EUROPEAN COMMISSION Brussels, 9.12.2015 SWD(2015) 274 final COMMISSION STAFF WORKING DOCUMENT



IMPACT ASSESSMENT

Accompanying the document Proposals for Directives of the European Parliament and of the Council (1) on certain aspects concerning contracts for the supply of digital content



and



(2) on certain aspects concerning contracts for the online and other distance sales of goods

{COM(2015) 634 final}

{COM(2015) 635 final}

{SWD(2015) 275 final}



TABLE OF CONTENTS 1What is the problem and why is it a problem 1.1Introduction 1.2Business-to-consumer (B2C) contracts 1.2.1Existing legal framework 1.2.2Problem 1: Differences in consumer contract law rules hinder traders from selling digital content and goods online cross-border 1.2.3Problem 2: Consumers are not confident when buying digital content and goods online cross-border 1.2.4How would the problem evolve in the absence of EU action: No policy change/baseline scenario 1.3Business to Business (B2B) contracts 1.3.1Existing EU legal framework for B2B transactions 1.3.2Contract law rules do not seem to be a major hindrance for cross-border B2B online transactions 1.3.3Specific issues related to digital content in the B2B context 2Why does the EU need to act? 3What should be achieved? 4What are the various options to achieve the objectives? 4.1Scope: B2C transactions 4.2The options Option 1 - Setting up targeted, fully harmonised rules for the supply of digital content and targeted, fully harmonised rules for online sales of goods

Option 2 - Setting up targeted, fully harmonised rules for the supply of digital content / Application of the trader's law combined with the existing harmonised rules on goods Option 3 - Setting up targeted, fully harmonised rules for the supply of digital content / No policy change for goods Option 4 – Minimum harmonisation rules for the supply of digital content / No policy change for goods Option 5 – A voluntary European model contract combined with an EU trust mark 4.3Discarded options 5What are the impacts of the different policy options and who will be affected? 5.1No policy change/baseline scenario: See Section 1.2.4 5.2Option 1: Setting up targeted, fully harmonised rules for the supply of digital content and targeted, fully harmonised rules on online sales of goods 5.3Option 2: Setting up targeted, fully harmonised rules for the supply of digital content – Application of the trader's law combined with the existing harmonised rules on goods 5.4Option 3: Setting up targeted, fully harmonised rules for the supply of digital content – No policy change for goods 5.5Option 4: A minimum harmonisation Directive setting up rules for the supply of digital content – No change for goods 5.6Option 5: A voluntary model contract, combined with an EU trust mark 6How do the options compare? 6.1Comparison of Policy Options 6.2Preferred Policy Option Nature of the instrument and legal basis Digital content Types of digital content covered Substantive content – areas of law covered Goods

Substantive content – areas of law covered 7How would actual impacts be monitored and evaluated?



1What is the problem and why is it a problem 1.1Introduction Context Following the Guidelines of President Juncker, the European Commission has set the creation of a Digital Single Market as one of its key priorities to generate additional growth in Europe. The Digital Single Market Strategy identified as one of its three main pillars to boost the EU’s digital economy "better access for consumers and businesses to online goods and services across Europe". The Digital Single Market Strategy considers e-commerce as a main driver for growth. The e-commerce market has indeed grown rapidly in recent years within the overall retail sector. According to Ecommerce Europe, the value of retail e-commerce in the EU in 2014 reached a total of €370 billion and grew by 13.4%% compared with 2013. Others estimate the online retail sales growth at an average annual rate of 22% in the period 2000-2014, surpassing €200 billion in 2014 and reaching a share of 7% of total retail in the EU. The Commission's recent estimate is within the range of the above estimates at €231 billion (around 1.8% of EU GDP). Enterprises' turnover from retail e-commerce as a share of total retail turnover has risen by 85% from 2009 to 2014. In the same period final expenditure of households (which follows retail sales in terms of volume and trends) only increased by 2.8%, showing again that retail trade is growing much faster online than offline. However, e-commerce still has a significant untapped potential. The share of e-commerce in the total retail sector remains significantly lower in Europe compared to the United States: In 2014, the share of e-commerce in total retail was 7.2% in the EU compared to 11.6% in the USA. A main reason why the EU is currently lagging behind the US on exploiting the growth potential of e-commerce is the insufficient development of cross-border e-commerce within the EU. In 2014, only 12% of EU retailers sold online to consumers in other EU countries, while more than one third (37%) did so domestically. Only 15% of EU consumers purchased online from another EU country in 2014, while 44% did so domestically. As for traders' online purchases, a very large majority (83.3%) are made domestically, with only an average of 12.2% coming from other EU countries. Thus, instead of taking full advantage of the opportunities of the Digital Single Market, businesses and consumers are too often constrained to their own domestic markets. The Digital Single Market Strategy however promotes better access for consumers and businesses to online trade of goods and services across Europe. The aim is for EU businesses to become more competitive by being able to sell more easily to more than just their national or a couple of neighbouring national markets. An increased offer would also strengthen competition in the markets. This would not only bring consumers a wider choice of products at more competitive prices, but also increase their confidence to buy abroad because they would trust the high level of European consumer protection. However, the commercial and technological pace of changes due to digitalisation is very fast. If EU businesses are to become more competitive and if EU consumers are to have trust in high-level EU consumer protection standards allowing them to engage in the Digital Single Market, the EU needs to act now to reap the benefits of digitalisation. Otherwise, changes may come too late and opportunities could be lost. Approach Within this context, in order to quickly strengthen the competitiveness of EU businesses and boost EU growth, the Commission decided to deal as a priority with the digital dimension of retail, namely the supply of digital content and the online sales of goods. Already the Political Guidelines of President Juncker announced "ambitious political steps towards a connected Digital Single Market notably … by modernising and simplifying consumer rules for online and digital purchases”. The Digital Single Market Strategy includes in its list of key actions both "harmonised EU rules for online purchases of digital content" and "key mandatory EU contractual rights for domestic and cross-border online sales of goods". Both these aspects of this digital supply/sales dimension are fundamental and need to be addressed together. The barriers to the supply of digital content clearly need to be addressed because the supply of digital content has a particularly strong growth potential. Any delay regarding digital content entails the risk that legal fragmentation and hence barriers to trade will increase, as some Member States have already legislated, others are doing so and others still can be expected to follow if no action is taken at EU level. Goods still represent by far the biggest share of the online market: of the €231 billion estimated total size of the Digital Single Market, some €212 billion stem from retail in goods. The Digital Single Market potential would not be unleashed if only digital content, but not online sales of goods, was addressed. In order to have a sizeable impact on the overall EU economy, the online sales of goods also needs to be facilitated. In President Juncker's progress report on the European Commission's 10 Priorities, the need to "remove the barriers that today hamper you from buying online the pair of shoes you want from another Member State" is mentioned as a practical example among many others. Online sales of goods are however not only important from the angle of business turnover, but require also a specific attention from the angle of creating consumers' trust into the Digital Single Market. It is important to give clear rights to consumers in order to mitigate the distance-related risks (no in-person contact with the seller, no "touch and feel" of the product) inherent to these transactions. Moreover, there is a particular reason coming out of the consultation process why any rules on the online sales of goods should be addressed together with the rules on digital content. The already mentioned risk of legal fragmentation stemming from emerging national legislations on digital content creates an urgent need for the EU to establish quickly uniform rules in order to avoid even more obstacles to the cross-border supply of digital content. One important trend emerging from the different consultations which the Commission has run for the preparation of the present initiative was that any rules on digital content should be as far as possible based on the rules on the sales of goods, deviations being justified only to take account of the specificity of digital content. Indeed this approach is appropriate and has been followed. To ensure such a consistent approach also during the legislative process, both sets of rules should be discussed as far as possible in parallel. In its approach, the Commission specifically also takes into account the lessons learnt from the proposal for a Regulation on a Common European Sales Law and the legislative process leading to the Consumers Rights Directive. The idea of an optional instrument has been abandoned and it is no longer attempted to deal with an area where problems are identified in a comprehensive manner. Instead, the proposed initiative will be targeted and focused on key national mandatory consumer contract law rules which create obstacles to cross-border trade. Complementarity and coherence with the REFIT exercise

The context and approach as described above show that it is opportune to act fast on digital content and the online sales of goods. At the same time, it is recognised that harmonising the rules on online sales of goods has one downside, i.e. the risk to have rules on the online sales of goods which are different from the rules on the offline sale of goods. This could mean that retailers who are selling both online and offline would have to apply a different regime and that consumer rights may vary depending on whether they purchase online or offline. Given the increasing importance of the omni-channel distribution model (i.e. selling at the same time via multiple channels such as directly in a shop, online or otherwise at a distance), the Commission will take steps to avoid such a result and ensure that consumers and traders will indeed be able to rely on a coherent legal framework which is simple to apply everywhere in the EU. Therefore, together with the current work on this digital dimension, the Commission has, in the context of its Regulatory Fitness and Performance Programme (REFIT), launched an in-depth analysis of the existing EU consumer legislation. This Fitness Check is considerably broader than the current initiative as it covers a number of consumer law directives, notably the Unfair Contract Terms Directive , the Consumer Sales and Guarantees Directive, the Unfair Commercial Practices Directive , the Price Indication Directive the Injunction Directive and the Misleading and Comparative Advertising Directive. Data from the Fitness Check Analysis on the application of the Consumer Sales and Guarantees Directive to off-line sales of goods are likely to be available in the 2nd half of 2016. While these data and therefore the outcome of the Fitness Check exercise on this point are not known at this stage, its possible conclusions pointing to the need for a Commission initiative on the offline sales of goods could feed into the progress made by the co-legislators on the proposal on online sales of goods. In this way the discussions on offline sales of goods will not have to start at zero and repeat issues that have already been discussed and agreed for the online sales of goods. This also means that any difference in the dates of entry into force of rules on the online and offline sales of goods could be reduced, or even aligned by the co-legislators if they so choose thus actually avoiding any risk of different regimes for online and offline sales. Whilst the outcome of the Fitness Check cannot be prejudged at this stage, fragmentation between the rules on online and offline sales of goods is not likely to occur in practice. The large consultation strategy undertaken for the current proposal on digital content and online sales of goods already covers many issues under the Sales and Guarantees Directive that are equally relevant for online and offline sales of goods. In this way, a large part of the analysis work concerning the provisions of this initiative to identify and remedy the possible problems has already been undertaken in the context of the rules for online sales of goods as part of the present initiative. Scope of this impact assessment The Digital Single Market Strategy for Europe tackles in a holistic manner all major obstacles to the development of cross-border e-commerce in the EU. Dealing with all those obstacles together and improving the situation for businesses and consumers will bring the expected boost to the Digital Single Market and the overall EU economy. The Digital Single Market Strategy identified differences in contract law between Member States, including differences in the main rights and obligations of the parties to a sales contract, among the barriers to cross-border e-commerce. The present impact assessment focusses on these issues. 1.2Business-to-consumer (B2C) contracts 1.2.1Existing legal framework Overview of the existing EU legislation Substantive law - The Consumer Rights Directive has fully harmonised certain rules for online sales of goods and supply of digital content (mainly pre-contractual information requirements and the right of withdrawal). However, there are no specific EU rules to protect consumers against non-conforming digital content. There are only minimum harmonisation rules on the notion of conformity with the contract and on remedies for non-conforming goods (under the Consumer Sales and Guarantees Directive) the implementation of which some Member States have chosen to extend to digital content. In addition, for both digital content and goods there are minimum requirements on unfair standard contract terms (under the Unfair Contract Terms Directive). Since these are minimum standards, Member States have the possibility to go further and add requirements in favour of consumers. Many Member States have used this possibility on different points and to a different extent. Conflict of law rules - The Rome I Regulation allows contracting parties to choose which law applies to their contract and determines which law applies in the absence of choice. A trader who "directs his activities" to consumers in another country may either apply the consumer's national law or choose another law (in practice almost always the trader's national law). In this latter case, however, the trader must also respect the mandatory consumer contract law rules of the consumer's country to the extent that those rules provide a higher level of consumer protection. When the trader does not direct his activities to consumers in a specific Member State but agrees to enter into a contract at the consumer’s own initiative, consumers do not benefit from the more protective rules of their national law. Main differences between consumer mandatory contract law rules affecting cross-border trade of goods There are several key contract law areas where differences exist between Member States' national mandatory rules that apply to consumer sales contracts. These differences mainly result from national mandatory rules going beyond EU minimum harmonisation Directives. Implementation of the Consumer Sales and Guarantees Directive: Hierarchy of remedies: According to the Directive, if a good is non-conforming a consumer is first required to request repair or replacement. Only as a second step can the consumer ask for termination of the contract or price reduction. 20 Member States have followed this approach while other Member States have gone beyond this minimum requirement offering the consumer from the beginning a free choice between repair, replacement or termination. Another group of Member States have taken over the hierarchy of remedies but also provide for another remedy, namely a right to reject non-conforming goods within a short deadline. Notification duty by the consumer: Member States are authorised to stipulate that in order to benefit from their rights, consumers must inform the seller of the defect within two months from its discovery. In case of non-notification consumers lose their right to remedies. While in 11 Member States consumers do not have to notify within a certain timeframe, in 12 Member States, the consumer has to notify the defect within 2 months, and in 5 Member States the consumer has to do so within a different period of time. Reversal of the burden of proof: A consumer can only ask for a remedy if the good was non-conforming when delivered. The burden of proof is reversed during the first 6 months, obliging the trader during this period to prove that no such defect existed at the time of delivery. While 25 Member States have laid down a shift of burden of proof for 6 months, 3 Member States have extended this period (Poland to one year, France and Portugal to two years). Legal guarantee period: The trader can be held liable for a period of no less than 2 years for defects which were present at the time of delivery. While 23 Member States have made use of this 2 year period, in 1 Member State the period is 3 years and in 2 Member States it is unlimited. In 2 other Member States there is no specific legal guarantee period, but the consumer rights are only limited by the prescription period (time limits in national legislations within which rights can be invoked in court).

Implementation of the Unfair Contract Terms Directive: The scope of unfairness control: The Directive, which is also applicable to contracts for the supply of digital content, prohibits traders from including in their contracts clauses which have not been individually negotiated and which are unfair to consumers. However, the unfairness control does not cover clauses negotiated individually between the trader and the consumer, nor the definition of the main subject matter of the contract or the adequacy of the price and remuneration. In 7 Member States individually negotiated contractual terms are also subject to unfairness control. In 6 Member States the unfairness control is extended to the main subject matter of the contract or to the adequacy of the price or remuneration. List of unfair terms: The Directive provides an indicative, non-exhaustive list of 17 clauses which may be regarded as unfair in a contract. Several Member States have gone further, providing a list of clauses that are always considered as unfair (black lists) or a combination of a black list and a list of clauses that are presumed unfair (grey list). There are also some other mandatory consumer contract law rules which do not have their origin in the implementation of EU consumer law. Some of those rules apply only in a single Member State. These are isolated cases as they concern only specific points for individual Member States. Consequently they are not considered as obstacles for intra-EU cross border trade. There are also two examples of other mandatory contract law rules which exist in several Member States: spares parts and merger clauses. These rules, however, have not been identified by stakeholders as possible barriers to cross-border trade. Therefore, the possible obstacles stemming from different national legislations to be analysed in this impact assessment are only those stemming from national implementation going beyond the minimum rules of the Sales and Guarantees and the Unfair Contract Terms Directives. Different national consumer contract law rules applying to digital content Most Member States do not yet have specific national legislation on digital content. Contracts for the supply of digital content is categorised differently from one Member State to another. For instance, depending on the Member State, these contracts are considered as sales contracts, as services contracts or as rental contracts. In addition, contracts for the supply of digital content (for example, music, video games, films, cloud storage services, broadcast of sport events) are also categorised differently within each Member State depending on the type of digital content offered. As a consequence, for digital content, national rights and obligations as well as the remedies for consumers vary within the same Member State as well as between Member States. This is for example the case for the consequences of termination of cloud computing contracts. In France, the courts impose a cooperation obligation upon a service provider to help customers migrate data after the termination of the contract. An analysis of the Dutch provisions on services contracts (under which cloud contracts could legally be qualified) also shows that the provider has a duty to return the stored data received from the customer. In many other Member States, such obligations do not exist. While some of these national rules are non-mandatory and can be modified contractually by the parties, others are of a mandatory character. Finally some Member States have recently enacted or started to work on specific mandatory rules on contracts for the supply of digital content. However, these rules differ in scope. For example, in the United Kingdom new legislation which sets specific mandatory rules for digital content only covers digital content paid for with money. In the Netherlands, however, digital content supplied on a medium or through downloading that is paid for 'in kind', i.e. against the supply of the consumer's personal data, will also be subject to mandatory rules. Emerging national legislation on digital content also differs in terms of substance. For instance, in Dutch law the consumer has the right to withhold payment until the trader performs according to the contract, while the UK Consumer Rights Act does not provide consumers with any statutory rights in relation to withholding performance for non-conforming digital content. In Dutch law consumers' rights against the trader are extinguished after two years from the moment the consumer has notified the trader about the defect. In the United Kingdom there is no notification duty for consumers and their rights are prescribed after a period of 6 years (5 years in Scotland). 1.2.2Problem 1: Differences in consumer contract law rules hinder traders from selling digital content and goods online cross-border Differences in national consumer contract laws are important obstacles for B2C online cross-border transactions. They represent additional costs for businesses. Faced with these costs, many businesses prefer to stick to their own domestic markets. Businesses, in particular SMEs, lose opportunities for expansion and economies of scale. Overall additional costs for EU retailers are around €4 billion. If contract law-related barriers were lifted over 122,000 additional retailers would start selling cross-border. Consistently during the last years data show that traders consider differences in national consumer protection and contract law rules as important obstacles to trade in other Member States. In 2012 "Additional costs of compliance with different consumer protection rules and contract law (including legal advice)" ranked among the top two obstacles to developing cross-border sales and was mentioned by 41% of all retailers. In 2014 "differences in national consumer protection rules" and "differences in national contract law" were reported as important obstacles to developing online sales to other EU countries by respectively 41% and 39% of retailers who currently sell online. A vast majority of business organisations responding to the public consultation insisted on the negative effects of legal fragmentation and on the costs that differences in national legislations impose on businesses. Remedies in case of a non-conforming product are a significant problem. For 49% of retailers currently selling or having sold in the past online cross-border, "guarantees and returns are too expensive". This number is even higher among traders who are not yet active in cross-border trade but are currently trying to sell or considering selling online cross-border in the EU. 67% estimate that "guarantees and returns are too expensive". 62% of EU retailers that are either active or interested in online cross-border trade would "definitely" or "to some extent" start or increase their online cross-border sales if the same rules for e-commerce applied in the EU. Removing such obstacles is clearly an incentive for cross-border trade, especially when combined with other measures foreseen in the Digital Single Market Strategy, for instance to reduce parcel delivery costs. By discouraging traders from expanding their online activities abroad, differences in consumer contract laws prevent businesses from reaping the benefits of economies of scale. By selling to other Member States and building their share in new target markets, businesses could decrease their production and development costs and increase their efficiency. This problem is particularly relevant for SMEs, i.e. 99% of all European businesses. SMEs are often confined to a small home market with high production and development costs. A reduction of e-commerce costs would enable SMEs to achieve growth through exports and economies of scale that cannot be achieved from the domestic market alone. The extent to which contract law-related obstacles cause businesses to miss out on the opportunities offered by online cross-border trade is significant. It is estimated that if the barriers related to contract law were lifted, the number of businesses selling online cross-border could increase by more than 5 percentage points (an increase of around 12% in relative terms) compared to the current situation. According to a conservative estimate, this means that over 122,000 more businesses would start selling online cross-border. Differences in mandatory consumer contract law rules for goods and digital content create additional costs for traders While online traders may choose to apply their own contract law when selling to a consumer in another Member State, they also have to respect the mandatory consumer contract law rules in the consumer's Member State which provide a higher level of consumer protection, in case they direct their offer to consumers in the Member State concerned. Such mandatory rules currently exist mainly for goods. However, as already mentioned above mandatory rules for the supply of digital content are also emerging in some Member States, creating differences between national rules governing these contracts. In addition, in some Member States, certain contracts for the supply of digital content are assimilated to a sales contract, and therefore the differences in consumer mandatory rules for the sale of goods would also apply to digital content. All these differences have a direct impact on traders. For instance, a Polish trader directing his selling activities to consumers in Sweden should respect the three-year legal guarantee period under Swedish law instead of the two-year period that applies when he is selling to Polish consumers. Likewise, a Portuguese trader may refuse a request from a Portuguese consumer to replace a non-conforming product 3 months after discovery of the defect, if the Portuguese consumer has not complied with his obligation to notify the defect within 2 months after discovery. However, a Portuguese trader targeting a German consumer will not be able to rely on such a notifcation duty and will have to replace a non-conforming product sold to a German consumer also 3 months after discovery, because such notification duty does not exist under German law. Businesses may adopt different practices and approaches towards contract law-related differences when selling cross-border. Some bear the additional costs of adapting their contracts according to the laws of the Member States that they target. Others do not adapt their contracts but may shoulder additional costs to assess the legal and financial risk in case of disputes with consumers in the targeted Member States. The costs stemming from differences in consumer contract law are mainly one-off costs (namely the costs for identifying the foreign rules, possibly translating them, analysing them and consequently possibly adapting general terms and conditions and even the business model accordingly), but also ongoing costs for periodical adaptations to changes in national laws or costs specific to litigation where expert opinion on foreign contract laws is needed.

This has been confirmed through in-depth interviews held with businesses with experience or interest in cross-border online sales. According to this information, some traders adapt their contract terms and conditions to the consumer contract law rules of the Member States where they target their activities. To do this, some seek external professional advice from lawyers or consulting businesses, at a cost ranging from €4,000 to €12,000 per Member State. Other traders believe that they should adapt their contracts but currently do not, because the costs involved would be too high. Among those who do not adapt their terms and conditions, some rely on national certification schemes such as quality labels and trust marks to ensure that their company complies with local consumer contract legislation. In the latter case, companies have to incur one-off costs to obtain the trust mark as well as periodic renewal costs. Again others rely on the platforms through which they sell their products to comply with the legislation of the targeted Member States. Finally, other traders do not take any measures at all in that respect, but satisfy all customers' requests without examining their legal grounds according to consumer contract law rules. The one-off contract law-related costs incurred by businesses are estimated at around €9000. These figures are confirmed by a major EU retailers' association responding to the public consultation, which reported contract law-related costs of €9,000-10,000 for its members to enter the market of one Member State. If one focuses, following a conservative approach, only on one-off costs incurred by exporting retailers (B2C) who actually examine the applicable foreign law in advance (47%), the overall one-off contract law-related costs currently incurred by EU traders are estimated around €4 billion euros. The impact of these one-off costs is likely to vary depending on the size of the company, and would particularly affect micro and small enterprises with a smaller turnover, as shown in Table 2. For instance, the decision of a micro enterprise active in retail trade to export to 4 Member States would entail contract law-related costs of approximately €36,000, which would surpass 10% of its annual turnover. Table 2: Contract law-related costs for businesses as a share of their annual turnover Wholesale and retail trade Average annual turnover per firm Number of Member States entered (with transaction costs per Member State = €9,000) 1 Member State 2 Member States 3 Member States 4 Member States 27 (EU) Micro 358 439 2.51% 5.02% 7.53% 10.04% 67.79% Small 6 333 525 0.14% 0.28% 0.43% 0.57% 3.84% Medium 45 049 125 0.02% 0.04% 0.06% 0.08% 0.54% Large 439 583 481 0.002% 0.004% 0.01% 0.01% 0.06% Disproportionate contract law-related costs may thus constitute an additional disincentive for micro or smaller retailers to expand their business by entering foreign markets. The complex legal situation of digital content leads to uncertainty Specifically for digital content, legal uncertainty already exists at national level because the qualification of the contract for the supply of digital content is not always clear. This leads to uncertainty about, for instance, which remedies apply under which conditions. This uncertainty becomes even more important for traders willing to sell cross-border, as they will often not know whether there are rules applying to digital content in the Member State they want to export to, what is the content of those rules and whether they are mandatory. Traders are likely to face difficulties to evaluate the legal risk when developing a new business model that could apply to several Member States or even all over the EU. Results from a recent study based on interviews with EU businesses selling digital content online show that approximately a quarter of the businesses interviewed were dissuaded from engaging in cross-border activities due to legislative gaps and differences between Member States' national contract law rules. 1.2.3Problem 2: Consumers are not confident when buying digital content and goods online cross-border Consumers prefer to stick to their own domestic markets due to perceived uncertainty. They miss opportunities and face a narrower range of goods at less competitive prices. If contract law-related barriers were lifted, between around 8 and 13 million additional consumers would start buying online cross-border. Detriment to consumers is also caused by the lack of a clear contractual framework for digital content. This detriment is estimated between €9 - 11 billion in the EU just for music, anti-virus, games and cloud storage services. While 61% of EU consumers feel confident about purchasing online from a retailer/provider located in their own country, only 38% feel confident about purchasing online from another EU country. Consumers' confidence in buying cross-border has been low over the years. Between 2012 and 2014, consumer confidence about purchasing online from another Member State only increased from 36% to 38%. From 2006 to 2011, the share of consumers being equally confident in buying in other EU countries as in their own went up from 30% to 34% (reaching the top level in 2008 with 35%). The low level of cross-border e-commerce in the EU is thus mirrored in the low level of consumer confidence in buying cross-border. Consumers would benefit from increased involvement in cross-border trade. Stronger confidence in cross-border trade would boost the volume of transactions and increase consumer welfare through increased availability of a wide variety of products at more competitive prices. It is estimated that reducing contract law-related consumer concerns would increase the number of consumers buying online cross-border by around 7 percentage points compared to the current situation (an increase of circa 13.5% in relative terms); this means that between around 8 to 13 million additional consumers would start buying online cross-border, raising the total number of consumers shopping online cross-border up to almost 70 million. The removal of contract-law related concerns would also increase the average sum spent annually by consumers in online cross-border shopping by 13.6%, which in real terms would represent an additional annual spending of €40 per consumer buying online cross-border. In addition, if consumers were to shop online cross-border, they would be able to take advantage of existing price divergences between Member States, as shown in Table 3.For example, a Swedish consumer could pay 17% less buying clothes in Germany while a UK consumer could pay 20% less buying household appliances in Ireland. Whilst these price differences do not take account of factors such as differences in taxation and delivery costs (in part to be addressed by other initiatives in the Digital Single Market strategy), they nevertheless point to important potential opportunities for consumers. Table 3: Differences in price levels for consumer goods across the EU (EU-28 average=100) Household Appliances Footwear Clothing Consumer Electronics Most expensive country Malta = 147 Denmark = 129 Sweden = 121 Malta = 116 Cheapest country Hungary = 74 Bulgaria = 73 Hungary = 70 Czech Republic= 85 Difference 73 56 51 31 Cheapest country/most expensive country, in % 50% 57% 58% 73% Source: Eurostat 2015, Statistics explained, Comparative price levels of consumer goods and services Uncertainty when buying digital content and goods hinders cross-border trade Consumers' lack of confidence can be attributed to a number of different factors. For instance, the difficulty to obtain redress is an issue; 23% of online consumers express concerns that it may be more difficult to solve problems cross-border. The redress situation for online transactions for extra-judicial disputes will be improved by the Online Dispute Resolution platform to be launched at the beginning of 2016 and for judicial disputes by the revised European Small Claim Procedure.

A lack of awareness by consumers about their rights may also play a role; 11% of EU online consumers do not know their rights when buying online from another EU country. Consumers also fear that other laws protect them less than their own; 8% are concerned that the level of consumer protection they will enjoy when buying from another EU country will be lower than in their own country. One of the major factors creating a lack of confidence for consumers to shop online cross-border is their uncertainty about their key contractual rights. Data shows that the lack of certainty about contract law rights is often related to non-conforming products. Indeed, a quarter of the top 12 main concerns of EU online consumers about online cross-border are related to non-conforming products: 20% of consumers believe that it will not be easy to get a non-conforming product replaced or repaired, 20% think it will not be easy to return products and get reimbursement and 15% are concerned that the product will not be delivered at all or will be wrong or non-conforming. To remedy this uncertainty, a possible approach could consist in better informing consumers about their rights. The Commission has been very active in informing consumers about their rights buying cross-border. As most recent example, the Commission launched in 2014 a major information campaign on consumer rights, among others when buying non-conforming products across borders. However, information activities in this area have their limits. Firstly, in the current legal situation, the protection consumers enjoy by their national law when buying cross-border depends on whether a trader actively directs its commercial activities to the consumer’s country. A consumer who chooses to make a purchase from a foreign trader who does not actively direct its commercial activities to the consumer’s country will not benefit from the potentially higher level of protection of his own country. For example, an Austrian consumer who purchases clothes in an Italian e-shop which does not actively direct commercial activities to Austria will have to notify the defect to the Italian trader to benefit from the legal guarantee while under his own law he does not have such obligation. If the consumer’s Member State is targeted by the trader's commercial activities the consumer is protected by his own law to the extent that the mandatory consumer contract law rules of his own law exceed the level of protection of the trader's law. This differentiation, i.e. whether a foreign trader actively directs its commercial activities to the consumer’s country, implies a legal assessment which depends on the circumstances of the relevant case and is done on a case-by-case basis. An information campaign cannot realistically enable a consumer to make such an assessment. Second, to be effective, information campaigns must include simple messages which can be remembered. Consumer information campaigns at EU level in areas which are only minimally harmonised cannot include such a simple message, except that consumers enjoy in the EU common minimum rights when buying faulty products from other Member States. These campaigns cannot inform consumers about simple and clear rights, such as a single legal guarantee period. Therefore, better consumer information on its own is not sufficient to eliminate consumers' uncertainty. Consumers' detriment due to lack of clear contract law rights for digital content A very large share of consumers are watching films, listening to music, playing games, watching sport events or communicating online on their electronic devices everywhere in the EU. Online access of digital content is much more prevalent among younger internet users, showing that in the near future the overall number of online digital content users could be expected to increase significantly. Digital content provided without paying money, for instance by simply 'registering', accounts for a very large proportion of consumer digital content. Recent data shows that around 30% of consumers (legally) accessing antivirus and navigation software or cloud storage services, 77% of those streaming events and more than 50% of those watching films and TV content, reading e-books or playing games do so without paying money. The importance of digital content not supplied against money is confirmed by additional recent data. During the last 12 months, 82% and 80% respectively of EU internet users watched sport events and audio-visual content (films, series, video clips and TV content), 77% listened to music, 76% played games and 64% accessed e-books while not paying money. However, recent data from 2015 shows also that over the last 12 months, at least 70 millions of consumers (nearly 1 in 3 online users) who have used music, anti-virus software, games or cloud storage services have experienced problems with their digital content related to quality, access or contract terms and conditions. Among online consumers who purchased or tried to purchase digital content online cross-border and experienced problems, 16% reported having received the wrong digital content, 13% a digital content of lower quality, 9% faulty digital content and 10% reported not having been able to access the digital content. Only 10% of consumers experiencing problems related to access, quality or the terms and conditions of the supply of digital content receive remedies. Consumers reported that the reasons invoked by providers for not providing a remedy were that they were not obliged to do so either by the contract or by law, or that the consumer did not sufficiently prove that there was a problem with the digital content. Digital content is usually offered to consumers off-the-shelf, on the basis of non-negotiable contracts. The user can influence neither the digital content features nor the contract clauses. Many consumer contracts for digital content include clauses which exclude contractual remedies or limit them severely (for example by excluding liability altogether or offering service credits as the only available remedy). They also include clauses which enable the provider to unilaterally modify the digital content without specifying the conditions for such modifications, or set conditions which do not enable consumers to easily identify that a modification has taken place (for example by inviting consumers to check regularly the terms of the contract or the Service Level Agreement to learn about such changes instead of expressly informing consumers and allowing them to stop the use of the service in case they disagree with the changes). Often, when consumers want to change supplier, they have no guarantee that they will retrieve their data. These problems were reported by a relatively lower share of consumers, but they account for a sizeable share of consumer detriment. As a result of the problems faced with digital content and of the relatively low share of consumers receiving remedies, consumers suffer financial and non-financial detriment. In the last 12 months before the survey, the combined financial and non-financial detriment resulting only from the most recent problem with just four types of digital content is estimated in the range of €9 - 11 billion in the EU. This number is likely to increase in line with the growth of the digital content market in the EU and the expected increase of the number of EU consumers accessing digital content online in the near future. 1.2.4How would the problem evolve in the absence of EU action: No policy change/baseline scenario The e-commerce market in the EU is growing rapidly, at double-digit annual rates, many times faster than the growth in total retail sales. However, the extent of e-commerce penetration varies significantly between Member States. While the growth and size of national e-commerce sales is influenced by many factors, such as the quality, availability, and cost of high-speed internet services, the role of traditional distance sales channels (catalogues) and general economic conditions, data suggest that the size of the overall retail market influences the size of the domestic e-commerce sector. National e-retailers appear to be held back by the scale of their national markets. Similarly, consumer e-purchases are restrained by the limited domestic offer. The implication is that without EU intervention the growth of cross-border e-commerce in the EU will continue to be held back by uncertainty and regulatory fragmentation. Without EU intervention to tackle these problems, businesses will continue to face unnecessary costs and consumers will remain unsure about their rights and face unnecessary difficulties in enforcing them. Businesses will still have to comply with the national mandatory consumer contract law rules when selling online to other EU countries. Some 57% of businesses have indicated that differences in Member States’ e-commerce laws discourage them from selling across borders. Businesses that adapt their terms and conditions or want to assess in advance the legal and financial risk in the event of disputes will continue to face additional contract law-related costs of about €9,000 per Member State to which they wish to export. Overall contract law-related one-off costs, which have already reached around 4 billion, will increase in line with the number of EU businesses exporting to other Member States, and the number of Member States to which they export. Moreover, it can be expected for digital content that other Member States, alongside the UK, the Netherlands and soon Ireland, will enact specific but different mandatory consumer national laws for digital content. This will impose additional costs for those businesses who want to sell digital content in other Member States. Contract law-related costs will continue to impose an especially disproportionate burden on SMEs, and in particular micro and small businesses who wish to expand their activities cross-border. It will hinder SMEs from exploiting economies of scale. Additional contract law-related costs absorb resources that businesses could otherwise use for more productive activities, such as research and development. As a barrier to market entry, these costs also reduce incentives for innovation. The persistence of contract law-related barriers to market entry will continue to limit competition, resulting in less consumer choice and higher prices. Although one might expect the percentage of consumers buying online cross-border to continue to increase at a moderate rate, the persistence of contract law-related concerns will deter a share of EU consumers from buying online cross-border; they will thus continue not to benefit from better prices in other EU Member States. Consumers will continue to benefit from the rights and remedies in existing EU legislation. Enforcement of the existing EU consumer protection legislation should be strengthened by the revision, announced in the Digital Single Market Strategy, of the Consumer Protection Cooperation Regulation, which will clarify and develop the powers of enforcement authorities and improve the coordination of their market monitoring activities. Furthermore, the Online Dispute Resolution platform should make it easier for consumers to reach an out-of-court settlement and the improved Small Claims procedure will make it easier to obtain court redress. Differing national regimes will however remain an obstacle to efficient enforcement. The continued existence of different national regimes will impose an additional burden on national court systems, which will be required (as at present) to apply the laws of other EU Member States in some disputes. In addition, the lack of legal clarity could have a negative impact on the ability to exercise one's right to an effective remedy before the courts. All in all, the added workload will to some extent decrease the overall efficiency of justice compared to the current situation.

A number of other measures announced by the Commission in the Digital Single Market Strategy to secure Europe's position in the digital economy will also benefit both consumers and businesses. For example, giving copyright law a more European dimension, notably through cross-border portability and other measures to improve consumers' cross-border access to legally acquired content, will remove a key obstacle to cross-border online sales. This will form a comprehensive package with action against geo-blocking that is not compatible with a single market and with action on company-erected barriers that come under the competition sector enquiry into e-commerce. The actions set out in the Strategy will substantially contribute to market transparency and improve competition both in terms of prices and consumers' access to a wider variety of products. At the same time they create a level playing field for companies to engage in cross-border trade and help them scale up. In the first half of 2016 the Commission will also launch measures to improve price transparency and enhance regulatory oversight on parcel delivery. This action will address the problems related to the delivery and return costs, which were identified in recent surveys as major consumer concerns when it comes to online purchases from other EU countries. Parcel delivery has also been identified as a major obstacle by EU retailers, especially by SMEs that lack purchasing power in relation to postal operators. Measures towards affordable, high-quality cross-border parcel delivery services will thus enhance both consumers' and retailers' confidence in engaging in cross-border e-commerce. Reducing VAT-related burdens and obstacles to selling across borders is another action that is expected to yield significant savings for EU businesses that wish to make cross-border sales. All these measures, which fall under the first pillar of the Digital Single Market, are complemented by additional actions under the two other pillars of the Strategy, such as the on-going consultation and analysis of the role played by platforms in the market, including in terms of B2B level-playing field and enforcement of consumer rules. However, the 16 actions announced in the Strategy are to be considered as a whole, as their synergy will deliver maximum impact and address long standing bottlenecks hampering the achievement of a truly integrated market. The achievement of its intended benefits requires that each one of the key obstacles is addressed. Therefore, without additional action on contract law-related barriers - one of the major obstacles identified by the Digital Single Market Strategy - its benefits will remain limited and incomplete. 1.3Business to Business (B2B) contracts 1.3.1Existing EU legal framework for B2B transactions B2B contracts are dominated by the principle of contractual freedom. Thus, very limited EU legislation applies to these contracts: only the Directive on Electronic Commerce has introduced some rules on pre-contractual information for electronic contracts. A set of rules concerning goods was introduced by the 1980 UN Convention on Contracts for the International Sales of Goods (CISG). For digital content there is currently no EU legislation on conformity and remedies. For both goods and digital content national contract laws apply. These rules are generally not mandatory and can therefore be waived or changed by agreement of the parties. For digital content, the rules may differ not only as to the substance of the rules themselves but also as to the legal qualification given to contracts for the supply of digital content. 1.3.2Contract law rules do not seem to be a major hindrance for cross-border B2B online transactions The evidence on whether specific contract law-related obstacles hinder B2B cross-border trade is not conclusive. A very large majority of stakeholders insist that the focus of the current EU initiative should remain on B2C. Among businesses currently selling online to other businesses, 49% sell cross-border within the EU. Around half of these businesses derive up to 25% of their annual turnover from cross-border sales. Contract law obstacles highlighted in the B2C context hindering businesses from selling cross-border are not as significant in the B2B context. While 35% of businesses trying or considering B2C cross border sales regard guarantees and returns as a major problem, this is the case for only 14% of businesses active in B2B. It should be noted that the share of 14% of companies reporting the above contract law-related problems for B2B transactions as major ones are all SMEs. This may be an indication that such problems are more prevalent for SMEs compared to large companies. The relatively low prevalence of contract law-related obstacles for the B2B market has been confirmed by the Stakeholders' Consultation Group : a large majority of stakeholders highlighted that contract law rules do not represent an important obstacle for businesses to sell cross-border to other businesses. Indeed, according to a recent business survey, over 80% of businesses that sell, used to sell, or are considering selling to other businesses in other EU countries reported that differences in national rules would not directly influence the scale of their cross-border activities. The major concerns reported by businesses that are trying or considering buying online from other EU countries are not related to contract law. They relate to the cost of resolving cross-border complaints and disputes (46%), high delivery costs (42%), lack of language skills (29%), data protection (29%), foreign suppliers refusing to deliver to their country (26%), product labelling requirements and copyright (each 25%) and payment systems (24%). Contrary to the retail sector, there is currently no evidence of actual or perceived problems related to differences in contract law rules that hinder EU businesses from buying online from other Member States. As a consequence, a very large majority of stakeholders who responded to the public consultation considered that the focus of the initiative should remain on B2C and not include B2B contracts. Discussion with Member States also showed a clear lack of demand for an initiative tackling contractual issues for B2B. Business organisations in the Stakeholders' Consultation Group referred to the generally non-mandatory nature of B2B rules. They highlighted the significance of freedom of contract as an overarching principle in B2B contracts, be it in terms of the freedom to choose the law that will apply to the contract or the freedom to adapt B2B contract law default rules which would in many cases pre-empt potential problems regarding contractual issues. The underlying message confirmed by both recent data and stakeholders is that, contrary to consumers who are generally less well informed about products, market characteristics and business practices and find themselves in a structurally imbalanced position compared with the trader, this is mostly not the case for professional business-buyers, where imbalances in bargaining power are due to the respective market situations which will be different on a case-by-case basis. 1.3.3Specific issues related to digital content in the B2B context Certain specific contract law-related problems in the B2B context have been identified in relation to cloud computing services. The possibility to access the cloud and use digital content such as applications and software or store data can spare businesses the expense of purchasing, installing and maintaining hardware and software locally; however, in 2014 only 19% of EU enterprises used paid cloud computing services, mostly for hosting their e-mail systems and storing files in electronic form. Almost half (46 %) of those firms used advanced cloud services relating to financial and accounting software applications, customer relationship management or to the use of computing power to run business applications. Four out of ten businesses (39%) that used the cloud in 2014 reported the risk of a security breach as the main limiting factor in the purchase of cloud computing services. From the businesses’ point of view, the risk of a security breach is not only a technical issue but also a matter of contract terms governing the service providers’ liability and accountability. This conclusion has been confirmed by the Expert Group on Cloud Computing Contracts. Experts pointed out the important financial risk of cloud services' users who face contractual clauses unreasonably limiting the liability of cloud service providers in case of a security breach. Indeed, businesses, and in particular SMEs, which do not necessarily have sophisticated backup solutions, may lose entire parts of their business if they do not have access to their data for a period of time. Moreover, issues of uncertainty about the location of data may arise, due to the fact that cloud service providers may use data centres in different countries. This factor was reported as limiting the use of cloud computing, particularly for large businesses already using the cloud (46%). Other contract law issues may exist. For example, the question arises whether traders should have an obligation to help customers transfer their data when they want to change provider. Understanding the exact quality level of the service that was promised is also challenging for users, in particular when they have to demonstrate that the service did not function properly. These issues have been identified by the Expert Group on Cloud Computing Contracts as also affecting businesses and in particular technologically less equipped SMEs. In reply to the public consultation, the main EU SMEs organisation pointed out the need to protect SMEs in this area. However, despite these similarities between the problems faced by consumers and SMEs as cloud service users, there are also specificities that have to be taken into account to determine the right approach of intervention for each sector. Both the Expert Group on Cloud Computing Contracts and the Stakeholders' Consultation Group insisted on the need not to overburden businesses selling digital content to other businesses with obligations that would hamper their competitiveness in a fast evolving market. They also made clear that while it is true that SMEs users are often the weak part in cloud computing contracts, the freedom of contract in the B2B environment should not be jeopardized. A recent experience in the food supply chain shows that in order to find solutions to the asymmetry and possible misuses of bargaining powers between businesses, a non-legislative approach could be a possible alternative. Overall contract law related problems in B2B relations may stem from differences in bargaining power, difficulties to agree on the applicable law or difficulties to find information about foreign law, especially for SMEs. The need to also protect SMEs has been recognised in the Digital Single Market Strategy and will be analysed in the context of other actions announced in the Strategy. 2Why does the EU need to act?

When selling goods to consumers in other Member States, businesses are confronted with different mandatory consumer contract law rules resulting from the current possibility given to Member States to go beyond the minimum requirements set out by EU legislation. For digital content, existing legislation already contains mandatory rules to some extent. In addition, market trends prompt Members States to take action independently. Several Member States have recently enacted or started preparatory work to adopt mandatory rules on contracts for the supply of digital content. These national rules differ however in scope and in content. It is to be expected that other Member States will follow this trend if the EU does not act. Given the heterogeneity of the online market for digital content it would be difficult for the market to overcome the existing legal complexity and fragmentation. Contractual practice so far has not produced consumer rights with an adequate level of consumer protection. All these different national mandatory rules –both affecting digital content and the online sale of goods - create costs and complexity for businesses and negatively affect the volume of cross-border trade as well as consumer welfare. Consumers are deprived of more offers at more competitive prices. As already explained, in order to rapidly strengthen the competitiveness of EU businesses and boost EU growth, it is necessary to act now and to deal as a priority with the digital dimension of retail, i.e. both the supply of digital content and the online sales of goods. For digital content, there is in addition a specific need for the EU to act swiftly in order to prevent legal fragmentation from increasing and to raise the potential of the current digital revolution and growth opportunities. Finally, in order to maintain consistency between the rules on digital content and on the sale of goods as far as the specificity of digital content does not require deviations, it is reasonable to discuss both sets of rules together. This initiative complies with the principle of subsidiarity, as Member States on their own initiative would not be able to remove the barriers that exist between national legislations. Each Member State individually would not be able to ensure the overall coherence of its legislation with other Member States' legislations. This is why an initiative at EU level is necessary. The legal basis for the initiative would be Article 114 TFEU on its own or in combination with Article 81 TFEU, depending on the option retained. Such an initiative will provide consumers with harmonised contract law rights when buying goods online. It will reduce costs for businesses as they will no longer have to face different consumer mandatory rules resulting from the current possibility given to Member States to go beyond the minimum requirements set out by EU legislation. Consumers would benefit from more offers at better prices. In addition, for digital content, an initiative at EU level would secure the development of consumer rights in a coherent manner while ensuring that all consumers in the EU benefit from a high level of consumer protection. It will create legal certainty for businesses which want to sell their digital content in other Member States. Harmonised contract law rules in the EU would facilitate coordinated enforcement actions undertaken by the Consumer Protection Co-operation authorities. They will provide a consistent legal basis for these actions which result in negotiated undertakings at the EU level. These coordinated actions offer businesses a "one-stop-shop" enforcement approach and strengthen enforcement of EU legislation for the benefit of EU consumers. For example, the recent in-app purchases action enabled providers to negotiate with the Commission and the Consumer Protection Authorities in a coordinated manner instead of 28 separate national authorities. Finally, the present initiative will add value to other measures in the Digital Single Market. Other measures, such as reducing VAT-related burdens, developing high-quality cross-border parcel delivery services or a modernised copyright law will create new opportunities for European consumers and companies. These opportunities can only be exploited to their maximum extent if they are completed by an initiative on contract law-related obstacles, as contracts are the tools for all transactions related to these other measures. 3What should be achieved? General objective: Contribute to faster growth of the Digital Single Market, for the benefit of both consumers and businesses. Specific Objectives: Reduce business costs resulting from differences in contract law Reduce the uncertainty faced by businesses due to the complex legal framework Contribute to building consumer trust in online cross-border shopping in the EU Reduce the detriment faced by consumers with respect to non-conforming digital content or certain unbalanced contract terms The general objective of the initiative is to contribute to faster growth of the Digital Single Market using the potential of e-commerce. The initiative will increase most consumers' trust in the Digital Single Market by providing a high level of consumer protection and ensure more offers and better prices for consumers. At the same time, it will create a friendly environment for businesses and contribute to increasing the volume of cross-border trade. More concretely, with regard to online sale of goods, the aim is to avoid the patchwork of different key mandatory consumer contract rules between the Member States which creates costs and uncertainty for both businesses and consumers. For digital content, the aim is avoid fragmentation and uncertainty for businesses and consumers as well as consumer detriment. Consumers should have concrete rights when they acquire digital content but do not get what was promised. 4What are the various options to achieve the objectives? 4.1Scope: B2C transactions While differences in mandatory consumer contract law rules have been identified as one of the main obstacles that hinder the development of cross-border e-commerce, there is currently no evidence that differences in contract law rules do hinder EU businesses from buying online from other Member States. While SMEs face some problems as cloud service users, business representatives have argued in the Stakeholders Consultation Group that these issues would be best addressed in other initiatives announced in the Digital Single Market Strategy. During the public consultation, all stakeholders and Member States argued that the current initiative should focus on B2C contracts only, with the exception of the main SMEs association which supported the extension of rules on digital content to B2B transactions. 4.2The options Option 1 - Setting up targeted, fully harmonised rules for the supply of digital content and targeted, fully harmonised rules for online sales of goods Level of harmonisation Legislative/non legislative Substantial law areas covered/level of consumer protection Impact on Rome I Digital content Full: Member States will not be able to maintain or introduce more protective rules Legislative Targeted: conformity requirements, remedies, modalities how to exercise those remedies and consumer rights relating to modification and termination of long term contracts; high level of consumer protection None goods Full: Member States will not be able to maintain or introduce more mandatory consumer protective rules Legislative Targeted: conformity requirements, remedies and modalities how to exercise those remedies; higher level of consumer protection than the existing harmonisation level, but on specific points lower than some national laws None Positions of stakeholders: For digital content, the vast majority of consumer representatives favour fully harmonised rules, provided that a high level of consumer protection is guaranteed. The majority of businesses also support a full, targeted harmonisation. However, several IT associations and big companies do no not see the need for such harmonised rules. Nevertheless, they acknowledge that if legislative action should be taken at all, it should be at EU level. The majority of responding Member States supports harmonised EU rules for online sales of digital content. For goods, consumer representatives would favour harmonised rules, provided that the level of consumer protection is increased in comparison to the current situation. Businesses also generally support harmonisation, in particular the fact that it would be full harmonisation. Member States are more divided; while some would support EU harmonised rules, others do not see the need to act at this stage. However, a majority of stakeholders and Member States warn about the possible fragmentation between online and offline sales of goods. Option 2 - Setting up targeted, fully harmonised rules for the supply of digital content / Application of the trader's law combined with the existing harmonised rules on goods Level of harmonisation Legislative/non legislative Substantial law areas covered/level of consumer protection Impact on Rome I Digital content Full: Member States will not be able to maintain or introduce more protective rules Legislative Targeted: conformity requirements, remedies, modalities how to exercise those remedies and consumer rights relating to modification and termination of long term contracts; high level of consumer protection None Goods Application of the trader's law with the existing rules for goods subject to EU minimum harmonisation. Legislative No further harmonisation – existing minimum harmonisation rules remain. Consumer protection will depend on the protection granted by the trader's law Derogation from Article 6 of the Rome I Regulation is needed. This could be implemented in a separate legal instrument without formally amending the Rome I Regulation. Such a derogation to the Rome I Regulation would need to be based on Article 81 TFEU; it would not apply in Denmark and might not apply in the UK and Ireland.

Positions of stakeholders: For digital content, see under Option 1. For goods, consumer representatives unanimously oppose such an approach. Some businesses would favour harmonised rules but some would see the application of traders' law as a good solution. Among Member States which answered to this question in the context of the public consultation, a number of them explicitly oppose any form of the application of the home option and a re-opening of the Rome I Regulation while a couple showed some openness. Option 3 - Setting up targeted, fully harmonised rules for the supply of digital content / No policy change for goods Level of harmonisation Legislative/non legislative Substantial law areas covered/level of consumer protection Impact on Rome I Digital content Full: Member States will not be able to maintain or introduce more protective rules Legislative Targeted: conformity requirements, remedies, modalities how to exercise those remedies and consumer rights relating to modification and termination of long term contracts; high level of consumer protection None Goods N/A N/A N/A N/A Positions of stakeholders: For digital content, see under Option 1. For goods, a majority of stakeholders and Member States warn about the possible fragmentation between online and offline sales of goods. In line with this, many suggest waiting for the end of the REFIT Fitness check evaluation. Option 4 – Minimum harmonisation rules for the supply of digital content / No policy change for goods Level of harmonisation Legislative/non legislative Substantial law areas covered/level of consumer protection Impact on Rome I Digital content Minimum: Member States would be able to maintain or introduce more consumer protective rules Legislative Targeted: conformity requirements, remedies, modalities how to exercise those remedies and consumer rights relating to modification and termination of long term contracts; high level of consumer protection None Goods N/A N/A N/A N/A Positions of stakeholders: For digital content, the vast majority of consumer representatives favoured fully harmonised rules, provided that a high level of consumer protection is guaranteed. Businesses oppose minimum harmonisation. Member States also generally preferred full harmonisation over minimum harmonisation. For goods, see under Option 3. Option 5 – A voluntary European model contract combined with an EU trust mark Level of harmonisation Legislative/non legislative Substantial law areas covered/level of consumer protection Impact on Rome I Digital content N/A Non-legislative Depending on the outcome of stakeholders' discussion None Goods N/A Non-legislative Depending on the outcome of stakeholders' discussion None Positions of stakeholders: For digital content and for goods, stakeholders and Member States in their majority are rather sceptical about the added value of such an approach, with limited exceptions. Note: all the options presented would apply to cross-border and domestic online sales. 4.3Discarded options Building in particular on the experience drawn from the negotiations of previous initiatives aiming at harmonising contract law rules, such as the proposal for a Regulation on a Common European Sales Law and the Consumer Rights Directive, the following options are discarded: Optional instrument: while having received strong support from the European Parliament, the proposal for a Regulation on a Common European Sales Law did not find a majority in Council. One of the main reasons for this opposition in the Council was the optional character of the proposal. Therefore, this option has not been taken into consideration as it was not considered politically feasible. Comprehensive, instead of targeted, problem-focussed set of rules: another main lesson drawn from the experience with the negotiation of the proposal for a Regulation on a Common European Sales Law is not to provide for a truly comprehensive set of rules, but a much more targeted and problem-oriented regulation approach. Therefore, this option of a truly comprehensive set of rules has not been taken into consideration as it was not considered politically feasible. Information measures: While information is important and useful to improve consumer knowledge about their rights, information measures on their own are not sufficient. First, information measures would not create sufficient consumer trust as they could not ensure that all consumers benefit from the protection provided by their national law when buying cross-border. Second, information campaign can realistically not eliminate the uncertainty faced by consumers when buying online outside their home market in the context of a rather complex legal framework characterised by minimum harmonisation. Therefore, this option has not been taken into consideration as it was not considered sufficient to meet the objectives. 5What are the impacts of the different policy options and who will be affected? 5.1No policy change/baseline scenario: See Section 1.2.4 5.2Option 1: Setting up targeted, fully harmonised rules for the supply of digital content and targeted, fully harmonised rules on online sales of goods

Economic Impacts Operating costs and conduct of business oFully harmonised rules specific for digital content throughout the EU will remove the complexity caused by different national rules that currently apply to contracts for the supply of digital content. It would also prevent legal fragmentation that otherwise will arise from new national legislations. oAll businesses supplying digital content to consumers both domestically and cross-border, i.e. around 228,500 EU companies, will incur one-off costs of approximately €6,800 to adapt to the new rules on digital content. The overall one-off adjustment costs for all EU businesses could thus be estimated at about €1.55 bn. oIncreased consumer rights for digital content may increase the number of requests for remedies, since consumers would have specific and clear rights that they would be more likely to invoke. This could entail an increase in businesses' costs for providing remedies. However, these costs will only be imposed on businesses that supply non-conforming digital content to their customers, and would in practice be an incentive for those businesses to improve the quality of digital content offered. oOn the other hand, greater clarity on consumer rights stemming from fully harmonised rights is expected to result in simpler complaint handling for businesses and a reduction in time and staff training costs required for resolving issues. This can be expected to counterbalance part of the increased costs for providing remedies. o By fully harmonising the remaining consumer contract law rules for the online sale of goods which constitute obstacles for cross-border trade, all key mandatory consumer protection contract law rules that would fall under the scope of article 6(2) of the Rome I Regulation would no longer differ among Member States' national legislations. Therefore, there will be no more differences between national consumer contract laws that could constitute an obstacle to cross-border e-commerce. oAll businesses selling goods online, i.e. around 1.1 million EU companies, will have to incur the one-off costs of approximately €6,800 per company to adapt to the new legislation for the online sales of goods. The overall one-off costs for all EU companies selling online would thus amount to close to €7.5 bn. Businesses currently selling only offline will not have to incur any adaptation costs. oThe possibility that for a transitional period the rules on online and offline sales of goods may differ is very limited in practice, since all necessary steps will be taken to ensure coherence between the two regimes. If such differences were to actually occur for a short transitional period, they could affect businesses selling both online and offline. Businesses also selling cross-border would not be negatively affected, since any additional costs arising from a potential divergence of regimes in their domestic market would be counterbalanced by the significant cost savings resulting from not having to adapt to other Member States' national consumer contract laws when selling online cross-border. Therefore, any possible negative effects would only concern those businesses that currently sell and will continue to both online and offline but only domestically. However, in practice the impact of such a differentiation would overall not be very important and could be dealt with through adapted business practices. For example, if the reversal of the burden of proof period is extended, in 26 Member States there might be a transitional divergence on the respective rules for online and offline sales. However, recent data show that the shift of the burden of proof often operates de facto throughout the entire 2-year legal guarantee period, and there is very limited change in traders’ behaviour before or after the 6 months on this point. Therefore the practical impact on businesses of possibly temporarily divergent rules on this point would not be significant. Moreover, as indicated by retail representatives during the consultation process, omni-channel businesses could cope with possible, transitional differences between the regimes for online and offline sales of goods by applying the respective higher standards, which would enable them to use a single business model and thus save any potential additional costs. oAround 50% of the total one-off adaptation costs (e.g. about €4 bn) would be incurred by businesses currently selling online only domestically. Among those businesses, some may continue to sell only domestically also in the future, and therefore would not directly benefit from the cost savings resulting from a single consumer contract law regime throughout the EU. Nevertheless, a significant share of EU companies is deterred from selling cross-border also because of consumer contract law differences. Therefore, at least a part of these previously deterred companies can be reasonably expected to start selling cross-border once the consumer contract law-related barriers are lifted. New exporters who would already have adapted to the new rules for the online sales of goods would then be able to sell to consumers in other Member States without having to comply with potential more protective mandatory consumer contract law rules. In this way a business could save up to €90,000 if it wishes to sell in 10 Member States and up to €243,000 if it wishes to sell to all 27 other Member States. oBusinesses currently selling online cross-border would only have to incur once these adaptation costs, and would then be able to expand their cross-border activities to more Member States at no additional adaptation costs. They would thus save the costs of about €9,000 currently incurred to find about the mandatory consumer contract law rules in each additional Member State they wish to sell to. oEliminating consumer contract law differences for both the supply of digital content and the online sale of goods could increase the number of EU businesses currently selling online cross-border by 5.3 percentage points (or 12% in relative terms). According to a conservative estimate, this means that over 122,000 more businesses could be expected to start selling online cross-border. Administrative burdens on businesses oThere will be no additional information obligations on businesses Trade flows oTrade flows will increase. Removing contract law-related barriers that hinder cross-border online trade could increase exports of Member States within the EU in nominal terms by an average of 0.04%, ranging from +0.14% in Slovakia to +0.0% in Lithuania and Croatia . oThere will be no discrimination or any kind of obstacle to the activity of businesses from third countries. When selling to EU consumers and in case the litigation ends up in an EU court, the latter will be subject to the same rules as EU businesses. Competitiveness of businesses oRemoving contract law-related barriers will facilitate cross border trade. This will put pressure on competition in domestic markets. For digital content, businesses may seek to increase their prices to cope with the costs associated with the new obligations on conformity, remedies and other rights. However, higher competition will encourage businesses to become more innovative, improve quality or reduce prices in order to stay competitive. Position of SMEs oSMEs, in particular micro and small businesses, will benefit compared to the current situation: the smaller a business is the more significant cost savings from fully harmonised cross-border rules for goods will be. When selling online, SMEs will only have to adapt their terms and conditions once to the new harmonised rules. They will be able to trade with up to 27 other Member States on this basis. oSMEs will have to incur the one-off costs of approximately €6,800 to adapt to the new legislation for the online sales of goods. The overall one-off costs for SMEs selling online (about 98% of all EU companies selling online) would thus amount to about €7.3 bn. SMEs currently selling only offline will not have to incur any adaptation costs at all. As a fragmentation between the rules on online and offline sales of goods seems in practice not very likely or would probably not have a significant impact , SMEs selling both online and offline will only be faced with limited costs for not more than a relatively short transitional period of different regimes for their online and offline sales. In any case, retail business representatives have mentioned during the consultation process that omni-channel businesses could cope with possible, only transitional differences between the online and the offline regimes for goods by applying the respective higher standards to all of their sales and in this way keeping a single business model. oSMEs, in particular micro and small businesses will be able to supply digital content cross-border as well as domestically based on a clear set of fully harmonised EU rules. While SMEs will have to comply with the new EU consumer mandatory rules for digital content, these rules will be largely harmonised. Therefore SMEs will have to incur the costs of approximately €6,800 to adapt to the new legislation only once, avoiding the additional costs that would arise from legal fragmentation due to divergent new national legislations. Since SMEs constitute the vast majority (around 92%) of all EU businesses supplying digital content, almost all the overall one-off adaptation costs, i.e. €1.5 bn, will be incurred by SMEs. oIncreased consumer rights for digital content may increase the number of consumer requests for remedies. However, the obligations concerning remedies will only impose costs on those businesses that supply digital content that does not conform to the contract. In addition, greater clarity on consumer rights is expected to result in simpler complaint handling for businesses and a reduction in time and staff costs required to resolve issues. Functioning of the internal market and competition oBy making it easier for traders to expand their online activities abroad, fully harmonised rules on goods and digital content will strengthen competition. oThese fully harmonised rules will also allow businesses to better exploit economies of scale: they will be able to build their share in new markets, decrease their production or development costs and increase their efficiency. Innovation and research oCost savings and enhanced competition could on the one hand provide businesses with greater opportunities for R&D and other forms of investment, and on the other hand increase incentives to invest in R&D and other efficiency-enhancing measures. oHowever, applying the same standards for paid digital content also to content provided against another counter performance may, to a certain extent, discourage businesses from developing new business models based on a counter performance other than money. Public authorities oFull harmonisation Directives would entail implementation costs for all Member States. However, they would enable Member States to better adapt the new EU rules to their own legal system, for instance by ensuring consistency with their general contract law rules (which will not be affected by the new EU legislation). The introduction of fully harmonised rules on the sale of goods in particular would entail, to a different extent depending on the previous implementation, the partial amendment or repeal of the relevant implementation provisions of the current Consumer Sales and Guarantees Directive. As this option would leave the Rome I Regulation untouched, there would be no effects on the international private law rules in force. oA Regulation would be directly applicable in all Member States, and could thus incur minimal implementation costs. However, it would become integral part of a national law which is not adapted to the Regulation. Therefore, it would either lead to adaptation of related national legal areas which will cause implementation costs or would cause frictions/overlaps with related national legal areas. oFully harmonised rules should facilitate enforcement in cross-border cases and information campaigns all over the EU. It would provide the competent authorities with a clear message that could be more easily communicated throughout the EU, enabling them for example to inform all EU consumers about a single legal guarantee period or give them a concrete picture on what their rights are and how they can exercise them across the EU. Consumers and households oConsumers (including active consumers) will benefit from fully harmonised rights for digital content at a high level of protection. They will have clear rights when they access digital content from anywhere in the EU. This will increase their confidence in buying/accessing such products/services and contribute to reducing consumers' detriment, since there will be a set of clear rights that will enable consumers to address the problems they face with digital content. oThe fully harmonised key consumer contract law rules on the online sale of goods would improve the overall level of consumer protection in the EU. While broadly following the current level of the Consumer Sales and Guarantees Directive, they would raise the EU level of consumer protection on important issues that would significantly contribute to boosting consumers' confidence when buying online. Even though in a very few Member States, -which have gone beyond the Sales and Guarantees Directive in their implementation-, the level of protection on individual points may be lowered, this will be counterbalanced by the overall very high level of consumer protection throughout the EU, the increase of consumers' confidence in cross-border purchasing and the enhanced cross-border enforcement of consumer protection rules, facilitated by fully harmonised clearer and simpler rules applicable throughout the EU. o Fully harmonised rules for both the supply of digital content and the online sale of goods would reduce contract law-related consumer concerns and could increase the number of consumers buying online cross-border by about 7 percentage points (or 13.5% in relative terms); this means that between around 8 and 13 million additional consumers could start buying online cross-border, raising the total number of consumers shopping online cross-border to between around 64 and 70 million. The average sum spent annually by consumers in online cross-border shopping would also increase by about 14%, which in real terms would represent an additional annual spending of €40 per consumer buying online cross-border. oConsumers will benefit from a wider choice of products, since they will have access to offers from traders across the EU, at more competitive prices. Consumer prices are projected to drop in all Member States, ranging from -0.35% in Spain to -0.05% in Lithuania and Romania. The average decrease in consumer prices across the EU can be estimated at -0.25%. In addition, household consumption, which mirrors consumers' welfare, would equally rise in every Member State, ranging from +0.05 in Lithuania to +0.38 in Spain, with an average of +0.23 for the EU28 (which corresponds to about €18 bn). Consumer welfare gains are likely to be higher than suggested by the increase in real consumption, as consumers would also enjoy a wider choice of products and services: a considerable benefit that cannot be captured by the volume of consumption. A study on e-commerce in goods found that consumer welfare gains from increased choice in an integrated Single Market for e-commerce would be even higher than gains from lower prices. Macroeconomic environment oFull harmonisation of rules on digital content will increase consumer confidence, which should lead to an increase of domestic and cross-border trade of digital content and thus will have positive effects on household consumption and GDP. oBy eliminating costs for businesses selling goods to other Member States, this option would also generate an increase of supply in cross-border trade of goods. oAs a result of fully harmonised rules on both digital content and the online sale of goods, EU GDP is projected to permanently increase in real terms by 0.03% or about €4 bn per year, with the highest increase in Slovenia (+0.06%) and the lowest in Romania (0.0%). Discounting to today’s prices, the net present value of the additional output over a 10-year period would be about €28 bn. oThe estimated impact on main macro –economic variables (GDP, Household consumption etc.) reflects the overall outcome of the planned legislative action, including a possible substitution effect between offline and online trade. The model also reflects the adaptation process of offline businesses as a result of increased competition coming from online cross-border trade, meaning that they will have to become more efficient to remain in the market. Social impacts Employment and labour markets oHigher levels of economic activity are expected to have a positive net effect on the levels of employment in the EU. To illustrate the possible effects of this option on employment, it can be assumed that the permanent increase of EU GDP by €4 bn per year would lead to a net increase in employment in the order of magnitude of approximately 60,000 jobs. oIn the context of this impact assessment it is not possible to further allocate these estimated employment effects among different sectors of the economy. This would require more specific assumptions about future business models, thus adding highly speculative elements to the analysis. However, it can be assumed that an additional growth in online sales could to some extent have a negative effect on physical stores. This is of course already a current trend, resulting from digitalisation and internet penetration. Indeed, current estimates foresee that the rapid growth of online sales means that sales in-store will be negative in 2015 by -1.4% in Europe and -1.9% in the U.S. oHowever, online will continue to be one channel of distribution rather than being the sole channel. Multi-channel or omni-channel business models are increasingly applied by businesses which operate online as well as in physical stores, to cope with competition. Environmental Impacts Transport and the use of energy oFully harmonised rules across the EU will boost online sales of goods. This could in turn increase the use of transport for delivery purposes, leading to an increase in CO2 and other vehicle emissions. However, more online purchases could also limit the number of buyers actually using their vehicles to make their purchases, and thus counterbalance the increase in CO2 emissions. For example, if 10 people order products online and these are delivered at home by one single truck, this would probably lead to a decrease of the CO2 compared to a situation where these 10 people may use their personal car to go to the shop and buy the product. oAn increase of trade of digital content supplied online will have no environmental impacts, since no transport for delivery is required. An increase in trade of digital content on a medium could entail a certain increase of transport for delivery. However, such increase is not expected to be significant, given the weight of the media concerned and that the trend of the digital content market is rapidly shifting towards in formats. Impacts on Fundamental Rights (Charter of Fundamental Rights) Consumer Protection (Article 38) oA set of fully harmonised rules for online sales of goods will ensure a fully harmonised high level of consumer protection throughout the EU in conformity with Article 38 of the Charter of Fundamental rights. However, these rules will replace the current national rules for goods, which could lead to changes to the level of protection consumers enjoy in certain Member States. Member States will not be able to adopt or maintain more protective measures. oA set of fully harmonised rules for digital content will enhance consumer protection throughout the EU, since it will provide EU consumers with clear and specific rights when they buy/access digital content at home or in other Member States. oPublic authorities will not be competent to enforce EU rules towards third country businesses that do not have subsidiaries in Europe. However, consumers will be able to take court action in their own countries under the Brussels I Regulation, and, in the cases foreseen by the Rome I Regulation, request the application of the more protective measures of their own law. Personal data protection (Articles 7 and 8) oNo impact. The rules provided will be in full conformity with Articles 7 and 8 of the Charter and current and future EU legislation on data protection, in particular Directive 95/46/EC (that is likely to be replaced by the future General Data Protection Regulation). These rules will clarify the contractual obligation of the trader when digital content is supplied against a counter performance other than money (for example personal data), but will not lay down specific rules on personal data protection. oRules covering digital content provided against personal data will increase consumers' awareness of the economic value of their personal data and further contribute to better protection. Freedom to conduct a business (Article 16) oBusinesses will be facilitated to sell goods and/or digital content in the EU, both domestically and cross-border. Their ability to expand their business will therefore be reinforced. Right to an effective remedy (Article 47) oClear contract law rights for online contracts (in particular for digital content) will have a positive impact on the ability to exercise one's right to an effective remedy before the courts. The new rules will clarify the remedies available in case of disputes. 5.3Option 2: Setting up targeted, fully harmonised rules for the supply of digital content – Application of the trader's law combined with the existing harmonised rules on goods Economic impacts Operating costs and conduct of business oFor the impact of fully harmonised rules specific for digital content, see analysis under Option 1. oFor goods, the current minimum harmonisation rules will continue to apply, and the differences between national legislations will be maintained. Traders will however be able to sell goods to consumers in every Member State under their own law, as there will be a derogation from Article 6(2) of the Rome I Regulation. They will no longer be obliged to comply with the mandatory consumer protection rules that provide for a higher level of consumer protection than under their national law and therefore will not incur additional costs. oNew exporters who were previously deterred from selling online cross-border because of the additional contract law-related costs as well as existing exporters who wish to expand their cross-border activities to more Member States could therefore save up to €90,000 if they wish to sell in 10 Member States, and up to €243,000 if they wish to sell to all 27 other Member States. oEliminating supply-side barriers for both the supply of digital content and the online sale of goods could increase the number of EU businesses currently selling online cross-border by 5.3 percentage points (or 12% in relative terms). According to a conservative estimate, this means that about 122,000 more businesses could be expected to start selling online cross-border. Administrative burdens on businesses oNo additional administrative burdens will be imposed on traders. Trade and