In the Crosshairs: Planned Obsolescence
In the wake of news about Apple’s EUR 25 million settlement with the French competition and consumer regulator following allegations of planned obsolescence, we take a look at a topic that is now looking more and more like a board level issue for manufacturers.
When a device stops working, it’s inconvenient. It’s easy to believe that the manufacturers are conspiring against consumers, rather than that products have simply reached the end of their lives. Claims abound that manufacturers are deliberately shortening the life of products – in part fuelled by greater press and significant regulatory enforcement resulting in hefty fines. Consumer product manufacturers are squarely in the sights of consumers and regulators, and legislators are starting to look at introducing further consumer protections.
We summarise below the French settlement Apple reached, other claims involving other manufacturers in Europe and the US, and some related legislative developments inside the EU.
Planned or built-in obsolescence usually refers to creating products with artificially short lifespans, or deliberately shortening the lifespan of existing products. It can include making products impossible or prohibitively expensive to repair, or halting software updates for hardware that users have purchased relatively recently. Conspiracy theorists might imagine nefarious manufacturers planning how to rip off consumers, but the reality is less straightforward. Where consumer habits are driving costs down, manufacturers may have to sacrifice durability. For products where the technology is developing quickly, many consumers are likely to want to buy a newer, better model when one becomes available, and are unlikely to want to pay extra for longevity. Manufacturers cannot provide software updates for older hardware indefinitely, especially where the majority of their customers will have transitioned to newer models. Manufacturers tread a fine line, and business decisions need to be taken and presented carefully.
Planned obsolescence actions
In 2017, a number of iPhone customers reported a slowing-down of their devices. A Reddit post suggested the issue could be due to degrading batteries. Some consumers suggested that Apple had deliberately slowed down older models just as new models were released. Primate Labs, a benchmarking firm, looked at the performance of the iPhone 6S and 7, and confirmed that there was a noticeable slowing after the installation of iOS 10.2.1. Apple responded, explaining that the updates were designed to manage performance peaks in older batteries to prevent phones from shutting down unexpectedly. However, French consumer group Halte à l’Obsolescence Programmée (“HOP”, Stop Planned Obsolescence) alerted France’s competition and consumer rights watchdog, the DGCCRF. HOP launched a survey for users to report problems they have faced and received more than three thousand responses in the first 10 days. Following its investigation, the DGCCRF considered that this behaviour did not constitute a planned obsolescence offence within the meaning of the French regulation (see below), but a “deceptive commercial practice by omission”, as it found that users had not been informed that the software updates could lead to their devices running more slowly. On 7 February 2020, the DGCCRF announced that Apple had agreed to settle for EUR 25 million. The settlement illustrates how vital consumer communication is around updates that could affect performance.
In Italy, Samsung and Apple were each fined EUR 5 million in October 2018 by the competition authority, in relation to software updates said to slow down older models of their phones. Both companies were also required to display a notice on their Italian websites informing consumers of the decision. Apple was also fined an additional EUR 5 million for failing to give customers clear information about “essential” characteristics of lithium batteries.
The French consumer group HOP is also bringing cases against the printer companies Brother, HP, Epson and Canon. A number of class actions have been brought before US courts against printer manufacturers. Apple recently settled a class action this year for the software updates that slowed down older iPhone models. A lawsuit has also been launched in Northern California against Tesla, seeking class action status for affected Model S and X owners. A number of Tesla owners recently noted a drop in the capacity of their cars’ batteries, reducing the distance their cars were able to travel before they needed to recharge. The lawsuit alleges that Tesla deliberately reduced battery capacity through a software update. The update followed reports of battery fires in Tesla vehicles, and the lawsuit alleges that the update was made to avoid Tesla’s obligation to fix, repair or replace affected batteries. Affected vehicles have allegedly seen a loss in range of anywhere between 20 and 40 miles (5-10% depending on the model).
A Spanish consumer group, FACUA, has also been active in highlighting planned obsolescence issues. We understand that it has filed a complaint in Spain and with the EU commission in relation to slowing down older iPhones, and has brought a number of complaints against other organisations.
The current legislative framework
France has led the way on legislating against planned obsolescence, bringing in the “Hamon law” in 2014, which sets the ambitious objectives of improving information, strengthening the contractual rights of consumers and supporting the sustainability and reparability of electronic products. It also extended the legal guarantee of conformity to specification by two years for electrical products. The Energy Transition Act of 2015 created a specific offence for planned obsolescence, and introduced fines of EUR 300,000, which can be increased to up to 5% of annual sales, as well as prison sentences of up to two years for company directors. Very recently, the Circular Economy Law of February 2020 (Law n°2020-105 dated 10 February 2020 related to the fight against waste and the circular economy) imposed an obligation on producers, importers or retailers of electrical and electronic products to communicate a reparability index for these products. It also prohibited any technique, including software, which makes it impossible for a manufacturer to repair or recondition an appliance without using its approved suppliers. Finally, manufacturers must inform consumers of how long updates to the software provided at the time of purchase will remain compatible with normal use of the device (these provisions will be enforceable after enactment of specific decrees, yet to be published).
EU consumer protection legislation may also apply. Under the Sale of Consumer Goods and Associated Guarantees Directive (Directive 1999/44/EC), EU consumers are entitled to repair or replacement of goods which are not fit for purpose or do not match the description given by the seller. However, these remedies are only available within a two-year guarantee period. A new sale of goods directive (Directive 2019/771) will apply from 2022, but the warranty period remains the same. Interestingly, the new Directive introduces an obligation for sellers of goods with digital elements to ensure that the consumer is informed of and supplied with updates, including security updates, that are necessary to keep those goods in conformity. The time period for which this obligation applies is given in the Directive as either the period of time the consumer would reasonably expect based on the type of goods and contractual context, or for two years. The Directive does not specify that the longer of these two time periods must apply, but it seems likely that in most contexts, manufacturers will be unable to justify supporting devices for less than the two-year period.
In contrast, the US has no specific federal laws against planned obsolescence, but a number of cases have been brought alleging deceptive or unfair business practices, or product liability claims for breach of warranty which deliver similar outcomes for consumers. The Federal Trade Commission (the federal agency responsible for consumer protection and competition issues in the US) has also focused on managing consumer expectations around security updates for Internet of Things devices in recent years. It has recommended that manufacturers consider telling users how long a device will receive security updates, and when update support is ending. The Tesla lawsuit relies on a number of laws, such as the federal Computer Fraud and Abuse Act and the California Consumers Legal Remedies Act, as well as violations of federal and state warranty and consumer protection laws.
Existing competition legislation could also prohibit deliberately shortening the life of products or making them unnecessarily difficult to repair. In Spain, it has been reported that consumer group FACUA made a complaint against Apple’s Spanish subsidiary under Spain’s Unfair Competition Act, in relation to an alleged design issue with post-2016 MacBook Pro models. This complaint would be based on alleged unfair commercial practices based on deceitful acts.
An EU-wide ban on planned obsolescence?
The European Commission has recently published its Circular Economy Action Plan. The plan announces an intention to revise consumer law to ensure consumers receive trustworthy and relevant information on products at the point of sale, including on lifespan and reparability. It will also consider strengthening consumer protection against premature obsolescence, and will work towards establishing a new “right to repair”. Electronics and ICT are identified as a key area: electronics and ICT will be a priority sector for implementing the “right to repair”, including a right to update obsolete software. Regulatory measures are planned for electronics and ICT under the Ecodesign Directive so that devices are designed for energy efficiency and durability, reparability, upgradability, maintenance, reuse and recycling. This will cover mobile phones, tablets and laptops. Printers and cartridges will also be covered, unless the sector reaches a voluntary agreement within the next six months.
Going forwards, acquirers may start asking more questions around any planned obsolescence in their targets’ products, particularly where the target has a presence in France. Manufacturers with longer product development cycles may wish to consider the possibility of EU legislation on planned obsolescence coming into force in the next few years. Recent events may, of course, push planned obsolescence down the legislative agenda. However, the actions above illustrate that communication with consumers remains vitally important: around lifespan and reparability of products and, in particular, around software updates and their effects.
By Sonia Cissé, Rosie Nance, Caitlin Metcalf and Guillaume de Meersman