iTunes Terms Service scrutiny Nordic Consumer Ombudsmen

20 November 2006

Henrik Nilsson, Jill Hagberg

The Consumer Ombudsman organisations in Sweden, Norway and Denmark, respectively have initiated a dialogue with iTunes SARL. This is the Luxemburg-based company managing the various European iTunes online services for downloads of music and entertainment. While the dialog with iTunes has yet to reach a conclusion, it sheds interesting light on the attitude of the Nordic Consumer Ombudsman organisations to online Terms of Service.

The Consumer Ombudsmen in Norway and Sweden first wrote separate letters to iTunes, setting out in detail how in their view the iTunes Terms of Service are at variance with national consumer protection legislation. This legislation is to a significant extent harmonised between the Nordic countries, and the respective national Ombudsmen occasionally cooperate on projects. The Ombudsmen also referred to Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts.

Following complaints from respective national Consumer Councils, the Ombudsmen set out detailed complaints. The main letter was drafted and sent by the Norwegian Ombudsman, the “Forbrukerombudet” on behalf of all the Ombudsmen, with the Swedish Ombudsman adding a separate complaint making references to relevant passages in the Swedish Consumers Act.
iTunes responded to the Norwegian letter on 31 July, through Mr Espen Tøndal, a lawyer with the Norwegian firm Simonsen.

On 26 September, the Ombudsmen issued a statement following deliberations with iTunes representatives. The Ombudsmen declared that in recognition of the progress achieved in discussions, there were no immediate plans to instigate legal proceedings against iTunes. There remained however difficult issues to resolve, which the Ombudsmen undertook to formulate in a new letter by the end of October 2006. At the time of writing, no such document has been made public. The iTunes Terms of Service were revised on 12 September.

The Ombudsman in the letter to iTunes summarised the Terms of Service as unclear, unbalanced to the detriment of the consumer and set out in a difficult and complicated language which made it hard for consumers to understand their rights and obligations. The Ombudsmen held it was unclear from the Term what actually constituted the Service. The Terms place a great many obligations on the consumer. They set out in detail the rights pertaining to iTunes though however were largely silent on any rights of the consumer. Furthermore, the Terms contained extensive liability disclaimers for iTunes.

On specific issues, the Ombudsman complained that the Terms and use of the Service are regulated by English law. Even though national consumer protection law would still be binding for the iTunes service, consumers were liable to become uncertain of how to interpret the clauses of the Terms given the reference to English law. The Ombudman requested that iTunes be regulated by domestic law. iTunes responded that it would clarify the wording of the rule of law clause to make it clear to consumers that binding rights in national law would be respected regardless of the choice of English law. iTunes further pointed out that in accordance with the Lugano Convention, consumers may bring action in the court of their country of residence where their counterpart is domiciled in another convention state.

The Ombudsman interpreted the Terms as reserving the right for iTunes to amend the Terms retroactively, giving effect to changes on purchases already concluded. The Ombudsman held that this is in breach of basic principles of Norwegian law. The Ombudman expressed concerns over iTunes right to amend the Terms by publishing changes on the iTunes web site, placing the burden on the consumer to keep informed of any changes. iTunes responded it would make changes to clarify that amendments would only take effect going forward and not for concluded purchases. iTunes is also preparing a technical solution in which users will be required to note and accept any changes to the Terms before new purchases are possible.

The Ombudman noted the silence in the Terms regarding consumer’s right according to national legislation to withdraw from an e-commerce agreement, returning purchases made online within a set grace period. iTunes responded that, in its opinion, the sale of online music was exempted from the e-commerce right of return. iTunes would however clarify the Terms on this point.
The Ombudsman expressed concerns over the drafting of the many restrictions of liability in the Terms. The Ombudsman stated that the liability disclaimers gave the appearance of having been translated directly from a legal culture foreign to the Nordic rules on liability and award of damages. The Ombudsman deemed many of the disclaimers to be unclear and frequently too far-reaching to be valid. The Ombudsman pointed out that disclaimers of responsibility for gross negligence and intentional acts are clearly contrary to national law. iTunes pointed out that drafting the disclaimers became complex when covering the (free) access to the iTunes Store as well as the actual transactions. iTunes however undertook to amend several of the existing disclaimers.

The Ombudsman questioned the geographical limitation of the iTunes service to just one country. The Ombudsman requested an explanation from iTunes of the reasons for the limitation. iTunes referred to the ongoing investigation by the DG Competition of the European Commission of these limitations (cases C-2/39.154 and C-2/39-174). iTunes continued by explaining the restrictions placed upon it from music rights holders regarding distribution of the products, how music typically is licensed for sale and distribution on a national basis.

Interestingly, the Ombudsman concluded the letter to iTunes with questioning whether the use of DRM systems in itself constitutes an unreasonable contractual obligation. In a general observation, the Ombudsman expressed concern over developments where cultural products were tied to specific technical platforms which could cause problems at a later date in accessing older material when said platforms no longer existed or were compatible. The focus of the Ombudsman’s questioning concerned the tie between iTunes material and the particular media players produced by iTunes owner, Apple Computer. Pointing to various inconveniences incurred on the consumer by the iTunes DRM system, the Ombudsman asked for iTunes comments on why the DRM system should not be deemed an unreasonable contractual obligation on the consumer. iTunes responded by stating that DRM systems were permitted and protected by the Information Society Directive 2001/29/EC, and that the Ombudsman lacked competence to regulate such systems through application of consumer protection law. iTunes pointed out that the music purchased could, regardless of the DRM, be burned to CDs or played on PCs and Apple Macintosh computers. The music files are thus not tied to Apple Computers music players as such. Any concerns regarding competition should be the exclusive concern of competition authorities.

The Nordic Consumer Ombudsmen organisations stated in their joint press release of 26 September that the dialogue with iTunes will continue as there remain questions of a legal and technical nature which are complicated to solve. It appears that considerable time will pass until the iTunes Terms for the Nordic countries have a definitive version.