Impact of pre-emptive denied boarding on passenger rights - CJEU in LATAM (C-238/22)

Last Thursday, on October 26, the CJEU issued a new judgment on rights of passengers who have been denied boarding, interpreting Regulation No 261/2004. In the LATAM Airlines Group case (C-238/22), the passenger booked return flights with Latam between Frankfurt am Main and Madrid for 22-12-2017 and 7-1-2018. When the passenger could not check in online on Dec 21, they contacted Latam and heard that the airline changed their flight date unilaterally to Dec 20. They just did not inform the passenger about this (which is a bit of a problem, you must agree). Oh, and since the passenger did not take the re-booked flight (they did not know about they were missing), they also lost the right to take the return flight on Jan 7. The airline's policy was that the outward flight had to be taken for the return flight reservation to remain valid. Latam still refunded the ticket the passenger did not use. They refused, however, to either pay compensation pursuant to Regulation 261/2004 or to compensate the passenger for the new reservation they made with a new carrier. 

Pre-emptive denied boarding

The CJEU clarifies that when the airline denies boarding to passengers in advance, against their will - here by informing the passenger that they lost the right to the return flight - the passenger is not expected to still present themselves for boarding to maintain their passenger rights (para 38). This is an important clarification as the literal wording of Article 2(j) of the Regulation 261/2004 qualifies 'denied boarding' as a refusal to carry passengers on a flight, although they have presented themselves for boarding (para 23). This in turns means, pursuant to Article 3(2), passengers being present for check-in (para 24). The CJEU confirms that the concept of 'denied boarding' should be interpreted broadly to offer a wide scope of passenger protection and covers also situations of pre-emptively denied boarding, that is boarding denied in advance (paras 28-29). Still, passengers may claim their compensation despite not presenting themselves for boarding as CJEU perceives their situation as not distinguishable from that of passengers whose reservation was transferred to another flight by the airline, who fall within the scope of Regulation 261/2004 pursuant to its Article 3(2)(b) (para 32). Further argument stems from the historical objective of the Regulation 261/2004 - to prevent passengers' hardship caused by overbooking of flights. As such, drafters did not anticipate pre-emptive denied boarding explicitly in the text of the provisions (para 34).

Right to compensation

Further question pertained to the application of Article 5(1)(c)(i) of Regulation 261/2004, which excludes passengers' right to claim compensation for a cancelled flight, if they were informed about the cancellation at least 2 weeks before the scheduled departure time (para 42). As this provision introduces an exception to passenger rights, it need to be interpreted strictly (para 44), and as such, it does not apply to denied boarding but only to cancelled flights (para 45).

EDPS Opinion on AI Act proposal

The proposal for the Artificial Intelligence Act has caused a lot of heated discussion as it reaches its final stage. Recently, the European Data Protection Supervisor (EDPS) issued an opinion on the current version of the AI Act proposal*, pointing out several legal uncertainties from a data protection perspective. This is the second EDPS opinion about the forthcoming AI Act, following one issued jointly with the European Data Protection Board shortly after the proposal was revealed.

Photo by julien Tromeur on Unsplash

The EDPS takes a tough stance as regards some of the solutions envisaged in the proposal. For instance, the authority once again emphasized that classifying several uses of AI as "high risk" is not enough in cases where such uses pose unacceptable risks to fundamental rights (see para. 7 of the opinion). This includes a.o.:

• any use of AI to carry out any type of "social scoring";
• any use of AI for automated recognition of human features in publicly accessible spaces, such as of faces, gait, fingerprints, DNA, voice, keystrokes and other biometric or behavioural signals;
• the use of AI to infer emotions of a natural person except for certain well-specified use-cases, namely for health or research purposes;
• any use of AI systems categorising individuals from biometrics into clusters according to ethnicity, gender, political or sexual orientation, or other grounds for discrimination prohibited under Article 21 of the EU Charter of Fundamental Rights.

According to the EDPS, such uses should be prohibited as they are intrusive and affect human dignity.

The EDPS also notes that the AI Act proposal exempts operators of high-risk AI systems already on the market or in use before the AI Act's applicability, except in cases when these systems are subject to significant changes in their design or purpose or in case of "substantial modifications" (para. 12 of the opinion, see also Article 83(2) of the AI Act proposal). However, the EDPS finds this solution unclear, leading to legal uncertainty and some high-risk AI systems never falling within the scope of the AI Act. The EDPS recommends removing this exemption and applying the AI Act to existing high-risk AI systems on the date of its applicability.

What is more, the EDPS suggests that the notion of AI "providers" should be further clarified, and probably (explicitly?) include AI operators who retrain pre-trained AI systems. Although training is a fundamental part of AI development, the current proposal does not clearly state whether activities such as retraining or continuous training should be considered as part of AI system 'development'. As a result, it is uncertain whether operators taking part in such activities could be assigned the status of "providers" of AI systems (para. 15-19 of the opinion). 

Finally, the authority shared specific recommendations on how to clarify the proposal's provisions on EDPS roles and tasks as a notified body, market surveillance authority and competent authority for the supervision of the development, provision or use of AI systems by EU institutions, bodies, offices and agencies (para. 29 et seq.).

* Updated information on the legislative process you can find here.

Addictive design of digital services

Today the Committee on the Internal Market and Consumer Protection (IMCO) of the European Parliament adopted the draft report on Addictive design of online services and consumer protection in the EU single market (file to the procedure is here). This times nicely with the increased attention give to addictive online design by the European Commission, which intends to devote one of its two panels to this topic at the forthcoming 3rd Annual Digital Consumer Event (held on 30 November - more information and agenda is here). 

By Rodion Kutsaiev on Unsplash

The report draws attention to psychological vulnerabilities that 'certain' platforms and tech companies exploit online. The main concerns are about addictive, behavioural and manipulative design that maximises the frequency and duration of user visits. This is seen as leading to both non-material and material harm. Thus IMCO calls on the European Commission to conduct more evaluation whether new regulation could help 'close existing regulatory gaps with regard to consumer vulnerabilities, dark patterns and addictive features of digital services'. This follows from the assessment that existing measures (Digital Services Act and AI Act, but also Unfair Commercial Practices Directive) are insufficient to address these issues. As examples of dark patterns that current legislation would not consider as unfair the report mentions: infinite scroll, default auto play function, constant push notifications, read receipt notifications. 

Interestingly, in the report: 

• Point 3 - mentions the need to re-evaluate the main current notions of EU consumer law from the perspective of digital age, such as 'consumer', 'vulnerable consumer' and 'trader'. 
• Point 4 - draws attention to the limited function of transparency to fight deceptive design and calls for urgent need to assess whether certain practices should not be blacklisted under the UCPD (rather than transparently disclosed). 
• Point 6 - argues for (amongst others): 
• the integration of the concept of digital asymmetry into the UCPD; 
• reversal of the burden of proof for practices presumed to be addictive; 
• an obligation to ethically design digital services, which would be necessary to comply with professional diligence obligation.
• Point 7 - concerns the need to re-evaluate addictive and mental health effects of interaction-based recommender systems, incl. hyper-personalised systems. Overall, this point calls for the re-assessment of the desirability of online personalisation, and replacing recommender systems based on it with such that are based on chronological order or that give users more control.
• Point 8 - proposes introduction of the digital 'right not to be disturbed' by 'turning all attention-seeking features off by design'.
• Point 9 – calls for fostering of ethical design by default, which could be supported by the Commission upholding a list of good design practices. As best practices it mentions: 
• ‘think before you share’, 
• turning of all notifications by default, 
• more neutral recommendations, 
• up-front choice between colour and greyscale apps, 
• warnings when users have spent more than 15-30 minutes on a specific service, 
• automatic locks for certain services after a preset time of use, 
• weekly summaries of total screen time (but also with an option for a break-down), 
• in-app awareness campaigns on potential risks. Educational campaign should promote ‘self-control strategies to help individuals develop safer online behaviours and new healthy habits’.

The European Parliament intends for the principle of ethical design to be predominant for digital services and products (see press release here) in order to counteract harmful impact of digital addiction on mental health. The attention to mental health issues arising from online interactions, especially amongst minors, is rising, not only in the EU. The UK has just finished accepting submissions to its inquiry into Preparedness for online safety regulation (see here). This sensitive topic definitely requires more attention, thus we will be keeping an eye on the forthcoming discussions on this.

New EU Commission study on consumer over-indebtedness

At the end of September, the EU Commission published a new, comprehensive, and timely Study on European consumers' over-indebtedness and its implications. The study takes a muti-disciplinary approach aiming to get a clear and updated picture of over-indebtedness among European households and consumers.

The aim of the study was broken into five distinct tasks:

• obtain a granular and updated mapping of the situation of over-indebtedness among European households and consumers in all 27 EU Member States 

• gather improved knowledge of the perspectives, perceptions, and challenges of EU consumers in relation to over-indebtedness, including in light of whether or not they have personally experienced it and their knowledge of financial matters 

• collect more, and more precise, information about the macro-economic drivers of over-indebtedness and their short-, medium- and long-term impact, including an analysis of the impact of the COVID-19 pandemic, as well as recent energy price shocks and rising inflation 

• provide an in-depth legal analysis of concrete interactions between EU and national rules and provisions covering consumer credit, mortgage credit, and other contiguous matters

• conduct a behavioural experiment focused on assessing the capacity of households and consumers to make informed and optimal credit choices.

With almost 300 pages of empirical data, behavioral experiments, legal analysis, and literature review, this study could be useful for everyone working or interested in the area of financial consumer law.

Update of ADR rules on the horizon

By GR Stocks on Unsplash

Today the European Commission announced their proposal to modernise ADR rules in Europe, in line with the digitalisation agenda (New measures to simplify the resolution of disputes out of court and boost consumer rights). This follows from the 2023 Consumer scoreboard results showing continued low numbers of consumers proceeding with enforcing their rights (1/4 of consumers experiences a significant consumer problem, but 1/3 of them does not complain for reasons related to time, cost and low confidence). The key points of the new plan to address these issues are: 

• Abolition of ODR (see for the proposal for a new regulation repealing ODR here) - currently the ODR platform facilitates ca 200 cases per year in the EU, which the Commission perceives as not justifying the costs of keeping this platform open and costs of business having to comply with ODR Regulation obligations (e.g. providing a link to ODR platform and assuring appropriate communication channels). The plan is to replace the ODR platform with 'user-friendly digital tools' assisting consumers in choosing a redress option.
• Broadening of the scope of ADR - it will no longer be necessary that a dispute stems from a concluded contract between the parties. This will allow encompassing all EU consumer law, incl. pre-contractual issues especially pertinent to online environment, e.g. misleading advertising and deceptive design, access to services and unjustified geoblocking. It aims also to start facilitating procedures against non-EU traders (although they as well would need to voluntarily join the scheme).
• Providing for additional consumer advice in accessing and during ADR process - to be delivered by designed bodies, e.g. European Consumer Centres Network. This could consist of translation, explanation of consumer rights, ADR procedures, etc.
• Removing some of the burdens for traders to encourage their uptake of ADR participation - e.g. reducing information obligations for traders. Additionally, ADR entities will ask traders whether they intend to participate in ADR when a consumer raises a complaint, which traders will need to answer in 20 days. This is aimed at prompting traders to (re-)consider their ADR participation.
• Removing some of the burdens and costs for ADR entities - e.g. reducing their reporting obligations (from every year to every 2 years, and requiring a more condensed report); facilitating bundling of cases with similar elements (although only upon consent of relevant consumers).
• Improving transparency - e.g. when a dispute is resolved through automated means, parties may request review by a natural person.

Additionally, the European Commission recommends online marketplaces to align their dispute resolution systems to European ADR principles, especially effectiveness, fairness, independence, expertise, impartiality, and transparency. See here for the Recommendation on quality requirements for dispute resolution procedures offered by online marketplaces and Union trade associations C(2023) 7019 final.

See for the new proposal for amending ADR Directive here. Additional information on the whole ADR review is here.

Influencer Legal Hub: New resource

By Laura Chouette on Unsplash

The European Commission launched today a new legal resource: Influencer Legal Hub. Prepared in collaboration with experts from Utrecht University and University of Leeds, it provides both textual and audio-visual help to influencers on their legal obligations. The idea behind this new legal resource is to ensure that the complex (by now) landscape of European consumer law could be easier traversed by content creators engaging in commercial transactions (earning money from promoting specific content). With them better informed, consumer protection level should increase, as the amount of misleading practices on various social media should decrease. Having said that, this new portal provides also plenty of information as a starting point for anyone researching influencer marketing; or even more broadly, for anyone interested in assuring fairness online. 

CJEU rules on the right of withdrawal in the subscription economy (C‑565/22, Sofatutor)

We have all been there: signing up for an online service with a "free trial" option and an automatic extension of the contract, if the trial is not terminated on time. But how does such a free trial relate to the right to withdraw from the contract? Should the consumer have a right of withdrawal only when booking the free trial, or also at a later stage - when subscription is converted into a standard contract, and perhaps even later - when it is renewed? This was the question in case C‑565/22, Sofatutor, on which the Court of Justice decided last Thursday. 

Facts of the case

The case was brought by Verein für Konsumenteninformation (VKI), a consumer organisation, against Sofatutor, a provider of an online learning platform. The trader allowed consumers to test the platform free of charge for 30 days from signing up and terminate the contract at any time during that period. Pursuant to the standard terms, if the contract was not terminated on time, the paid subscription period started. Moreover, the contract was renewed again, if it was not terminated before the paid subscription period ended.

According to the VKI, Sofatutor violated the national provisions implementing Article 9(1) of Directive 2011/83/EU on consumer rights (CRD), in that it restricted the consumers' right of withdrawal. The organisation argued that the consumers have a right of withdrawal not only when they book a free trial, but also when a free subscription is converted into a paid one and when that paid subscription is renewed. Unsure which interpretation to follow, the Supreme Court of Austria decided to stay the proceedings and refer the question to the CJEU.

Judgment of the Court

Regrettably, the Court denied a higher level of consumer protection in the present case and failed to even recognize the issue. Despite increased attention devoted to the risks of renewable subscriptions (see e.g. C. Busch, Pay to Play...), the Court chose to brush off the differences between the sale of goods and the (long-term) provision of services. The judgment devoted considerable attention to the purpose of the right to withdraw, noting that it is "intended to offset the disadvantage for the consumer resulting from a distance contract by granting him or her an appropriate period for reflection during which he or she can examine and test the goods acquired" (para. 39). According to the Court, the same reasoning applies to the sale of goods and the performance of services (para. 41), although there was no explanation for that statement.

The finding that there are essentially no differences between the sale of goods and the (long-term) provision of services, as far as the right to withdraw is concerned, led the Court to narrow its focus to just one point in time, i.e. when the contact is first concluded. In particular, the ruling stressed the importance of providing consumer with all required information at this stage. Eventually, a direct link between mandatory disclosure and the purpose of the right of withdrawal was established (para. 47).

For the Court, if all relevant terms for the future relationship are clearly communicated at the time of contract conclusion, then there is nothing to justify a new right of withdrawal at a later point in time, or any related business obligations. In reaching this conclusion, the Court explicitly precluded a more protective national reading of the right to withdraw, such as that which apparently existed under Austrian law (paras. 24 and 38).

Concluding thoughts

My main critique of the Sofatutor judgment is its apparent ignorance of the real problems that consumers are facing in the subscription economy. This is especially the case for the contract renewal, which typically takes place quite a while after the initial contract was concluded. The Court may have acknowledged that the right of withdrawal is not well-suited to the present scenario and that attention should rather turn to the right of termination (not harmonised in the CRD). However, the judgment does not even suggest that there would be any protection need. Instead, it maintains the fictitious image of the consumer - a consumer whose protection needs are limited to sufficient disclosure at the time of contract conclusion, even in long-term contracts. 

If the Court wanted to innovate on the right of withdraw, the CRD arguably offers some openings for doing so. Most importantly, the purpose of the right does not need to be limited to inspecting the goods (and, in particular, services). Indeed, its purpose is already quite different for off-premises contracts (e.g. doorstep sales), where the consumer is being provided with a "cooling-off period". It is accepted that the consumer may in those cases be taken by surprise and not really be able to assess the pros and cons of entering into a contract. It seems plausible that a consumer, who enters into a long-term relationship is similarly unable to imagine him or herself a year or so from now. Perhaps it is the renewal that takes the consumer by surprise and could thus justify a new right of withdrawal.

What is clear following the Sofatutor judgment, is that de lege lata the right of withdrawal cannot be a solution to renewable subscriptions. Our attention must therefore turn to other legal options discussed in scholarship, such as reminders about auto-renewals. Possibly, it is also time to take a closer look at consumers' termination rights - under the UCTD and beyond.