or digital services free of charge.

Personal data as consideration for the supply of digital content or digital service

The Digital Content Law also applies to B2C contracts where a consumer does not pay money as a consideration, but her or she provides personal data to the trader in exchange for the digital content and/or digital services.

The personal data does not qualify for consideration in case the trader exclusively processes it to ensure the supply of digital content and/or digital service without any intention of the trader to further use the personal data for achieving any objectives other than the supply of digital content and/or service.

Directive 2019/770 provides several examples of situations where personal data can qualify for consideration. In particular, the supply of digital content and/or digital service in exchange for personal data takes place:

  • when the consumer opens a social media account and provides a name and email address that are used for purposes other than solely supplying the digital content or digital service or meeting legal requirements (for security, identification purposes, etc.).
  • where the consumer consents for any material that constitutes personal data, such as photographs or posts that the consumer uploads, to be processed by the trader for marketing purposes.

During consumer data processing, the trader must adhere to the requirements stipulated in the Law of Ukraine "On Protection of Personal Data."

Recital 40 of Directive 2019/770 delegates the authority to regulate contractual consequences if a consumer withdraws consent for personal data processing to national law. However, it is noteworthy that the Digital Content Law does not provide explicit provisions to address and regulate these particular consequences.

What businesses should comply with Digital Content and Digital Service Law?

Similar to the Consumer Protection Law (for more information on the new consumer protection law, please see our recent overview), the Digital Content Law governs the relations between trader and consumer (B2C) concerning the provision of digital content and/or services.

The trader is defined as an individual or legal entity that, based on a contract concluded with the consumer, provides or undertakes to provide digital content and/or services within the scope of its entrepreneurial activities, whether directly or through another entity acting on its behalf or under its authority.

What are the consumer rights guarantees?

The Digital Content Law establishes criteria for digital content or service conformity that encompass both subjective and objective aspects.

Based on subjective criteria, digital content or service is considered contract-compliant if:

  • its description, quantity, quality, functionality, interoperability, compatibility, and other characteristics align with the contract terms;
  • it is suitable for the purposes agreed upon by both parties at the time of contract formation;
  • it is received along with all attachments, accessories, applications, and instructions, including installation recommendations, as specified in the contract;
  • the digital content or service is provided in the latest existing version with subsequent updates unless otherwise specified in the contract.

Objective criteria for assessing the conformity of digital content and/or digital services include:

  • fitness for common purposes, considering technical requirements in laws and regulations;
  • provision in quantity and compliance with quality requirements, including interoperability, functionality, compatibility, accessibility, continuity of provision, and safety of use, which are customary for digital content and/or digital services of the same kind, and on which the consumer can reasonably rely on under the terms of the contract or public statement;
  • supplying all associated items, accessories, apps, and instructions, including installation guidance;
  • matching the demo version of digital content or service offered to the consumer for evaluation before finalising the contract.

Additionally, it mandates that the trader shall not be held responsible for defects in the digital content or service, provided that the consumer was regularly informed about and provided with updates, including security updates, when such updates were stipulated in the contract, and the failure did not result from inadequate installation instructions (Article 6 of the Digital Content Law).

What are the warranties and liability of the trader?

The trader bears responsibility for any failure to provide digital content or services or any lack of conformity that becomes apparent within a two-year warranty period (Article 9 of the Digital Content Law).

What is more, if the trader fails to provide digital content and/or services within a period agreed upon by both parties, or within a reasonable timeframe, the consumer has the right to terminate the contract (Article 11 of the Digital Content Law).

If the provided digital content and/or digital service does not meet the respective requirements, the consumer has the right to demand:

  • the provision of digital content and/or digital services that conform to the specified requirements;
  • a proportionate price reduction; or
  • to terminate the contract.

Liability for the violation of consumer rights relating to the conformity of digital content and/or services, may result in a penalty up to 300 percent of the value of the provided digital content and/or digital service when they fail to meet the requirements stipulated by the Digital Content Law concerning the compliance of digital content and/or digital services (Article 20 of the Digital Content Law).

Consumer can protect their rights related to digital content and services according to Ukrainian consumer protection laws, including to file complaints through the e-Consumer Portal (Article 19 of the Digital Content Law). The trader is required to register with the e-Consumer Portal (for more information on the e-Consumer Portal, please see our overview here).

Is it already in effect?

The Digital Content Law stipulates a transitional period to ensure a seamless transition. Specifically, entering into force of the Digital Content Law is scheduled for 02 March 2024. In light of this, it is advisable for the relevant businesses to start revising the terms of use of digital content and digital services to ensure compliance with the Digital Content Law already in a short-term perspective.

Information contained in this overview is for general information purposes only, does not constitute legal or other professional advice, and should not be relied upon as a substitute for specific professional advice tailored to particular circumstances. The overview was prepared with the assistance of associate Anastasiia Finko.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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