It also confirmed that a failure to indicate the price of each item of pre-installed software did not constitute a misleading commercial practice.
What were the facts of the case?
Deroo acquired a Sony Laptop in France equipped with pre-installed Windows software. When using that computer for the first time, Deroo refused to subscribe to the operating system’s end-user licence agreement (EULA). Instead Deroo requested reimbursement for the part of the computer’s purchase price representing the cost of the pre-installed software as he did not want to use (and therefore pay) for this software.
Sony refused to reimburse Deroo for the software alone. It submitted that the computer and pre-installed software formed part of a single and non-separable offer and instead offered Deroo a full refund. Deroo declined the offer and sought payment for the software specifically (€450) and damages for unfair commercial practice under the Directive of €2,500.
The French “Cour de Cassation” Court – which heard the case on appeal – sought a preliminary reference from the CJEU regarding interpretation of the Directive.
The first issue was whether the combined sale of a computer equipped with pre-installed software without any option for the consumer to purchase the same model free of that software constitutes an unfair commercial practice under the Directive.
In the same context, the second issue referred was whether the manufacturer’s provision (via the retailer) of information on each item of pre-installed software without specifying the cost of each individual component, constitutes a misleading commercial practice under the Directive. The Directive has been transposed into English law by the Consumer Protection from Unfair Trading Regulations 2008.
What was the decision of the court?
The CJEU held that on the first issue the combined sale of the laptop equipped with pre-installed software did not constitute an unfair commercial practice; it said that this would have only been unfair if it was contrary to the requirements of “professional diligence” and “materially distorts, or is likely to materially distort, the economic behaviour…of the average consumer”. This circumstantial assessment of fairness was to be determined by the national court.
On the second issue the court found that a failure to provide information of costs of specific components was not a misleading commercial practice.
Why was the combined offer found to be in line with the requirements of “professional diligence”?
The CJEU set out three key factors that it considered were relevant in determining that Sony had acted in accordance with “professional diligence”. Firstly, Deroo had been appropriately informed prior to the purchase of the existence of the pre-installed software. Secondly, there was evidence that a significant proportion of consumers preferred to purchase a computer already equipped and ready for use (rather than having to purchase the software separately). Thirdly, the retailer’s cancellation offer, upon refusal to subscribe to the EULA was further evidence of Sony acting in accordance with the Directive. As a result, the CJEU said that Sony’s behaviour was indicative of honest market practice and good faith in the field of manufacturing of computer equipment for the general public.
Did the combined offer distort, or was it likely to distort, the economic behaviour of the average consumer?
The CJEU queried whether the consumer’s ability to make an informed transactional decision could be considered to have been appreciably impaired. The CJEU stressed that the consumer was duly informed in advance that the computer was not marketed without pre-installed software and was free to choose another model of computer or another brand with similar technical specifications, sold without software or used with different software. This freedom was deemed to make a material distortion unlikely.
Did failure to indicate the price of each component of the combined offer constitute a misleading market practice?
Whether omission of information regarding the prices of specific components (in this case, of those items of software) constitutes a misleading market practice hinges upon whether that information is considered “material”. “Material information” is information that the average consumer needs in order to make an informed transactional decision that he or she would not otherwise have made. In this context, the CJEU took the view that failure to specify the price of each item of software was not such as to prevent the consumer from taking an informed transactional decision that he or she would not have taken otherwise - although it noted that the national courts would need to make the ultimate decision on this.
How does this affect me?
This decision comes as welcome relief not only to technology providers but also providers of other goods and services that favour using “combined offers”. This case appears to set a fairly high bar before providers are forced to unbundle their offerings and offer customers the chance to customise their purchases.
Only time will tell whether disgruntled customers will challenge a supplier’s bundling of goods and services in a different sector. For example, if customers can show that their behaviour has been distorted by an enforced bundle or where they were unable to make an informed transactional decision as a result of the bundling. There are plenty of consumers who are unhappy paying for a TV subscription which offers hundreds of channels despite only ever watching a handful of them. Could this be the next line of cases in this area?
The recent battles between the European Commission and Microsoft (and more recently Google) have shown that suppliers will also need to consider competition law issues when bundling their own products together, as such activity may be challenged on grounds that it has restricted competition. In the case of Google, the European Commission has recently alleged that the combined offer of Android phones with pre-installed Google “Chrome” apps constitutes anti-competitive practice. This case exemplifies how combined offers can be a cause for concern in terms of abusing monopoly power by limiting competition.
In summary, those companies that favour a bundled approach when it comes to their market offering will certainly be breathing a sigh of relief as a result of this recent CJEU decision. However, it would appear that the court may take a different approach where a combined offer can be shown to be unfair or misleading or where there are potentially market-limiting consequences.
Jaani Patheja was a contributing author of this article.