Long Term Contracts

European Model Rules on Long Term Contracts

Practical relevance

  • What applies if the contract between the platform operator and the product provider of an online platform violates competition law?
  • How long does the digital product provider have to offer updates and upgrades and can it unilaterally limit or terminate this obligation?
  • What effect does it have on a user agreement for training data for an AI application if consent to the use of personal data contained therein is revoked?
  • Can a licensee invoke warranty rights even if the licensor transfers the property right to a third party?

The fact that national and European civil law do not provide a viable infrastructure despite the increasing importance of continuing obligations is no longer in keeping with the times.

  • From asset to access: Modern platforms that make it possible to organize the use of goods by several people reliably and precisely promote the tendency, reinforced by sustainability goals, not to acquire required goods, but merely to use them temporarily.
  • Smart products: Contracts for digital goods increasingly have elements of continuing obligations because the contracting parties remain in a constant exchange in order to keep devices up to date with updates and upgrades.
  • Information society: Contracts for the use of knowledge and information goods are becoming increasingly important. For ubiquitous goods, sales contracts are the exception; usage and license agreements are the rule.

Both analog business models (e.g. distribution contracts, merchandising, franchising, publishing) and digital ones (platforms, Internet of Things, software as a service) are based on usage contracts. With the further development of digital technologies, especially AI, new sectors (automotive industry, agriculture, healthcare) are being covered. They require clear regulation that creates legal certainty and reduces transaction costs.

Need for research

Existing regulations

The existing European acquis communautaire only contains very heterogeneous regulations for individual issues, which diverge for no apparent reason.

  • In intellectual property law, there have been well-established regulations on rights of use and license agreements since the end of the 1980s. However, these are specifically tailored to the respective object of protection (EU Trademark Regulation, Trademark Directive, Designs Regulation, Designs Directive, Plant Variety Protection Regulation). More recently, the harmonization of trade secret law (Trade Secrets Directive) and the creation of a unitary patent (UPCA) have been added.
  • European competition and market law regulates the long-term use of third-party services through content control and a ban on abuse (BER-TT, R&D Regulation). This also applies to the more recent legal acts regulating the digital market, which are similar in concept and subject certain market participants to permanent obligations to provide information, transparency or establish interoperability etc. (DMA, DSA).
  • Consumer contract law contains provisions, for example in the Sale of Goods Directive and the Digital Content Directive as well as the Directive on Copyright in the Digital Single Market, which also provide for subsequent obligations of the parties for exchange contracts as well as termination options in the event of non-performance or poor performance with regard to these permanent obligations.
  • There are also approaches in international private and procedural law for special connecting provisions for rental, lease and franchise agreements (Rome I Regulation, EuGVO) as well as for the treatment of incompletely fulfilled contracts in the event of the insolvency of a contracting party (EuInsVO, Insolvency Law Directive-E).

At national level, there are only very isolated special regulations for continuing obligations - apart from the transposition provisions for the aforementioned legal acts. In Germany, for example, in the BGB, HGB, GWB and the InsO. They do not form a consistent type of contract, nor is there a reliable dispositive law for contracting parties to fall back on when drafting contracts.

Regulatory gaps & need for model rules

Current civil law does not provide any general rules for continuing obligations. Even everyday questions cannot be answered reliably. If the debtor cannot provide a promised service as owed, it is not only unclear what consequences the partial impossibility has on the partial service already provided, but also whether the user is entitled to an (extraordinary) right of termination. Despite the obvious need for regulation, there are still no general provisions for:

  • the form and content of the conclusion of the contract
  • the adjustment of performance obligations after the start of contract fulfillment
  • ordinary and extraordinary termination and
  • the frequent change of a contracting party in the case of long-term commitments or
  • the inability to pay and insolvency of a party.

These gaps need to be closed by model rules.

Procedure

All ELSI chairs of civil law are involved in the project. They can build on the working methods of the Study Group on a European Civil Code, the Research Group on the Existing € Law (Acquis Group) and a variety of other preliminary work that has been carried out in Osnabrück or with the participation of members of the Institute.

A network of European post-docs is to be established, coordinated from Osnabrück and inviting to regular research group meetings.

A three-stage procedure with a comparative law approach was chosen to investigate the existing regulatory gaps:

Examining the legal systems of selected member states and Union private law

Identification of similarities and differences in the regulations on continuing obligations

Establishing basic rules for continuing obligations, in particular contracts for the use of third-party goods

Objectives

  • Development of general basic rules for continuing obligations in the form of European model regulations on a comparative law basis.
  • Analysis of legal, economic and technical differences in the various fields of application of long-term contracts.
  • Creation of subtypes for important goods and services (e.g. platforms, data, IP) in order to develop a concrete program of obligations and legal consequences for these.

 

Results

The European Model Rules on Long Term Contracts can inspire the (European) legislator or be incorporated by the contracting parties into their agreement. Statutory and private autonomous regulation would strengthen legal certainty and reduce transaction costs.

The model rules developed will be presented for discussion in working papers and at international conferences and then published together with the country reports.