German Court Rules on Consumer Withdrawal Right Waiver for Virtual Currencies


July 28, 2016 Leave a comment
Under the EU Consumer Rights Directive, consumers who buy digital content online have an express right to withdraw from that contract. Unlike for other goods and services, the Directive also permits digital content providers to obtain effective waivers of this withdrawal right before supplying the content to customers. It has always been highly controversial, however, whether this rule also applies to virtual currencies in online and mobile games, and how exactly such a waiver must be designed.

In a decision rendered 25 May 2016 (case no. 18 O 7/16 – not published, not final) the Regional Court of Karlsruhe, Germany, now held that virtual currency is “digital content” for the purpose of the Consumer Rights Directive, meaning that players do have a right to withdraw, but that games providers may in fact ask them to waive this right. However, the court puts extremely high demands on the design of the waiver process, making it very hard to implement in practical application.

Legal Background

Since the implementation of the Consumer Rights Directive in June 2014, German law (like that of all other EU member states) provides a right to withdraw for so-called “digital content“. This means that a consumer purchasing digital content can withdraw from the contract within 14 days and get a refund – but must, of course, also “return“ the digital content.

However, there is one catch: The consumer is not obliged to pay any compensation for any use of the digital content between purchase and withdrawal. Hence, if the consumer already exhausted the digital content – e.g. by using an in-game-item and thereby consuming it – they can still demand their money back.

Even the European legislator thought this would be taking things a bit far. Therefore, it gave providers of digital content the possibility to agree on a waiver of withdrawal right, subject to two cumulative conditions: The withdrawal right is excluded if the entrepreneur started the performance of the contract after the consumer

  1. has expressly agreed that the entrepreneur begin performance before the end of the withdrawal period, and
  2. has confirmed their knowledge of the fact that such agreement results in a waiver of the withdrawal right.

The Case before the Court

The case before the Karlsruhe court was brought by notorious consumer watchdog group Verbraucherzentrale Bundesverband e.V. (“vzbv”) against the online game giant Gameforge. The purchase process for virtual currency in the Gameforge game NosTale, (“NosTaler” in German), included the following language to implement the withdrawal waiver:

gameforge

Text 1:
By clicking „Buy now“ I agree to the immediate execution of the contract by Gameforge and I know that this will cause my withdrawal right to lapse.”

Text 2:
There has been a change in the law effective 13 June 2014. This has the result that consumers may demand their money back for digital content, even though they already used or consumed it. This has lead to a significant increase of abuse in connection with the purchase of digital goods. To avoid economic damage for us and our customers, unfortunately we need to ask you to waive your withdrawal right when making purchases in our shop. Without this measure, we would be forced in the near future to increase our prices. However, this is neither in our, nor in your interest. We appreciate your understanding.

The Consumer Group’s Perspective

In their complaint, vzbv argued that virtual currencies were not “digital content” for the purpose of the withdrawal right legislation, but subject to regular distance selling rules where a withdrawal waiver is not permitted at all.

However, vzbv went on, even if virtual currency was (legally speaking) digital content, Gameforge could not obtain the waiver prior to the conclusion of the agreement. The consumer, according to their logic, could waive only a right that already existed – meaning any waiver would have to be agreed after conclusion of the contract. According to vzbv, valid withdrawal waivers require a two-step process:

  1. Consumer clicks „Buy now“ in order to purchase the in-game currency.
  2. After conclusion of the contract, consumer confirms with a separate click that they waive their withdrawal right.

Since Gameforge had not implemented the waiver in this manner, vzbv argued their wording could not meet the requirements for a valid waiver and was therefore misleading: It suggested to consumers that they had waived a right when in fact the waiver was not enforceable. As Gameforge did not sign a cease-and-desist undertaking, vzbv took the case to court.

The Decision

The court in Karlsruhe only partially followed vzbv’s arguments: It confirmed the that virtual currency was in fact “digital content”, but it did agree with vzbv regarding the requirement of a two-step process to obtain a withdrawal waiver.

Are Virtual Currencies Digital Content?

From the perspective of vzbv, NosTaler are no digital content as they merely represent a “claim or an entitlement” without having distinct informational value. Therefore, they were means of payment and not digital content.

The court rejected this opinion and joined the argument of the defendant Gameforge: Virtual currency represents a value in the game – similar to play money, but in a digital form. Hence, virtual currency is an integral part of the game and enhances the action and possibilities for the users. As part of the computer game, virtual currency must be considered digital content.

Designing the Waiver Process

Moreover, vzbv argued that the specific design of the waiver process was illegal, since the waiver declaration could not happen at the same time as the conclusion of the contract – and hence a two-step clicking process was necessary.

The Karlsruhe court agreed on this point:

[The statute] governs the extinction of the right to withdraw for a contract regarding the delivery of digital goods which are not stored on a tangible medium. However, a right can only become extinct if it has previously existed.

The court draws the erroneous conclusion that

…conclusion of contract and waiver of the right to withdraw cannot occur simultaneously with the same declaration, but a temporally later, separate declaration of the consumer with regard to the confirmation of knowledge of the waiver of the right to withdraw was required.

This conclusion, however, is not supported by the wording of either the Consumer Rights Directive or the German implementing statute, or even the recitals and other accompanying documents of either piece of legislation. Due to a lack of valid sources, the court only makes the blanket statement that a “chronological coincidence” of conclusion of contract and loss of right to withdraw was not possible.

In addition, the judges in Karlsruhe seem to have confused two distinct moments in time, i.e. the time a consumer declares their waiver, and the time this declaration becomes effective. The applicable statute only defines the time of the actual effect of the waiver:

The right to withdraw becomes extinct […] when the entrepreneur started the execution of contract after the consumer 1. has explicitly agreed […] and 2. has confirmed their knowledge of […].

Therefore, if anything, the statute says that the declaration must be made before the beginning of the performance of the contract. This is logical – if the seller already performed, it makes no sense to seek the agreement for a waiver with the consumer.

The fact that the effect of this declaration only occurs when the right of withdrawal has arisen, is also clear. A right can only become extinct if it has once existed.

However, nothing in the statute suggests that the declaration and its effect must occur simultaneously! On the contrary: German civil law is full of express rules where the legal effect of a declaration unfolds at a different time than when the declaration was made.

A two-step process as demanded by vzbv and LG Karlsruhe would, moreover, not benefit consumers: When the waiver is obtained at the time of conclusion of contract, the consumer can consider before buying whether they really want the digital content if it means they have to waive their withdrawal right. In a two-step process, the consumer must first enter into a binding agreement (which may for instance result in their credit card or other payment method already being charged), and only then is informed about the fact that they must now waive the withdrawal right or wait 14 days before receiving the digital content. Effective consumer protection… NOT!

To Be Continued!

The ruling of the Regional Court of Karlsruhe is a small milestone – for the first time it was established in court that virtual currency which is an integral part of a computer game must be considered digital content and that therefore, the consumer withdrawal right can be validly waived. However, the next milestone is already in sight: Gameforge has appealed, and it will now be up to the Higher Regional Court of Karlsruhe to revisit the law on the waiver process. Watch this space for updates!

Disclosure: We represent Gameforge in this matter.

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Konstantin Ewald

Konstantin Ewald

Partner at Osborne Clarke
Konstantin Ewald is a Partner and Head of Digital Business at Osborne Clarke, Germany. He advises leaders in the digital media and software industry throughout Europe and the US on all matters of digital media and IT law as well as IP/technology-related transactions.

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