New EU rules for SaaS

The European Parliament recently approved new EU rules that strengthen the position of consumers, when buying ‘digital’ products online. This means your legal position as a SaaS company might change (a little) too.

Within the EU, the single market with its four freedoms is contributing a lot to the overall economic welfare of the EU member states. The EU is now also promoting the digital single market strategy. These new EU rules are aimed to standardize the legal position of consumers when shopping online.

I need to point out, however, that these ‘new standards’ are just basic standards many countries already comply to. In the Netherlands, where we’re based, the national legislation provides an even better protection than these new EU rules do. That means that our national standards take precedence over these EU rules.

If your customers have a better protection under your national legislation, these new EU rules will not worsen their position. So be aware of the law applicable in your home country. Also, these rules are different from the Copyright Directive that was recently adopted.

EU SaaS Rules

Standardized SaaS customer protection

These rules do have some implications for your SaaS business. Before we get into it, the EU distinguishes between two sorts of online products. The first set of products are governed by the EU rules on ‘defective digital content’. This one is important for your SaaS platform. The other EU rules govern ‘physical’ products you can buy online.

It’s pretty obvious what digital content means. These are games, apps, music, videos, online software, etc. Your SaaS platform is digital software, so you should be aware of the changes these rules bring for you.

The changes aren’t very rigorous. Here is a fictional example of the implications:

France

Old situation:
A company in France subscribes to an online CRM software. However, some of the functions do not work. The company doesn’t receive a reimbursement,  because the French consumer law doesn’t obligate companies to reimburse in case of defects (again, this is fictional).
Logic:
The client could use the software, even though not the entire product worked. But since the client still used it, he needs to pay for the entire software.

The Netherlands

It’s different for a company subscribing to an online CRM software with defect functions in the Netherlands. The Dutch law has a high standard of protection, and the client can ask for a total reimbursement.
Logic:
The client could use the software, but some of its functions were broken. The software did not deliver what the client could expect from it, thus he gets his money back.

Belgium

A Belgian company subscribing to a Belgian online CRM software with defect functions has a different legal position. The client has to pay for the software, but the price is reduced to make up for the functions he couldn’t use.
Logic:
Even though the client could use the software, he couldn’t use the entire package so he should only pay equal to what he could use.

Basically, the consumer rights in all three countries are different. Imagine the complexity when a Dutch company subscribes to the French CRM software.

New situation:
A European company subscribes to a European CRM software which has defects. The European consumer has the right to reimbursement. (This is a lot less complex).

This example is of course simplified. So what are the implications of these new rules?

Rules against Defective Digital Content

The EU rules are primarily aimed to improve consumer rights. You, as a SaaS company, are on the other end of these EU rules. It’s important to compare the differences between these new rules and your national legislation. If the EU rules provide a better protection for consumers, these EU rules apply. If your national law provides better protection, that law applies.

Does this, for example, also apply to a free trial you offer? Technically, it does. These rules apply to every relationship between you and your client either when they accepted your terms and agreements and/or when they purchased your product. However, since a free trial is free, a customer can complain all he wants, you can’t reimburse money that was never spend.

So what do these new EU rules say about your legal standing?

  • If you can’t fix the defect in your software within a ‘reasonable time’, your clients can ask for either a reduced price or a full reimbursement. The client has to ask for it within 14 days after you failed to fix the defect within the reasonable time. It’s not yet clear what that reasonable time means. It’s probably different per case;
  • If the software has a defect within a year after purchase, the defect is assumed to have existed at the time of subscription. The client doesn’t need to prove it, it’s up to you to prove that defect wasn’t there. This seems a bit weird, because in case of online software, a defect can be caused by an update, virus, third party, etc. How all this plays out within the legal field is up to how the European caselaw will develop;
  • Since your software is probably based on a subscription per unit of time, you are allowed to modify the content if the contract allows for it. You will need to notify the consumer in advance about the modification. The client is allowed to terminate within thirty days.

This probably isn’t anything new for you. As a SaaS company, you’ve probably been applying these rules for quite some time. These ‘new’ EU standards aren’t new for many countries. It’s just that in a few countries, the legal position of consumers is not this well protected. Now they are.

Conclusion

Since it’s the EU, these rules may seem like a big fuzz. It’s really not. As I’ve said, most of the EU member states have an even higher standard of customer protection within their national legislation to which your SaaS has to conform. This means there might be nothing new for you.

Also, even though these rules are meant to ‘standardize’ EU legislations, there will still be differences between the EU member states due to national law. Again, national law takes precedence when it provides better protection than the EU norm. It’s best to look into the differences between these EU rules and your national legislation to see what implications these EU rules really have for you.