In 2015, the French Court of Cassation submitted a request for preliminary reference to the Court of Justice of the European Union in an interesting case about forced bundling of computers and software. The outcome was long anticipated by the free software community which has been advocating for a long time against this practice of computer manufactures and major software companies. It was seen as a hope of putting an end to the so-called ‘ Windows tax’. With the decision in Deroo-Blanquart, however, these hopes seem to have been dashed.

On 7 September 2016, the Court of Justice of the EU (CJEU) landed a decision that seems to have garnered little attention on the part of lawyers. The case of Deroo-Blanquart started with an innocent… purchase of a new PC.

In 2008, Mr Deroo-Blanquart, a French computer user, purchased a new laptop. The manufacturer, Sony, as tradition dictates, had pre-installed the machine with Microsoft Windows and other software. When the diligent Mr Deroo-Blanquart turned on his computer for the first time, he was welcomed by an invitation to accept the end-user licence agreement (EULA). Unlike most users, accustomed to simply clicking ‘I accept’, Mr Deroo-Blanquart was not keen on the idea of accepting the licence’s terms and applied to Sony with a request for reimbursement of part of the purchase price of the computer corresponding to the cost of the software. Sony refused, claiming its computers and the pre-installed software formed part of a “single and non-separable offer”, and offered to reimburse the entire price against returning the computer. Mr Deroo-Blanquart claimed the payment of a lump sum for the software as well as damages suffered in result of unfair commercial practices (UCP).

What the court said…

The French courts rejected the claim that the commercial practices of Sony were unfair but when the case climbed its way up to the Court of Cassation, the latter decided to ask the CJEU whether a combined offer consisting of the sale of a computer equipped with pre-installed software constitutes a misleading UCP under the Unfair Commercial Practices Directive (UCPD) where the manufacturer of the computer has, via its retailer, provided information on each item of pre-installed software, but has not specified the cost of each individual component. Furthermore, the court was interested to know whether such a combined offer constitutes an UCP where the manufacturer leaves the consumer no choice other than to accept the software or cancel the sale and also where the consumer is unable to obtain a computer which is not equipped with software from the computer manufacturer.

In its response to the first question, CJEU referred to the “material information” criterion of Article 7(1)f UCPD and concluded that it is “clear from the wording of that provision that the price of a product offered for sale, that is to say the overall price of the product, and not the price of each individual component, is considered to be material information” (§ 46). The question was therefore reduced to whether the prices of the individual software packages also constituted “material information”. The court concluded the practice was not unfair as the computer was “only offered for sale equipped with the installed software” and failure to indicate individual software packages’ prices did not prevent consumers from taking an “informed transactional decision”, hence they are not “material information”.

CJEU further responded that there is no general preclusion of combined offers and that the two conditions for a commercial practice to be considered unfair must be met, ie it: (1) must be contrary to the requirements of professional diligence; and (2) must materially distort or be likely to distort the economic behaviour of the “reasonably well-informed and reasonably observant and circumspect” average consumer regarding the product. The court concluded that it must be ascertained if the trader’s behaviour entails a possible violation of ‘honest market practices’ or of the ‘principle of good faith’ in light of the legitimate expectations of the average consumer.

Furthermore, relying on “analysis of the market concerned” the court found that the fact that a “significant proportion” of consumers prefer to buy computers already equipped and ready for immediate use and that “it was possible for the consumer to accept all the elements of that offer or to cancel the sale” are likely to satisfy the tests of ‘honest market practice’ or ‘good faith’, leaving it to the national court to decide. In examining the question of whether this practice is likely to cause material distortion and to undermine the consumer’s ability to make an informed decision, it is for the national court to determine if the consumer has been duly informed in advance that the computer was not marketed without the pre-installed software and that they were free to choose another model or brand with similar specifications and sold without the software.

What the court did not say… and understand

Initial analysis of the decision shows the court might have missed the point. Hardware manufacturers have been selling computers with pre-installed software for many years. Typically, a manufacturer enters into a deal with a software company to obtain OEM versions of the software that is then installed in a ‘ready-to-use’ manner.

First, the argument that the “significant proportion” of consumers prefer to buy a machine already equipped and “ready for immediate use” is ill-founded in that it would always protect the interests of the companies involved. Furthermore, it limits the margin of consumer choice as it leaves consumers with a false ‘take-it-as-it-is-or-leave-it’ choice. Besides, more often than not consumers seeking to purchase particular brand or a particular (high-end) machine are very likely to end up with no alternatives because either all similar machines in the class are provided with the same pre-installed software only or because of the trust in a particular brand.

Second, the court seems to be lowering the standards of ‘honest market practices’ and ‘good faith’ conduct by equating the mere fact that the trader has mentioned the existence of a pre-installed software and the fact the software manufacturer requires consumers to either accept the EULA (for use of the software) or return the machine (ie both hardware and software) with the legitimate expectations of consumers.

Third, it remains obscure why the court believes that the prices of the different software packages are not “material information” for consumers (§ 48-51). In its somewhat recursive approach, the court explains that the commercial practice is not misleading because the computer is offered for sale only with the preinstalled software. It is precisely because the computer is sold with preinstalled software as a combined offer, depriving the user of the possibility to make an informed transactional decision, that the plaintiff considers the practice misleading.

Finally, the court’s assumption that the failure to indicate the prices of the different software packages does not prevent the consumer from taking an informed transactional decision does not find support in real practice. The cost of a licence to use a copy of Microsoft’s OS could vary in rather broad terms and it certainly has implications on the final price.

Where do you we want to go today?

With the judgment in the present case CJEU set a dangerous precedent that might find its way all the way down to all sorts of mobile devices. Notably, the European Commission and the governments of France, Belgium and the Czech Republic have submitted observations to the case. The advocacy organisation April has requested access to these observations in hope they may shed light on the court’s considerations.

While the decision would certainly not impact significantly the role of free software, it nevertheless creates the risk of consumers entering transactions without being provided “material information” enabling them to make a free and well-informed choice.

This article was first published in CiTiP Blog and is reprinted here with the author's full permission.

education computer software competition innovation object of intellectual property protection of competition CJEU unfair commercial practices bundling

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