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PLANNED OBSOLESCENCE AND CONSUMER

PROTECTION: THE UNREGULATED

EXTENDED WARRANTY AND SERVICE

CONTRACT INDUSTRY

Larry A. DiMatteo* & Stefan Wrbka**

This Article analyzes the billion-dollar market, mostly unregulated,

for Extended Warranties and Service Contracts (EWSCs). EWSCs are

ubiquitous in the modern marketplace, offered at every automobile deal-

ership, electronics and appliance store either by a salesperson or the

cashier. Incredibly, there is little legal scholarship in this important area

where manufacturer-sellers often overreach by preying on consumer vul-

nerabilities. It will be argued that most sales of EWSCs result in price

gouging due to informational asymmetry and behavioral manipulation.

This Article looks at two core concepts that are inexorably intercon-

nected—one in the legal world and the other in the world of business and

technology. The former relates to the regulation of EWSCs. The latter

addresses the idea of “planned obsolescence” in which manufacturers

determine the life or durability of their products. Products are engi-

neered to fail such that they will need to be repaired or replaced for the

purpose of generating future revenues for manufacturers and sellers.

This inside information also allows manufacturers and third-party insur-

ers to predict the low costs and risks of selling EWSCs. This Article re-

views the marketplace and the practices of the high-pressure selling of

EWSCs for products ranging from automobiles to electronics and less

expensive goods. It then provides a comparative analysis of the state of

the law in the United States, the European Union, and individual Euro-

pean countries. This comparative metric is important due to the fact that

different countries have moved faster to regulate this industry (the

United States is not one of them). It concludes that sellers of EWSCs

often overreach and that a stronger regulatory framework is needed.

Recommendations are offered on how best to frame new rules to ensure a

fair and efficient market in the sale of consumer goods.

* Huber Hurst Professor of Contract Law, University of Florida; J.D., Cornell Law

School; LL.M., Harvard University; Ph.D., Monash University.

** Unit Head and Academic Coordinator, Business Law, University of Applied Sciences

for Management and Communication, Vienna; Mag. iur., University of Vienna; LL.M., Kyu-

shu University; Ph.D., University of Vienna.

483

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NTRODUCTION

................................................. 485

EWSC

S AND

LANNED

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.................. 490

A. EWSCs ............................................ 490

B. Planned Obsolescence .............................. 492

II.

ARKETPLACE AND

EGULATORY

ANDSCAPES OF

EWSC

SINTHE

NITED

TATES

THE

EU,

AND

UROPEAN

EMBER

TATES

....................................... 495

A. United States ...................................... 495

1. Relevance of EWSCs in the U.S. ............... 495

2. Regulatory Landscape of EWSCs in the U.S. .... 499

a. Federal Warranty Law...................... 499

b. State Law: Common Law of Contracts and

Uniform Commercial Code (UCC) .......... 500

c. State Regulation: New York Insurance Law . 502

d. Restatement of Consumer Contract Law ..... 505

e. Lemon Laws ............................... 507

B. EU and Member States ............................. 508

1. Relevance of EWSCs in the EU ................ 509

2. Regulatory Landscape of EWSCs in the EU ..... 510

C. Regulatory Insufficiencies Related to EWSCs in the

EU and EU Member States ......................... 518

III.

LANNED

BSOLESCENCE AND

EWSC

.................. 523

A. United States ...................................... 524

1. Contract Law’s Response to Planned

Obsolescence .................................. 525

2. Regulatory and Judicial Responses .............. 526

B. The EU and Member States ......................... 528

1. Legal Development at the EU level ............. 529

2. Situation in Selected Member States ............ 531

IV.

ECOMMENDATIONS FOR

EGULATORY

EFORM

.......... 534

A. Initial Considerations .............................. 535

B. Generalized Versus Specialized Rules ............... 537

C. Comprehensive and Specialized Laws are Needed .... 538

D. Improving Informed Decision-Making ............... 539

E. Refined Warranty Regime ........................... 541

F. Enhanced Support and Enforcement ................. 543

ONCLUSION

................................................... 544

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NTRODUCTION

There are always regulatory gaps in complex, modern economies.

One of those gaps is the aggressive selling of the mostly worthless ex-

tended warranty (guarantee) or service contract (EWSC).

EWSCs are

sold across different industries including in the automobile and electronic

products industries. The selling of EWSCs is a multi-billion-dollar indus-

try in which eight out of ten dollars of an EWSC’s price is profit!

The

following “Ode” provides a framework for the examination of this regu-

latory gap:

Ode to the Modern Marketplace

(The Product)

There once were industries, which touted the new technologies that

converted Grandma’s old refrigerator (still working after sixty years) into

a multi-dimensional refrigerator, entertainment system, and calorie-

counting marvel of a product. But not all is well in the land of appli-

ances, electronics, automobiles, and so forth. This increased use of tech-

nology, along with the use of less durable materials, act as a poison that

profoundly impacts the lifespan of these products. If this is so, then these

super-gadgets are not much of a sign of progress!

(The Consumer)

If the above observation is so, shouldn’t purchasers be more fully

informed of the shorter product lifespans due to technology or the quality

of materials used in producing them? Maybe the manufacturer should be

required to put a notice on its product that reads something like: “This

high-priced product does a lot of ‘cool’ things, but it will cost you a lot

more to repair; but, no worries, those repairs will be needed for a shorter

period of time before you will need a replacement!”

(The Flimflam)

To ease your concerns, the retailer is willing to provide ‘peace of

mind’ by selling to the unsuspecting consumer an extended warranty-

The European name for warranty is guarantee; the words will be used interchangeably

throughout this Article. See, e.g., Consumers, Health, Agric. and Food Exec. Agency (Chafea),

Consumer Market Study on the Functioning of Legal and Commercial Guarantees for Con-

sumers in the EU: Final Report, at 18 (Dec. 2015), https://publications.europa.eu/en/publica-

tion-detail/-/publication/146e59de-02d3-11e6-b713-01aa75ed71a1/language-en [hereinafter

Market Study].

See The SAFE Guys: As with Manufacturer’s Product Warranties, the Extended War-

ranty Industry is Huge Yet Easy to Take for Granted. Two Industry Experts Explain Why They

Left the Comfort of the Insurance Business to Open Their Own Extended Warranty Con-

sultancy., Warranty Week (Sept. 28, 2004), https://www.warrantyweek.com/archive/

ww20040928.html [hereinafter The SAFE Guys].

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service contract (EWSC) at an obscene price based on the ‘planned obso-

lescence’ of the product (knowledge possessed by the manufacturer or

third-party insurer) ensuring that the retailer-manufacturer-insurer will

pay minimal repair costs and thereby generate exorbitant profits. Or,

more poetically, the manufacturer confidently suggests that they “stand

behind the quality of their products”; that is, they build their products to

last but just a bit past the duration of the EWSC!

Isn’t it implausible to believe today’s products and their lifespans are

generally shorter than bygone eras’, and that the rise of the multi-billion-

dollar EWSC industry is merely a manipulation of this trend at the indus-

try-level? Or is it? Ought we to do something about it? These questions

are the focus of this Article.

Recently, one of the authors experienced the “thrill” of purchasing a

new car. This experience provides a prototypical example of a con-

sumer’s introduction to the EWSC industry. The true-life scenario, repli-

cated thousands of times a day, involved the hard sell by the retailer of

an EWSC—also known as a “paid-for commercial guarantee”

—on be-

half of itself, a manufacturer, or a non-producer third-party insurer (third-

party insurer), no doubt including a handsome fee for the auto dealership

as a result of reverse competition.

The transaction involved the cash

purchase of a new mid-sized car. Even though it was a cash purchase, the

customer was told that he must first wait to talk to the finance manager.

Since there was no financing or leasing involved, this could and did

mean that the manager was in charge of the hard sell of an EWSC.

The sales pitch involved a two-pronged attack meant to manipulate

the purchaser into seeing the “value” of a paid-for EWSC.

First, the

manager “puffed”

that he normally wouldn’t buy such an EWSC, but

Market Study, supra note 1. For alternative terminology see infra Section I.A.

Reverse competition is most often a three-part deal where the buyer may or may not

know about the commission, kickback, or finders’ fee. There are always three parties to make

this work; in the case of EWSC: insurer-provider, retail seller, and the purchaser. See The

SAFE Guys, supra note 2. As will be seen, it is often a four-party deal: insurer-provider, retail

seller, administrator, and the purchaser.

The term paid-for or pre-paid warranty is used to distinguish it from the ordinary

express or implied warranty that is included in the purchase price. See Market Study, supra

note 1, tbl.1, at 18.

Puffery refers to an exaggeration, whether an outright opinion or an opinion that acts

as a pseudo-fact, as that no reasonable person would take as factual but serves as a technique

of persuasion. See Phx. Payment Sol., Inc. v. Towner, No. CV-08-651-PHX-DGC, 2009 U.S.

Dist. LEXIS 91978, at *16 (D. Ariz. Oct. 2, 2009) (quoting Zack v. Allied Waste Indus., Inc.,

No. CIV04-1640-PHX-MHM, 2005 U.S. Dist. LEXIS 35323, at *9 (D. Ariz. Dec. 15. 2005)).

The characterization of statements as puffery is a defense to a fraud or warranty claim. The

argument is that no reasonable person would have taken the seller or advertiser’s words as

statements of fact. Id. (“[T]he difference between a statement of fact and mere puffery rests in

the specificity or generality of the claim.” (quoting Newcal Indus., Inc. v. IKON Office Sol.,

513 F.3d 1038, 1053 (9th Cir. 2008))).

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that with the increased use of computer applications and other new tech-

nologies in the manufacture of new cars, such warranties are almost a

necessity. He followed this pitch with the statement that he had pur-

chased such a warranty for his new car. Second, following the sales

pitch, the customer was “forced” to view a four-minute video extolling

the benefits and peace of mind that such paid-for EWSCs provide.

Given the above sales tactics, the customer is left feeling that there

is a high probability that a major repair or defect is likely to occur during

the EWSC period of coverage (but planned obsolescence upon which

EWSCs are based show that this will not be the case). Further, the cus-

tomer is made to believe that the rational, intelligent purchaser would

buy such a service contract. Finally, there is the moral suasion affected

by the manager’s passionate appeal to the customer that he has the cus-

tomer’s best interests at heart.

Unfortunately, some retailers go well beyond mere hard selling or

mere persuasion. Unscrupulous dealers have falsely claimed that an

EWSC is required in order to obtain bank financing; others simply add

the cost of the EWSC into the loan agreement without consent.

The

EWSC also may have numerous anti-purchaser provisions that limit

claims that a reasonable purchaser would expect to be covered given the

high price charged for the EWSC—some EWSCs have deductibles on a

repair basis or a per-visit basis (even if it is for the same repair); others

have limits or absolute exclusions for some types of repairs (such as re-

pairs due to “normal wear and tear”). Still others may limit the geo-

graphic scope of where the repairs can be made (thus, you may not be

close to an authorized or designated repair shop if you move) or place

caps on towing charges or rental car expenses. Some insurers add a de-

preciation factor in order to make only a partial payment for covered

parts and repair.

Thus, not only are EWSCs overpriced, they often pro-

vide less coverage than expected. In the end, the U.S. Federal Trade

See U.S. F

. T

RADE

OMM

’

(FTC), A

UTO

ERVICE

ONTRACTS AND

ARRANTIES

(Aug. 2012), https://www.consumer.ftc.gov/articles/0054-auto-service-contracts-and-warran

ties. The U.S. Federal Trade Commission warns that:

If the dealer tells you that you have to buy a service contract to qualify for financing,

contact the lender to find out if this is true. Some people have had trouble canceling

their service contract after learning that the lender didn’t require one.

Also beware of unscrupulous dealers who may try to include an auto service

contract in your loan without your consent. If you see a charge for a service contract

that you didn’t agree to, tell the dealer to take it out before you sign the loan

agreement.

. . . .

. . . [M]ake sure the dealer forwards your payment and you get written confir-

mation. Some people discovered too late that the dealer failed to forward their pay-

ment, leaving them with no coverage months after they signed a contract.

Id.

The Federal Trade Commission notes that:

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Commission and other federal agencies leave consumers to fend for

themselves without any legal protections relating to the sale of EWSCs.

Normally, this particular purchaser would have stopped the manager

before he got started, but it had been a while since he had purchased a

new car and wanted to witness the “life and death” faux sincerity and

pressure placed on customers to purchase the EWSC. Little did the man-

ager know that the customer already calculated that the cost of the

EWSC, about $1,800 or 10% of the cost of the automobile, was outra-

geous and that its key importance was as a major revenue-generating

enterprise and not consumer protection.

EWSCs are not industry-specific; in fact, the high-pressure sales

tactics to buy service contracts are found in many other areas, such as in

the electronics industry, even when the actual product is simple and low

cost, which makes the purchase of an EWSC nonsensical.

This all too common scenario highlights consumer abuse in the area

of paid-for EWSCs. There are numerous red flags—high-pressure sale

tactics, informational asymmetry, standard-form contracting—that sug-

gest additional regulation of the EWSC industry is needed. The high de-

gree of pressure placed by sellers of such contracts suggests that these

contracts are not meant to minimize the risks to the customer, but are

sold for the benefit of the seller. The revenues generated from the sale of

such contracts rest on probability estimates of the likelihood of EWSC

claims being made during the extended period and the average amount of

the costs of such claims. The ultimate insurer, generally the manufacturer

In addition, you may need to pay a deductible. Find out if the deductible is charged

on a per visit or per repair basis. This can make a big difference . . . .

Service contracts often limit how much they will pay for towing or related

rental car expenses—meaning you have to cover the remaining cost. There also may

be transfer or cancellation fees if you sell your car or end the contract early.

. . . [Some service contracts have] absolute exclusions that deny coverage for

any reason. For example: If a covered part is damaged by a non-covered part, the

claim may be denied. Or if the contract specifies that only “mechanical breakdowns”

will be covered, problems caused by “normal wear and tear” may be excluded . . . .

[Also, y]ou may not have full protection even for parts that are covered in the

contract. Some companies use a “depreciation factor” in calculating coverage: the

company may pay only partial repair or replacement costs based on your car’s

mileage.

Id.

For further comments on the relevance of EWSCs, see the U.S. and EU data supra

Parts II.A.1, II.B.1. It would be more prudent and rational for the consumer to invest the

$1,800 for the eight years that the EWSC covers, because planned obsolescence shows that

there will be a large surplus after paying for the handful of minor repairs needed for the eight

years of the automobile’s life. See The SAFE Guys, supra note 2.

Another example, involving one of the authors, involved the purchase of a paper

shredder. The shredder, originally priced, at $129 was on sale for $69. At the cash register, the

store’s employee began to enter the $29 cost of the service contract! It was only after the

author objected that the person removed the add-on costs of the paid-for EWSC.

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or a third-party insurer, possesses the information needed to do the calcu-

lation while the buyer is ignorant as to the likelihood that she will have to

make substantial claims in the future. As noted previously, this calcula-

tion is based on the concept of “planned obsolescence.”

As will be

discussed, manufacturers are not making products meant to last, but

rather made just to last until the expiration of the EWSC, forcing con-

sumers to buy new products when the ones originally purchased stop

working.

This Article asks: what if products, even so-called high-quality

ones, are being produced with shorter lifespans, not because of techno-

logical advancements,

but because of planned obsolescence? Should

the law intervene, if not with higher quality standards, then in the area of

warranty law?

Part I starts with a basic outline of the two core concepts of EWSCs

and planned obsolescence. The definitions of these two core concepts

will provide the framework for understanding the subsequent analysis.

Part II discusses the significance of the EWSC industry in the United

States and the European Union (EU) and outlines the underlying regula-

tory frameworks. It also highlights some of the most striking regulatory

insufficiencies related to paid-for EWSCs in the EU and EU Member

States. Relevant aspects of the planned obsolescence phenomenon will

Planned Obsolescence has been defined as the use of “strategies and techniques of

premature product aging applied by producers and sellers for the purpose of making end users

replace old products with new ones faster than they ordinarily would by shortening the time of

their use.” Stefan Wrbka, Warranty Law in Cases of Planned Obsolescence—The Austrian

Situation, 6 EuCML 67, 67 (2017).

Things don’t seem to work or last like they used to. The new state-of-the-art, high-

tech, high-priced substitutes seem to require constant attention (high maintenance and repair

costs) in order to squeeze ten years or so of life out of them. One of the authors has described

it as follows:

[D]eclining lifetimes in a historical context could be a further indicator of a non-

acceptable, i.e. warranty-relevant[,] defect constituting lifetime. If, for example, a

washing machine of a relevant product series shows a shorter lifetime than compara-

ble products ten years ago, then one could see this as an additional argument for a

possible warranty-relevant defect. One would have to consider, in particular,

whether there is any justified reason that could explain a decline and further consider

that technical advancement should rather—at least—maintain the lengths of product

lifetimes over time.

Id. at 69.

One would hope new technologies that allow a product, such as a refrigerator to do

more things does not act as a poison that profoundly impacts the lifespan of the product. If so,

that would not be much of an improvement. If it is the case that technology shortens product

lifespans, shouldn’t the purchaser be given more information such as: “This high priced prod-

uct does a lot of ‘cool’ things, but it will cost you more to repair it, but no worries those repairs

will be needed for a shorter period of time before you will need a replacement! And, in addi-

tion, we are willing to sell an extended warranty-service contract at an obscene price based on

the planned obsolescence of the product so that we can minimize our repair costs and insure

ourselves an exorbitant profit”—or, more poetically—”We stand behind the quality of our

product, that is, we build our products to last just a bit past the EWSC!”

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be further discussed in Part III (in particular from a regulatory perspec-

tive). The Article will conclude with suggestions for further steps to be

taken to better protect purchasers of EWSCs.

I. EWSC

S AND

LANNED

BSOLESCENCE

When taking a closer look, both terms—EWSC and planned obso-

lescence—turn out to be remarkably ambiguous. Depending on the con-

crete circumstances, the concepts can be used in a number of ways.

facilitate the understanding of our analysis, it makes sense to briefly out-

line their meaning in the context of this Article.

A. EWSCs

When buyers purchase goods, they usually expect to get what they

pay for or—framed more objectively—what they reasonably may expect

to receive. The equivalence between the amount of money paid and the

qualitative or durability value of the good received could be impaired if

the good does not conform to the quality owed. To remedy non-conform-

ity issues, safeguards are sometimes found either in the form of legal and

For examples of EWSC definitions, see V. Padmanabhan & Ram C. Rao, Warranty

Policy and Extended Service Contracts: Theory and an Application to Automobiles, 12 M

AR-

KETING

. 230, 230 (1993); Keyvan Samini, Third Party Extended Warranties and Service

Contracts: Drawing the Line Between Insurance and Warranty Agreements, 54 O

HIO

. L.J.

537, 541 (1993); Joseph S. Cheng & Stephen J. Bruce, A Pricing Model for New Vehicle

Extended Warranties, C

ASUALTY

CTUARIAL

’

F. 1, 12 (1993); L. Nicholas Weltmann,

Jr. & David Muhonen, Extended Warranty Ratemaking, C

ASUALTY

CTUARIAL

’

F. 187,

190–91 (2001); Kenneth J. Rojc & Gregory Eidukas, New Frontiers in Automotive Sale and

Finance Products, 60 B

. L

. 663, 668 (2005); Ruth N. Bolton, Katherine N. Lemon &

Peter C. Verhoef, Expanding Business-to-Business Customer Relationships: Modeling the

Customer’s Upgrade Decision, 72 J. M

ARKETING

46, 46 (2008); Michelle Bertolini & Sharon

S. Lassar, Service-Warranty Companies—The Hybrid of the Insurance Industry, 38 T

D-

VISER

402, 402 (2007); Lynden Griggs, Extended Warranties and Internet Transactions, C

OM-

PETITION

& C

ONSUMER

L.J. LEXIS, Nov. 2008, at *5; Lynden Griggs, Providing an Extended

Warranty with an Online Transaction: The Model That Will Improve Consumer Confidence,

13 J. I

NTERNET

L. 16, 16–17 (2009); Tao Chen, Ajay Kalra & Baohong Sun, Why Do Consum-

ers Buy Extended Service Contracts?, 36 J. C

ONSUMER

. 611, 611 (2009); Peng Tong,

Zixian Liu, Feng Men & Lisi Cao, Designing and Pricing of Two-Dimensional Extended War-

ranty Contracts Based on Usage Rate, 52 I

’

J. P

RODUCTION

. 6362, 6362 (2014); Nat

Pope, Chiharu Ishida, Peter Kaufman & Frederick W. Langrehr, Extended Warranties in the

U.S. Marketplace: A Strategy for Effective Regulation, 33 J. I

. R

. 67, 69 (2014); Pranav

Jindal, Risk Preferences and Demand Drivers of Extended Warranties, 34 M

ARKETING

. 39,

39 (2015); Yukun Wang, Zixian Liu & Yiliu Liu, Optimal Preventive Maintenance Strategy

for Repairable Items Under Two-Dimensional Warranty, 142 R

ELIABILITY

NGINEERING

. S

AFETY

326, 326 (2015); Duo Yang, Zhen He & Shuguang He, Warranty Claims Fore-

casting Based on a General Imperfect Repair Model Considering Usage Rate, 145 R

ELIABIL-

ITY

NGINEERING

& S

. S

AFETY

147, 147 (2015); Zhi-Sheng Ye & D.N. Pra Murthy,

Warranty Menu Design for a Two-Dimensional Warranty, 155 R

ELIABILITY

NGINEERING

. S

AFETY

21, 21 (2016).

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statutory obligations placed on sellers or via party autonomy, as agreed

on by the parties to the sales contract (warranty).

In the literature, various terms are used to refer to these two regula-

tory scenarios. A 2015 study

commissioned by the European Commis-

sion (2015 Market Study) offers a good overview of the linguistically

and conceptually multilayered guarantee frameworks. It distinguishes be-

tween legal guarantees and commercial guarantees, subdivides commer-

cial guarantees into “integral [no-cost] commercial guarantees” and

“paid-for commercial guarantees” (a synonym for EWSCs),

and aims

to unify the terms used in the literature under these three types of

guarantees:

1. Legal guarantees, also known as “statutory

guarantees”;

2. Integral commercial guarantees, also known as

“guarantees”, “manufacturer’s guarantees”, “warran-

ties”; and

3. Paid-for commercial guarantees, also known as “ex-

tended warranties”, “service contracts”, “care plans”,

“service plans”, “extended service contracts”.

Because of the significant conceptual differences, this Article will distin-

guish between and focus on two of these three forms of guarantees: legal

guarantees on the one hand and paid-for EWSCs (paid-for commercial

guarantees) on the other. Legal guarantees, prescribed by law, come at

no extra cost to the purchaser of the respective good. EWSCs, on the

other hand, result from party agreements offered at an additional price,

are a collateral agreement to the sale contract, and form a business of

their own.

Paid-for EWSCs are provided by a number of entities. They are

commonly offered by the manufacturer or seller of the product, but are

sometimes sold by third-party insurers.

Third-party insurers often mar-

ket their EWSCs after the sale of the product, often through mail adver-

tisements or notices at the time the product warranty is due to expire.

These types of expiration notices or advertisements are especially manip-

ulative since they prey on owner fears that they are no longer covered.

Market Study, supra note 1.

Id. tbl.1, at 18.

Id.

Again, ‘integral commercial guarantees’ are distinguishable from EWSCs in that in

the first case the guarantee is offered at no additional cost even though it is beyond the war-

ranty period required by law, while the latter is a paid-for extended warranty. The first type is

likely given for branding and signaling purposes to show that the seller is selling a quality

product.

See The SAFE Guys, supra note 2. Third-party insurers are commonly insurance

companies.

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EWSCs offer longer guarantee periods beyond statutory or integral

warranties, and thereby create additional obligations and liabilities for

the seller and other parties involved in the EWSC scheme.

These addi-

tional liabilities arise from extending the time of the guarantee period,

and also from expanding the scope of guarantee protections for addi-

tional services and insurance coverage, such as compensation for acci-

dental damage loss. Unless indicated otherwise, the term EWSC in the

present context refers to paid-for EWSCs of any kind, including those

that extend beyond the expiration of other types of guarantees to those

that provide different types of coverage, such as additional loss

coverage.

B. Planned Obsolescence

The idea of planned obsolescence has been around for a while,

traceable to at least the Great Depression.

For example, the charge has

been made that appliances today are not made to last, but are instead

made to fail in a shorter period of time than the state of the art allows

without any prohibitive increase in production costs.

One of the first

reported (and confirmed) cases of planned obsolescence dates back to the

1920s, when a group of manufacturers—commonly known as the “Phoe-

See Market Study, supra note 1, tbl.1, at 18. For example, under the EU framework for

legal guarantees, the directly liable party would (only) be the seller of a product. EWSCs could

go beyond and would in many cases introduce a manufacturer liability and occasionally (also

or alternatively) a third-party insurer liability.

One must, however, not neglect the fact that the term “commercial guarantees” is

occasionally used in a narrower way. One of the most prominent examples is the Consumer

Rights Directive (CRD) outlined further below. Article 2(14) of the CRD defines CRD-rele-

vant EWSCs as:

Any undertaking by the trader or a producer (the guarantor) to the consumer, in

addition to his legal obligation relating to the guarantee of conformity, to reimburse

the price paid or to replace, repair or service goods in any way if they do not meet

the specifications or any other requirements not related to conformity set out in the

guarantee statement or in the relevant advertising available at the time of, or before

the conclusion of the contract.

Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on

Consumer Rights, Amending Council Directive 93/13/EEC and Directive 1999/44/EC of the

European Parliament and of the Council and repealing Council Directive 85/577/EEC and

Directive 97/7/EC of the European Parliament and of the Council, 2011 O.J. (L 304) 64, 73

[hereinafter CRD]. This statement represents a remarkably narrow understanding because it

excludes third-party guarantors (other than producers) from the application of the CRD

regime.

See B

ERNARD

ONDON

, E

NDING THE

EPRESSION THROUGH

LANNED

BSOLESCENCE

1 (1932); G

ILES

LADE

, M

ADE TO

REAK

: T

ECHNOLOGY AND

BSOLESCENCE IN

MERICA

(2006).

See Planned Obsolescence, T

CONOMIST

, Mar. 23, 2009, https://www.econo

mist.com/news/2009/03/23/planned-obsolescence; S

LADE

, supra note 22.

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bus cartel”

or “Phoebus agreement”

—agreed on limiting the lifetime

of light bulbs to a maximum of 1,000 hours of operation.

The revela-

tion of the Phoebus cartel initiated a debate on the interrelationship be-

tween increasing profits, producing eco-friendly and sustainable goods,

and consumers’ interests in being able to buy goods that will last as long

as technologically possible.

Since the 1970s, there have been an increasing number of economic

studies aimed at defining the most profitable strategies to balance techno-

logical innovation with businesses’ rights to maximize profits (such as

calculating the likely financial impact of shortening product lifetimes).

The following decades have witnessed an increasing number of addi-

tional, less economic-focused reports that indicate the existence of obso-

lescence strategies.

In more recent years, environmental concerns

linked to sustainable production and use of goods has intensified the

¨ ¨ ¨

RINZIP

EPLANTEN

BSOLESZENZ

13 (Orange Press 2013); Jana Valant, European Parlia-

mentary Research Serv., Planned Obsolescence: Exploring the Issue, at 3 (May 2016) (“One

of the last remaining examples of the old bulb, the Centennial Light Bulb, manufactured by the

Shelby Electric Company and installed in 1901, still continues to function 24 hours a day in

2016.”).

See, e.g., Monopolies & Restrictive Practices Comm’n, Report on the Supply of Elec-

tric Lamps, at 141–42 (Oct. 4, 1951).

Markus Krajewski, The Great Lightbulb Conspiracy, IEEE S

PECTRUM

(Sept. 24,

2014), https://spectrum.ieee.org/tech-history/dawn-of-electronics/the-great-lightbulb-

conspiracy.

See Valant, supra note 24.

See e.g., Peter L. Swan, Optimum Durability, Second-Hand Markets, and Planned

Obsolescence, 80 J. P

. E

CON

. 575 (1972); Jeremy Bulow, An Economic Theory of Planned

Obsolescence, 101 Q.J. E

CON

. 729 (1986); Winand Emons, On the Limitation of Warranty

Duration, 37 J. I

NDUS

. E

CON

. 287 (1989); Michael Waldman, A New Perspective on Planned

Obsolescence, 108 Q.J. E

CON

. 273 (1993); Gregory E. Goering, Durability Choice under De-

mand Uncertainty, 60 E

CONOMICA

397 (1993); Arthur Fishman, Neil Gandal & Oz Shy,

Planned Obsolescence as an Engine of Technological Progress, 41 J. I

NDUSTRIAL

CON

. 361

(1993); Jay Pil Choi, Network Externality, Compatibility Choice, and Planned Obsolescence,

42 J. I

NDUS

. E

CON

. 167 (1994); Michael Waldman, Planned Obsolescence and the R&D Deci-

sion, 27 RAND J. E

CON

. 583 (1996); Arthur Fishman & Rafael Rob, Product Innovation by a

Durable-Good Monopoly, 31 RAND J. E

CON

. 237 (2000); Atsuo Utaka, Planned Obsoles-

cence and Marketing Strategy, 21 M

ANAGERIAL

& D

ECISION

CON

. 339 (2000); Paul A. Grout

& In-Uck Park, Competitive Planned Obsolescence, 36 RAND J. E

CON

. 596 (2005); Atsuo

Utaka, Durable-Goods Warranties and Social Welfare, 22 J.L. E

CON

. & O

. 508 (2006);

Roland Strausz, Planned Obsolescence as an Incentive Device for Unobservable Quality, 119

CON

. J. 1405 (2009); Chun-Hui Miao, Tying, Compatibility and Planned Obsolescence, 58 J.

NDUS

. E

CON

. 579 (2010); Yijuan Chen, Innovation Frequency of Durable Complementary

Goods, 48 J. M

ATHEMATICAL

CON

. 407 (2012).

See, e.g., Centre Europ´een de la Consommation & Zentrum f¨ur Europ¨aischen Ver-

braucherschutz e.V., L’Obsolescence Programm´ee ou les D´erives de la Soci´et´e de Consomma-

tion, at 3, (April 2013), https://www.cec-zev.eu/fileadmin/user_upload/eu-consommateurs/

PDFs/publications/etudes_et_rapports/Etude-Obsolescence.pdf; Taiwo K. Aladeojebi, Planned

Obsolescence, 4 I

NTL

. J. S

. & E

NGINEERING

. 1504, 1505–06 (2013); S

TEFAN

CHRIDDE

URKS

? N

EIN

ANKE

! W

AS WIR TUN ONNEN

DAMIT DIE

INGE BESSER WERDEN

(2014);

See, e.g., J

URGEN

b & C

OSIMA

ANNORITZER

, K

AUFEN

ULLHALDE

: D

Adrian Porter, Are Washing Machines Built to Fail? We Chart the Rise of the Throwaway

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planned obsolescence debate. This came at a time when sustainability

gained importance as a broad international construct. In 2000, the World

Business Council for Sustainable Development (WBCSD) issued a report

on “eco-efficiency.”

Bearing in mind that the WBSCD operates as a

platform for businesses, it does not come as a surprise that the report did

not directly address the problem of planned obsolescence. The report fo-

cused on the environmental soundness of production processes rather

than the durability of products.

Nevertheless, the shared view of the

WBSCD members, expressed in the report as an emphasis on strategies

of eco-friendly production,

indicates the direction responsible-minded

producers should be heading. They noted that an increasing number of

producers have identified a market niche for ecologically friendly strate-

gies, and that this recognition may be a sign of a slow shift towards

increased environmental awareness relating to the durability of goods.

Eventually, policy-makers and legal academics began to exchange views

on how to counteract or limit planned obsolescence.

It should also be noted that (just as is the case with guarantees) the

phenomenon of planned obsolescence should be understood in multi-

layered ways. As early as 1960, Vance Packard in his book, The Waste

Makers, differentiated types of obsolescence strategies—“obsolescence

of desirability,” “obsolescence of function,” and “obsolescence of

quality.”

Appliance, W

HICH

? N

EWS

, Jun. 17, 2015, https://www.which.co.uk/news/2015/06/are-washing

-machines-built-to-fail-406177/.

World Bus. Council for Sustainable Dev. (WBCSD), Eco-Efficiency: Creating More

Value with Less Impact (Oct. 2000).

See id. at 16.

See id. at 28–29.

See id. at 17–19. See also Joseph Guiltinan, Creative Destruction and Destructive

Creations: Environmental Ethics and Planned Obsolescence, 89 J. B

. E

THICS

19 (2009)

(discussing the interplay of sustainable production and planned obsolescence).

See, e.g., Gerhard Wortmann & Peter Schimikowski, Geplanter Produktverschlei

und b¨urgerliches Recht [Planned Product Wear and Civil Law], 16 Zeitschrift f ¨ur Wirtschaft-

srecht 978 (1985) [hereinafter Planned Product Wear and Civil Law]; Schriftenreihe Des In-

stituts Fur Europaisches Wirtschafts- Und Verbraucherrecht e.V. [Series of the Institute for

European Economic and Consumer Law e.V.], Obsoleszenz interdisziplin¨ar: Vorzeitiger

Verschleib aus Sicht von Wissenschaft und Praxis [Obsolescence Interdisciplinary: Premature

Wear from the Perspective of Science and Practice] (Tobias Br¨onneke & Andrea Wechsler

eds., 2015); Wrbka, supra note 11; El´eonore Maitre-Ekern & Carl Dalhammar, Regulating

Planned Obsolescence: A Review of Legal Approaches to Increase Product Durability and

Reparability in Europe, 25 R

. E

. C

OMMUNITY

& I

’

NVTL

. L. 378, 379 (2016); Ana¨ıs

Michel, Product Lifetimes through the Various Legal Approaches within the EU Context: Re-

cent Initiatives Against Planned Obsolescence, P

LATE

266, 269 (Conny Bakker & Ruth Mugge

eds., 2017).

ANCE

ACKARD

, T

ASTE

AKERS

55 (1960). For some more recent contribu-

tions that include slightly differently nuanced categories, which nevertheless follow Packard’s

basic classification, see, e.g., John R. Mansfield & James A. Pinder, “Economic” and “Func-

tional” Obsolescence: Their Characteristics and Impacts on Valuation Practice, 26 P

ROP

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From a guarantee perspective, it is obsolescence of quality that is

most relevant. Here, the lifetime of a product ends prematurely because

of technical issues. In cases of obsolescence of desirability and function,

on the other hand, the good still runs flawlessly. Users choose to stop

using the still usable item because they feel that they “need” a follow-up

product—either “convinced” by marketing strategies (obsolescence of

desirability) or because the newer product would objectively show differ-

ent, additional or enhanced technical functions (obsolescence of func-

tion). Neither legal guarantees nor EWSCs can be applied to remedy the

end of the use of a product in cases that do not relate to qualitative issues.

II. M

ARKETPLACE AND

EGULATORY

ANDSCAPES OF

EWSC

S IN THE

NITED

TATES

THE

EU,

AND

UROPEAN

EMBER

TATES

This Part examines the EWSC marketplace, as well as the existing

regulatory schemes in the United States, the EU, and some EU Member

States. It first examines the size and characteristics of the different mar-

kets, as well as the unevenness of the regulatory schemes aimed at pro-

tecting consumer abuse.

A. United States

This Section first provides empirical evidence of the size and depth

of the American market for EWSCs. It will show the types of products

that EWSCs are most associated with, as well as the fluidity over time of

the size of the market for different categories of products. It will also

show the revenues generated by the sale of EWSCs and the allocation of

the revenues between the different players on the sales side of the trans-

actions: manufacturers, retailers, third-party insurers. The second part ex-

amines the mix of regulatory authorities and laws that relate to the

EWSC industry in the United States.

1. Relevance of EWSCs in the U.S.

The EWSC industry has reached the menu of items sold by Amazon

in the area of electronics. A website dedicated to EWSCs for electronic

products numbers over 20,000 entries.

As of 2014, the EWSC market

in the U.S. had reached $39.5 billion dollars, with an annual growth rate

of 7.33%.

As Chart 1 shows, the auto-related EWSC share of the mar-

ket is about 40%, followed by mobile phones (22%), electronics (18%),

. 191, 193 (2008); Planned Product Wear and Civil Law, supra note 34, at 978 (discuss-

ing qualitative obsolescence and psychological obsolescence).

Search results for extended warranties, A

MAZON

, https://www.amazon.com (search in

search bar for “extended warranties”) (last visited Jan. 28, 2019).

Mid-Year Service Contract Report, W

ARRANTY

EEK

(Oct. 9, 2014), https://

www.warrantyweek.com/archive/ww20141009.html; Abhishek Yadav, Extended Warranty &

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Auto

40%

Mobile Phone

22%

Consumer

Electronics

18%

Home/Appliance

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personal computers (12%), home warranties (4.6%), and appliance war-

ranties (3.4%).

Between 2008 and 2014, U.S. economic growth aver-

aged 2.2% per year, while the growth of the EWSC industry averaged

8.33% per year.

The sales of extended warranties on mobile phones

increased on average 28.07% per year from 2009–2013.

HART

1: U.S. C

ONSUMER

EWSC I

NDUSTRY

(2014): $39.5 B

ILLION

PCs

12%

The insurer of EWSCs varies and includes the following: retailer

protection plans, such as the Best Buy Geek Squad Protection Plan;

manufacturer or OEM-branded protection plans,

such as Apple Care;

and third-party, direct to-the-consumer providers’ protection plans, such

as Assurant 360.

Commonly, plans include three parties other than the

purchaser of the EWSC. These include the seller (retailer), the obligor or

party responsible for paying the claims under the EWSC, and third-party

networks of service providers (companies that do the actual work of re-

Service Contract Industry USA 5, S

LIDE

HARE

(July 11, 2015), https://www.slideshare.net/

AbhishekYadav23/extended-warranty-industry-in-us.

Yadav, supra note 37, at 5.

Id. at 6.

See id. at 11.

See Geek Squad Terms and Conditions, B

EST

, https://www.bestbuy.com/usw/

termsconditions/anonymous (use drop-down menus to select plan based on plan type and date

range).

OEMs are not actually the “original manufacturer” of the equipment, but are actually a

company who has a relationship with the original manufacture to resell that manufacturer’s

product under its own name and branding. Usually OEM products are the same quality as the

retail versions, but warranties may be different. See Original Equipment Manufacturer—OEM,

NVESTOPEDIA

, https://www.investopedia.com/terms/o/oem.asp (last visited Nov. 16, 2018).

See, e.g., Assurant 360

Protection Summary, A

SSURANT

OLUTIONS

(March 2014),

https://www.assurantsolutions.com/extended-warranty/~/media/Files/TCs/amazon_sample_

terms_and_conditions_0314.ashx (containing sample Terms and Conditions for an Assurant

360 Protection Plan that is purchased through Amazon).

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pair and replace).

One estimate of the allocation of the purchase price

for EWSCs shows 50% is retained by the seller (retailer), 30% is allo-

cated to the insurance company (underwriter), and 20% for the adminis-

trator (see Chart 2: ESC Premium Split).

Within the 30% received by the insurance company, the money is

allocated as follows: fees of 5.25%, payment of claims 19.8%, and a

buffer or reserve fund of 4.95%.

The allocations of the premiums and

allocation within the insurance share of the premium depend on the prod-

uct and factors such as the product’s estimated lifespan (planned obsoles-

cence) and the length of protection provided by the EWSC.

In general,

Chart 2 shows that based upon the probability calculation (an estimate of

the likelihood of EWSC claims), which acts as a surrogate for planned

obsolescence, only 19.8% of the purchase price is used to make repairs

or to satisfy claims. The reserve fund not used to pay for an unexpectedly

high number of claims or costs of repair become additional profit for the

insurance company.

HART

2: ESC P

REMIUM

PLIT

Sales Agent

50%

Insurance

Company

30%

Administrator

20%

This tripartite scheme is not consumer friendly. In the automobile

sale, the car purchaser buys the policy from the car dealer, but any claim

must be made to the manufacturer or a third-party insurer, and often a

third company performs the actual repair work.

The retailer simply

See id. at 1–2, 6.

The SAFE Guys, supra note 2. Some terms, like “administrator,” may be defined by

state statute. See, e.g., N.Y. I

. L

§ 7902(b) (McKinney 2018) (“‘Administrator means

any person designated by a provider to be responsible for administration of service contracts,

including servicing, claims management and processing, recordkeeping, customer service and

collection of fees.”).

The SAFE Guys, supra note 2.

Id.

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takes half of the premium paid as pure profit with no continuing obliga-

tions. Further, under this system, the car owner technically cannot make

a claim or deal directly with the repair company since it has no privity of

contract.

This is because there is no contractual relationship between

the repair company and the customer. The customer, under the common

law, cannot make the argument that she is a third-party beneficiary

since she has direct privity to the insurer and thus has an avenue of re-

course. Thus, the car owner has to work through the insurer, and in some

cases is required to file a new claim in order to “repair a repair.”

such, a common complaint relates to the prolonged time for automobile

repair or for the car owner to be reimbursed after paying the repairs up-

front; not uncommonly, the repair work may take a month or more.

This is likely due to a long queue as insurers are incentivized to lower

costs by using a limited number of service providers.

The retailer in this tripartite scenario obtains a windfall by receiving

half the purchase price of the EWSC with no follow-up responsibilities.

This creates a moral hazard because it incentives the retailer to pressure

the consumer to buy an EWSC that is often not in the interest of the

consumer. In some cases, the car dealer makes as much on selling the

EWSC as it does selling the automobile.

The hard sell tactics utilized

are generally not subject to government regulation because any such reg-

ulations are directed to the principal (insurer) and not to its agent (re-

tailer).

The only claim that may be lodged against the retailer is

common law misrepresentation or fraud. This is unlikely to be successful

since the sale tactics do not amount to a material misrepresentation of

fact. The other avenue of recourse in American, but not English,

com-

The privity doctrine holds that only direct parties to a contract have standing to sue for

breach of contract. 3 E. A

LLAN

ARNSWORTH

, F

ARNSWORTH ON

ONTRACTS

5 (3d ed. 2004).

There are exceptions to the privity doctrine when an outside party is recognized as a

third-party beneficiary. Professor Farnswoth traces the common law’s third-party beneficiary

rule to the 1677 case of Dutton v. Poole, 83 Eng. Rep. 523 (K.B. 1677). Id. at 7.

See FTC, supra note 7.

The U.S. Federal Trade Commission warns: “If the auto service contract doesn’t spec-

ify how long reimbursement usually takes, ask. Find out who settles claims in case you have a

dispute with the service contract provider and need to use a dispute resolution program.” Id.

Nancy A. Lutz & V. Padmanabhan, Why Do We Observe Minimal Warranties?, 14

ARKETING

. 417, 418 (1995).

NADA Data 2017: Annual Financial Profile of America’s Franchised New-Car Deal-

erships, N

’

UTO

. D

EALERS

’

3, https://www.nada.org/2017NADAdata/ (“Service,

parts and body shop gross as % of total gross” hit 49% in 2017.).

For example, if the third-party insurer is an insurance company, then it must meet the

capitalization requirements mandated by state insurance law. See, e.g., N.Y. I

. L

§ 7903(c) (McKinney 2018).

Larry A. DiMatteo, A Study of Judicial Reasoning—When Penalties are not Penal-

ties?, 85 G

. W

ASH

. L. R

. 1846, 1857 (2017) (English common law does not recognize

unconscionability as an independent policy doctrine. However, the term “unconscionable” is a

free-floating construct found in court decisions striking terms in consumer contracts.).

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mon law is the doctrine of unconscionability.

However, such a claim is

likely to fail due to a lack of substantive unconscionability because the

price alone is rarely enough to be considered unconscionable in a market

economy. Another avenue of recourse exists in state “price gouging”

statutes, but these statutes target overpricing in cases involving a natural

disaster or emergency.

Although contract law does not provide a de-

gree of certainty in policing EWSCs, it does have constructs (expanded

privity, misrepresentation, and unconscionability, as well as current war-

ranty law) that could be modified to allow contract law to regulate

EWSCs.

2. Regulatory Landscape of EWSCs in the U.S.

In the U.S., the regulatory landscape relating to EWSCs is a haphaz-

ard mix of federal and state regulations. Many of these regulations do not

specifically target the EWSC; rather, they are extrapolated from long-

existing regulatory schemes, such as insurance and warranty law.

There

is no single regulatory authority at the federal or state levels whose scope

extends to all legal issues relating to the EWSC industry. Such a piece-

meal approach leaves numerous gaps in the regulation of the EWSCs, as

well as incongruences in approach among the American states. In sum,

the EWSC marketplace has not been immune from government regula-

tion, but the level of consumer protection is at a lower threshold than

consumer protection laws tailored for specific industries and issues.

Since there is no independent consumer contract law or standard

terms regulation in the U.S. as is found in Europe,

regulation of

EWSCs is relegated to a fragmented legal regime including common

law, as well as state and federal regulatory law. In the end, the below

review will show that there are gaps in the regulation of EWSCs and the

protection of consumers from abusive selling tactics and one-sided

contracts.

a. Federal Warranty Law

Federal warranty law in the U.S. is encased in the Magnuson-Moss

Act (MMA).

It is important to understand that EWSCs are treated dif-

ferently than warranties under the law. The U.S. Federal Trade Commis-

U.C.C. § 2-302.

See, e.g., F

. S

TAT

. § 501.160 (2011) (“[D]uring a state of emergency, it is unlawful

to sell, lease, offer to sell, or offer for lease essential commodities, dwelling units, or self-

storage facilities for an amount that grossly exceeds the average price for that commodity

during the 30 days before the declaration of the state of emergency.”).

See FTC, supra note 7.

See, e.g., Council Directive 93/13/EEC of 5 April 1993 on Unfair Terms in Consumer

Contracts, 1993 O.J. (L 95) 29 (EC) [hereinafter UCTD].

Magnuson-Moss Act, 15 U.S.C. §§ 2301–12 (1975).

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sion describes a service contract as “a promise to perform (or pay for)

certain repairs or services.”

“Sometimes called an ‘extended warranty,’

a service contract is not a warranty as defined by federal law.”

Warran-

ties are considered part of the product, while EWSCs are treated as inde-

pendent of the underlying sale and purchase contract, and, therefore the

MMA does not apply to them.

A brief review is undertaken here to see

if some of the law’s features could be useful in the regulation of EWSCs,

despite its failure to directly regulate EWSCs. The MMA requires that

warranty terms and conditions be presented in a conspicuous manner and

written in plain language. The concept of conspicuousness is also found

in the Uniform Commercial Code, as discussed below.

Unfortunately, the MMA’s coverage of warranties is broad, but

short on specifics. The law is more about form, than substance. It does

not provide minimum standards for warranties; it mandates how warran-

ties and warranty disclaimers are to be presented to the consumer.

Any

consumer disclosure requirements only apply to the manufacturer and

not to the retailer-seller.

Also, the manufacturer-seller of an EWSC

cannot disclaim the implied warranties, but agents (such as automobile

dealers) may disclaim such warranties.

b. State Law: Common Law of Contracts and Uniform

Commercial Code (UCC)

In the U.S., the common law, found in individual state laws, fails to

distinguish between commercial and consumer contracts and except for a

few exceptions in Article 2 of the UCC, does not distinguish between

commercial and consumer sale of goods.

Up to the present, despite a

FTC, supra note 7.

Id.

See § 2301(8).

See § 2303(a) (requiring plain language and conspicuousness).

See §§ 2301(5), 2303(a).

See § 2308(a).

The handful of provisions in the UCC that provides additional protections is collec-

tively noted as the merchant-consumer distinction. Except for these few provisions, the UCC

applies equally to commercial and consumer transactions. See generally, Ingrid M. Hillinger,

The Article 2 Merchant Rules: Karl Llewellyn’s Attempt to Achieve the Good, the True, the

Beautiful in Commercial Law, 73 G

. L.J. 1141, 1184 (1985) (“Other scholars as well have

noted the doctrinal confusion and poor results that flow from a unitary approach to situations

involving different issues and policy concerns.”); Zipporah B. Wiseman, The Limits of Vision:

Karl Llewellyn and the Merchant Rules, 100 H

ARV

. L. R

. 465, 520 (1987) (suggesting

Llewellyn believed that merchant associations wielded too much power in the unregulated

marketplace). While the UCC does not define Consumer, it defines Merchant as “a person who

deals in goods of the kind or otherwise by his occupation holds himself out as having knowl-

edge or skill peculiar to the practices or goods involved in the transaction or to whom such

knowledge or skill may be attributed by his employment of an agent or broker or other inter-

mediary who by his occupation holds himself out as having such knowledge or skill.” U.C.C.

§ 2-104(1).

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host of consumer protection laws, American contract law remains ge-

neric in nature without any recognized body of consumer contract law.

The exception is that the merchant-consumer distinction plays a role in

the use of the doctrine of unconscionability found in the UCC and, ap-

plied by analogy to other types of contracts, is in practice used exclu-

sively to void terms in consumer contracts.

This is despite the fact that

as written, UCC § 2-302 equally applies to commercial contracts.

The

bargaining power and informational imbalances found in consumer con-

tracts have become the linchpin for the application of the doctrine of

unconscionability.

However, it is important to note that the general rule

is that one-sided (pro-merchant) terms in a consumer contract are en-

forced and that the unconscionability doctrine is only applied in ad hoc

cases, and cannot itself be considered a form of standard terms regula-

tion.

In American contract law, there is no “fairness concept,” as found

in the EU Unfair Terms in Consumer Contracts

or “surprising terms”

principle, as found in German law.

A seller of goods is not obligated to provide a warranty. However,

any contract language that attempts to limit the scope of an express war-

ranty is unenforceable.”

The UCC implies certain warranties, whether

or not an express warranty is provided.

The implied warranty of

merchantability

and implied warranty for a particular purpose

are at-

tached to sale of goods contracts unless expressly disclaimed. However,

For example, fine print terms, often incorporated by reference, are enforceable

whether they are found in consumer or commercial contracts. See Int’l Ass’n of Machinists &

Aerospace Workers v. ISP Chems., 261 F. App’x 841, 848 (6th Cir. 2008).

See U.C.C. §§ 2-104, 2-302.

Id. § 2-302.

Charles L. Knapp, Unconscionability in American Contract Law: A Twenty-First-Cen-

tury Survey, in C

OMMERCIAL

ONTRACT

RANSATLANTIC

ERSPECTIVES

309 (Larry A.

DiMatteo et al. eds., 2013) (noting that the U.S. Supreme Court has narrowed the use of

unconscionability to void arbitration clauses in consumer contracts).

See U.C.C. § 2-302; see also Paul Bennet Marrow, Contractual Unconscionability:

Identifying and Understanding Its Potential Elements, 72 N.Y. S

. B.J. 18, 22 (2000).

See UCTD, supra note 60; see also CRD, supra note 21.

URGERLICHES

ESETZBUCH

[BGB] [C

IVIL

ODE

], § 305c, translation at https://ger

manlawarchive.iuscomp.org/?p=632 (Ger.) [hereinafter BGB] (“Surprising and ambiguous

clauses” state that standard business terms that “are so unusual that the contractual partner of

the user could not be expected to have reckoned with them, do not form part of the contract.”).

U.C.C. § 2-316(1) (“Words or conduct relevant to the creation of an express warranty

and words or conduct tending to negate or limit warranty shall be construed wherever reasona-

ble as consistent with each other; but . . . negation or limitation is inoperative to the extent that

such construction is unreasonable.”).

§§ 2-314, 2-315.

§ 2-314.

§ 2-315.

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§ 2-316(2)

limits the effectiveness of a disclaimer. First, to exclude the

implied warranty of merchantability the disclaimer must explicitly use

the word “merchantability.”

Second, the disclaimer language must be

presented in a conspicuous manner.

But, these requirements are simply

formalities, easily surmounted by boilerplate disclaimer clauses. How-

ever, violations of the warranty provisions of the UCC make manufactur-

ers susceptible to claims under § 5 of the Federal Trade Commission Act

(Act).

The Act simply states in broad terms that any “unfair or decep-

tive acts or practices in or affecting commerce, are hereby declared un-

lawful.”

The Act assigns regulatory authority to the Federal Trade

Commission.

Violations can be punished by penalties of $10,000 to be

collected by the Attorney General through civil actions.

Again, unfortunately warranty law does not currently regulate

EWSCs since it focuses on product warranties, which are part and parcel

to the product being sold. EWSCs are considered a separate product from

the standard warranty provided in the sale. The EWSC is independent of

the sale of the good for which the consumer pays an additional price.

However, there is little reason that the conspicuousness and plain lan-

guage requirements should not be extended to EWSCs.

In the end, the lack of federal regulation leaves it to state law to

provide governance. Unfortunately, such state regulation is also lacking

or sporadic, especially given that there is no existing model law on the

subject. The state regulatory law closest to EWSCs is found in insurance

law. For example, New York Insurance Law applies to certain service

contracts and commercial guarantees, which is discussed in the next

section.

c. State Regulation: New York Insurance Law

Technically, state insurance laws regulate EWSCs. Given its promi-

nence in the area of commercial law, New York State (NYS) Insurance

law will be reviewed here. NYS Insurance Law makes a distinction be-

tween warranty and service contracts. Generally, insurance law does not

cover warranties, but the NYS Department of Insurance regulates service

contracts.

The law defines a service contract as an “agreement, for a

§ 2-316(2) (“[T]o exclude or modify the implied warranty of merchantability or any

part of it the language must mention merchantability and in case of a writing must be

conspicuous . . . .”).

Id.

15 U.S.C. § 45(a) (2012) (codifying Section 5 of the Federal Trade Commission Act).

Id.

See, e.g., N.Y. I

. L

§ 7901 (McKinney 2012).

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separate or additional consideration, for a specific duration to perform

the repair, replacement or maintenance of property, or indemnification

for repair, replacement or maintenance, due to a defect in materials or

workmanship or wear and tear.”

However, that regulation simply requires registration, certification,

licensing, and conformity to solvency regulations.

The third-party in-

surer-provider of the service contract is required to meet these require-

ments, but the retailer or seller, and the contractor providing the services

or doing the repairs are not. However, a company independent of the

third-party insurer if “it actually obligates itself to make repairs and

maintenance under a service contract, [ ] would have to register as a ser-

vice contract provider.”

NYS Insurance Law does not require a service contract provider to

file their rates and contract forms for review by the Department. Article

79, entitled “Service Contracts,” states that its purposes are to “create a

legal framework within which service contracts may be sold in this state;

encourage the marketing and developing of more economical and effec-

tive means of providing services under service contracts; and permit and

encourage fair and effective competition among different systems of pro-

viding and paying for these services.”

Article 79 authorizes the Super-

intendent of Insurance to enforce the law by, for example, conducting

investigations and issuing cease and desist orders.

The key question is what distinguishes extended warranties from a

service contract under NYS Insurance Law? First, the service contract is

independent of the product itself. However, if the manufacturer is the

underwriter or provider of the service contract, then the contract is not

covered under insurance law.

Second, if the EWSC coverage insures

against a risk external (“fortuitous risk”) from the product, then it is

deemed to be a service contract.

In one case, a third-party insurer pro-

vided protection for restaurant equipment against damage due to a fire.

The Office of General Counsel held that the product was a service con-

N.Y. I

. L

§ 7902(k) (McKinney 2012).

N.Y. I

. L

§ 7903(c) (McKinney 2012) (requiring that the insurer maintain a re-

serve fund not less than 5% of the price of the contracts sold).

N.Y. I

. L

art. 79 (McKinney 2012); Office of Gen. Counsel, N.Y. Ins. Dep’t, Re:

Licensing/Registration Requirements for Service Contract Providers, D

’

. S

ERVS

. (June

3, 2002), https://www.dfs.ny.gov/insurance/ogco2002/rg206033.htm [hereinafter Service Con-

tract Providers].

N.Y. I

. L

§ 7901.

N.Y. I

. L

§7910(b)(1).

Service Contract Providers, supra note 90.

Office of Gen. Counsel, N.Y. Ins. Dep’t, Re: Marketing an Extended Warranty Pro-

gram, D

’

. S

ERVS

. (Sept. 17, 2007), https://www.dfs.ny.gov/insurance/ogco2007/

rg070915.htm.

Id.

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tract because the third-party undertook an obligation that involved a for-

tuitous risk, thereby, making the contract a type of insurance.

Some EWSCs may restrict transfers of the contract to future own-

ers. For example: a home purchaser or owner buys an EWSC. Does the

purchaser-owner have the right to transfer the contract when she resells

the home with time remaining on the EWSC? If not, should the third-

party insurer be required to refund a pro rata amount of the contract

price? NYS Insurance Law simply requires that service contracts state

the terms, restrictions or conditions governing the transferability of such

contracts.

But, other than this disclosure requirement, as a general mat-

ter, the transferability of a service contract depends upon the provisions

in the specific contract in question, including a non-transferability provi-

sion.

The law also requires the service contract to specify any limita-

tions on the right to terminate the service contract by the provider or

contract holder and the right, if any, to receive a refund.

The law does

not deal with the issue of whether the seller or provider of the EWSC

should be able to assign the contract to another party, which may provide

lower cost and lower quality services.

A more proactive provision of NYS Insurance Law provides a right

of rescission in which a purchaser of a service contract has ten, and

sometimes twenty, days to rescind the contract unless the purchaser al-

ready filed a claim.

100

The third-party insurer must give a refund in full

Id. Another New York case involved the sale of a new tire with a “road hazard war-

ranty program.” Office of Gen. Counsel, N.Y. Ins. Dep’t, Re: The Product Warranty of a Tire

Product, D

’

. S

ERVS

. (May 11, 2004), https://www.dfs.ny.gov/insurance/ogco2004/

rg040512.htm. The product included placing a sealant on the tire to provide added protection.

Id. But, it is not the product or sealant being warranted; instead, it is insurance against the tire

rupturing due to an external event that is being provided. The product warranty was not related

to any defect in materials or workmanship in the tires; rather, it was based upon the product’s

failure to prevent tire damage from road hazards. The Office of General Counsel reasoned:

“[If] the tire be damaged due to a road hazard, it is not because the product did not work as

intended to prevent drying out or rotting of the tire, but rather it is because there was some-

thing in the roadway, an intervening ‘fortuitous event,’ within the meaning of the Insurance

Law.” Id. Road hazards, such as a nail on the road, are outside the control of either the pro-

vider of the warranty or the car dealer who sells the warranty. Since the warranty was indepen-

dent of the product and insured against a fortuitous event, it was held that the warranty was a

service contract. In either situation, the service contract provider and any administrator liability

were subject to NYS Insurance Law, and thereby liable for the damage to the tire since it was

due to a protected occurrence. N.Y. I

. L

§ 7902 (McKinney 2012) (Administrator is

defined as a “person designated by a provider to be responsible for administration of service

contracts, including servicing, claims management and processing, recordkeeping, customer

service and collection of fees.”).

N.Y. I

. L

§ 7905(j) (McKinney 1998).

Office of Gen. Counsel, N.Y. Ins. Dep’t, Transferability of Service Contract, D

’

. S

ERVS

. (Mar. 13, 2008), https://www.dfs.ny.gov/insurance/ogco2008/rg080311.htm.

N.Y. C

OMP

. C

ODES

R. & R

EGS

. tit. 11, § 390.5(a) (1999).

100

N.Y. I

. L

art. 79 (McKinney 2000); N.Y. C

OMP

. C

ODES

R. & R

EGS

. tit. 11

§§ 390.0–390.13 (1999) (Regulation 155); N.Y. I

. L

§ 7903(e) (McKinney 2012).

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within thirty days after receiving the notice of rescission.

101

If the third-

party insurer-provider fails to make a timely refund, then it must pay the

holder an additional ten percent, as well as an additional ten-percent pen-

alty for each subsequent month until the refund is paid.

102

d. Restatement of Consumer Contract Law

The EWSC is essentially a consumer standard form contract. As

previously stated, there are no general standard term regulations or body

of consumer contract law as is found in Europe. However, the American

Law Institute recently sponsored the drafting of a Restatement of Con-

sumer Contract Law (Consumer Restatement).

103

The new Restatement

project can be seen as a supplement to the Restatement (Second) of Con-

tracts

104

and UCC, dedicated solely to consumers. The reporters of the

Consumer Restatement recognize that “consumer contracts present a fun-

damental challenge to the law of contracts, arising from the asymmetry

in information, sophistication, and stakes between the parties to these

contracts—the business and the consumer.”

105

They list two techniques

for preventing consumer abuse in contracts: (1) assuring mutual assent

by focusing on the rules that determine how terms are adopted and which

processes a business can use to introduce and to modify terms in the

agreement; and (2) the use of mandatory restrictions over the substance

of the deal—rules that limit the discretion of the business in drafting

contract terms and the setting of boundaries to permissible con-

tracting.

106

In essence, the Consumer Restatement project is a soft law

form of European standard terms regulation.

107

The goal of the Consumer Restatement is to take the first steps in

creating a separate body of consumer contract law: first, by recognizing

specific contract law rules that only apply to consumer transactions; and

second, by incorporating existing government regulations of the con-

sumer market place into a standalone consumer contract law. This would

include the following: (1) formulating “principles for punitive treatment

101

N.Y. I

. L

§ 7903(e) (Mckinney 2012).

102

Id.

103

See Restatement of the Law, Consumer Contracts, A

. L

NST

., https://

www.ali.org/projects/show/consumer-contracts (All nine sections of the Restatement have

been drafted, and the initial draft was presented for discussion at the 2017 ALI Annual Meet-

ing. It is expected to be re-presented at the 2019 Meeting.).

104

ESTATEMENT

ECOND

)

ONTRACTS

. L

NST

. 1981).

105

Project Feature: Restatement of the Law, Consumer Contracts, T

ALI A

DVISER

(May 2017), http://www.thealiadviser.org/consumer-contracts.

106

Id.

107

Id. (Restatement Draft including sections entitled “Adoption of Standard Contract

Terms” (§ 2) and “Modification of Standard Contract Terms” (§ 3).).

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of some types of willful breaches of consumer contracts;”

108

(2)

“[u]nify[ing] the framework” for developing rules mandating pro-con-

sumer terms and banning terms that are deemed to be abusive;”

109

(3)

clarifying the contours of the unconscionability doctrine, including how

it applies in the area of arbitration;

110

and (4) “[d]istilling the common

principles that ought to guide” courts in applying the FTC Act, state laws

prohibiting “unfair or deceptive” acts or practices and the Dodd-Frank

111

prohibition on “unfair, deceptive or abusive” acts or practices.

112

Unfortunately, the proposed Consumer Restatement places empha-

sis on the first of the above two techniques by re-emphasizing the impor-

tance of consent and de-emphasizing the importance of mandatory

regulations aimed at setting boundaries of impressible consumer con-

tracting (restrictive consumer-specific rules). For example, § 2 provides

rules on the adoption of standard contract terms.

113

It provides that a

consumer signifies assent to the transaction as long as she is given rea-

sonable notice of the standard terms and a reasonable opportunity to re-

view them.

114

This does little to ensure the quality of the consent under

the reality that most consumers do not read or understand such terms;

this is especially common where the standard contract is long and

detailed.

The unitary concept of consent, generally resting on a person’s

agreement or signing of a contract, fails to recognize the absence of true

consent, understanding of agreement found in many consumer contracts.

The Restatement does provide for the buttressing of consent through pre-

contract disclosures.

115

Thus, the unitary construction of consent is modi-

fied in consumer contracts to mean only consent that is “adequately in-

formed.”

116

In the case of EWSCs, disclosures as to the risk of needing

repairs, costs, and rights would be helpful, but only if the disclosures are

108

Consumer Fin. Services Grp., ALI Launches Restatement Project for Consumer Con-

tracts, B

ALLARD

PAHR

(Dec. 6, 2012), https://www.ballardspahr.com/alertspublications/

legalalerts/2012-12-06-ali-launches-restatement-project-for-consumer-contracts.aspx.

109

Id.

110

Id. (“[O]ne goal will be to translate research on consumer decision-making, and on the

limits of consumer understanding, into specific guidelines for the courts”).

111

Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203,

124 Stat. 1376. (July 21, 2010). Part of the long title of the law that states that one of its

purposes is “to protect consumers from abusive financial services practices.” It established the

Consumer Financial Protection Bureau (CFPB) as an agency responsible for consumer protec-

tion in the financial sector.

112

Id.

113

Florence Marotta-Wurgler, Omri Ben-Sharar & Oren Bar-Gill, Adoption of Standard

Contract Terms, T

ALI A

DVISER

(Apr. 27, 2017), http://www.thealiadviser.org/consumer-

contracts/adoption-standard-contract-terms.

114

Id.

115

Id.

116

Alan S. Kaplinsky & Brian Slagle, Proposed Consumer Contracts Restatement Criti-

qued at ALI Annual Meeting, C

ONSUMER

. M

ONITOR

(June 2, 2017), https://

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meaningful. For example, the disclosure should state whether the pur-

chaser has a right of rescission and whether the contract is transferable.

Also, disclosure is not meaningful if buried in lengthy, fine print con-

tracts. The seller should be required to ensure that the purchaser is aware

of key options, restrictions, and rights.

Instead of standard terms regulations, the Consumer Restatement

advocates for expanded judicial review of consumer contract terms to

ensure a fair bargain. In order to “insure” such an outcome, § 5 “encour-

ages” the courts to more aggressively use the doctrine of unconscionabil-

ity.

117

This fails to recognize that more and more businesses are inserting

arbitration clauses into their contracts. Although, the doctrine of uncon-

scionability has been used to void unfair arbitration clauses that leave a

consumer without an adequate recourse to seek a remedy,

118

recent

trends

119

do not bode well for consumers. The Supreme Court has re-

emphasized that arbitration is the preferred means of dispute resolution

under the Federal Arbitration Act,

120

while at the same time limiting con-

sumers’ ability to obtain a remedy through arbitration. It has held that

contract clauses waiving the consumer’s right to join class action arbitra-

tion are enforceable.

121

In the end, it is likely to be a very long time, if

and when the Restatement of Consumer Contract Law is adopted, before

courts recognize and use its provisions. There is greater uncertainty if

and how it is likely to impact consumer abuse in the sale of EWSCs. The

Consumer Restatement project, however, does provide options and con-

cepts that could be incorporated into future regulatory initiatives relating

to EWSCs.

e. Lemon Laws

Most states have enacted some form of lemon law; however, the

content of those laws vary. They are most commonly associated with the

sale of motor vehicles, but can also extend to the sales of heavy equip-

ment and electrical appliances.

122

The standard warranty law in the U.S.

www.consumerfinancemonitor.com/2017/06/02/proposed-consumer-contracts-restatement-cri

tiqued-at-ali-annual-meeting.

117

Project Feature: Restatement of the Law, Consumer Contracts, T

ALI A

DVISER

(May 2017), http://www.thealiadviser.org/consumer-contracts.

118

Id.

119

Id.

120

Federal Arbitration Act (FAA), 9 U.S.C. ch. 1, 43 Stat 883, Pub. L. 68-401 (1925)

(“An Act to make valid and enforceable written provisions or agreements for arbitration of

disputes arising out of contracts, maritime transactions, or commerce among the States.”).

121

DIRECTV, Inc. v. Imburgia, 136 S. Ct. 463 (2015) (holding that class action waivers

contained in arbitration agreements are enforceable under the Federal Arbitration Act and can-

not be invalidated on state law grounds).

122

Terence J. Centner & Michael E. Wetzstein, Obligations and Penalties under Lemon

Laws: Automobiles versus Tractors, 20 J. A

GRIC

. & R

ESOURCE

CON

. 135, 135–36 (1995).

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only requires the seller to repair or replace defective products.

123

In the

area of “big ticket” items, such as automobiles, the manufacturer-seller

will almost always elect the repair remedy in order to avoid the more

costly remedy of replacement.

124

This causes hardship on the purchaser

and an avenue of abuse for the seller. If a defect proves difficult to rec-

tify, requiring numerous trips for repair or the product continually

presents new types of defects, then the purchaser suffers a great deal of

inconvenience and loses trust in the durability of the product. A seller

may use the repair remedy in bad faith until the warranty period expires

leaving the purchaser without further recourse for subsequent defects. Of

course, this is a scenario where an EWSC would prove desirable. How-

ever, unless the EWSC provides a right to replacement, the purchaser

will continue to experience the same type of inconvenience and harm due

to the need for serial repair. This type of harm is what lemon laws are

intended to alleviate.

But as noted earlier, most products are manufactured to last as long

as the express warranty under the sales contract and the period of cover-

age of an EWSC; otherwise, the ability to generate large revenue streams

through the sale of EWSCs would not be possible. Nonetheless, there are

at least some products that are shoddy, due to faulty assembly, use of

lower quality materials and component parts, which make them “lem-

ons.” The lemon laws preempt the remedial structure of warranty law by

converting the seller’s option of making continuous repairs to a buyer’s

right to a replacement or refund.

125

This type of right should be included

in EWSCs when a product is in constant need of repair during the period

of coverage.

B. EU and Member States

This Section examines a variety of consumer protection laws in the

EU and in different European countries. This includes a review of the

Consumer Sales Directive, Unfair Contract Terms Directive, Consumer

Rights Directive, Unfair Commercial Practices Directive, Austrian Con-

sumer Protection Act, and the German Civil Code.

123

Id.

124

Id.

125

Id. It should be noted that most state lemon laws, as well as the Federal Magnuson-

Moss Act, allow the purchaser to claim the costs of legal fees as damages, which is a rarity in

the American legal fee system.

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1. Relevance of EWSCs in the EU

EWSCs exist in all Member States, although the regulatory ap-

proaches differ at the domestic level.

126

The 2017 Study on the Costs and

Benefits of Extending Certain Rights Under the Consumer Sales and

Guarantees Directive 1999/94/EC (Costs and Benefits Study), for exam-

ple, points out that three Member States—Finland, Latvia and Slove-

nia—take a comparatively strict approach, allowing paid-for extensions

only in the form of insurances, and not as guarantee extensions or

alterations.

127

In 2015, the European Consumer Centres Network (ECC-Net) pub-

lished an evaluation on EWSCs (2015 ECC-Net Report)

128

The 2015

ECC-Net Report discusses whether EWSCs are “worth the money” and

offers some important insights.

129

Spot on- and off-premise tests

130

showed that the marketing and

costs of EWSCs is of practical relevance throughout Europe. In approxi-

mately 60% of the examined online sale cases EWSCs were advertised

or otherwise offered.

131

A second 2015 study report, the “Study on the

Functioning of the Legal and Commercial Guarantees for Consumers in

the EU,” confirmed the importance of the EWSC market, showing that

approximately 75% of the examined products offered online or offline

were offered in combination with EWSCs.

132

126

See ICF, Study on the Costs and Benefits of Extending Certain Rights Under the Con-

sumer Sales and Guarantees Directive 1999/94/EC, at 33 (Mar. 2017), https://publica-

tions.europa.eu/en/publication-detail/-/publication/4d120ad5-deee-11e7-9749-01aa75ed71a1/

language-en.

127

Id.

128

The 2015 ECC-Net Report is arguably the most comprehensive overview of the Euro-

pean EWSC market. See E

UROPEAN

ONSUMER

. N

ETWORK

, C

OMMERCIAL

ARRANTIES

HEY

ORTH THE

ONEY

? 6 (2015), https://www.europe-consommateurs.eu/fileadmin/

user_upload/eu-consommateurs/PDFs/PDF_EN/REPORT-_GUARANTEE/Garanties_

2014_FINAL.pdf [hereinafter ECC-N

129

Id. Overall, the 2015 ECC-Net Report takes a different approach on guarantees than

the vast majority of older European studies do, in the sense that it does not simply follow the

common approach of determining how the Consumer Sales Directive (CSD) has been imple-

mented by the Member States or measuring the CSD regime’s impact on the legal guarantee

market. See, e.g., EC C

ONSUMER

OMPENDIUM

: T

ONSUMER

CQUIS AND ITS

RANS-

POSITION IN THE

EMBER

TATES

1–3 (Hans Schulte-N¨olke et al. eds., 2008). It goes one step

further and provides data and feedback on the EWSC market. The 2015 ECC-Net Report is

built upon a field study, comprised of consumer surveys, contacts with sellers, website analy-

ses, case studies, and interviews carried out by the European Consumer Centres (ECCs) across

the EU, Iceland and Norway in late 2014. See ECC-N

, supra note 128, at 6.

130

A “spot test” is a test conducted on the spot to yield immediate results. See ECC-N

supra note 128, at 109–18 (details on how spot tests were used by ECC-Net in its 2015 evalua-

tion of EWSCs).

131

ECC-N

, supra note 128, at 50.

132

See I

PSOS ET AL

., E

UROPEAN

OMMISSIONN

, C

ONSUMER

ARKET

TUDY ON THE

UNC-

TIONING OF

EGAL AND

OMMERCIAL

UARANTEES FOR

ONSUMERS IN THE

EU: E

XECUTIVE

UMMARY

3 (2015), https://ec.europa.eu/info/sites/info/files/legal-guarantees-executive-sum

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The costs of EWSCs rarely reach 10% of the price of the purchased

goods.

133

Relevant data show that a considerable number of consumers

have actual experience with EWSCs. In a survey carried out by ECC

Belgium, 56.1% of the 543 participants stated that they had, at least once,

purchased an EWSC.

134

About one-third of the participants who made

claims or requests on their EWSCs noted that they did not have a posi-

tive experience.

135

Overall, less than one-third considered purchasing an

EWSC in the future.

136

2. Regulatory Landscape of EWSCs in the EU

The generally relevant guarantee framework in the EU and its Mem-

ber States rests on a strict division between legal guarantees on the one

hand and EWSCs on the other. While both types of guarantees aim to

support buyers of non-conforming products in endeavors to enforce their

legal interests, there is a great deal of differentiation between these two

guarantee forms.

137

This is important, particularly because different reg-

ulatory regimes apply to each type.

As explained above, statutory provisions do not mandate the use of

EWSCs. EWSCs cover purchased goods but are conceived via party au-

tonomy either as an addendum to the sales agreement or in the form of a

separate contract, where the seller and the liable party under the EWSC

are independent companies. EU purchasers create the EWSC with differ-

ent parties: the seller of the good, the manufacturer, or a third-party in-

surer. Some of the relevant pan-EU legislation, such as the CSD, do not

consistently cover all three types of sellers of EWSCs.

138

Further, some

EU laws do not distinguish between legal guarantees and EWSCs. The

Unfair Contract Terms Directive

139

and the Unfair Commercial Practices

Directive

140

are two such laws, as discussed later in this Section.

141

mary_en_0.pdf (arriving at the conclusion that “commercial guarantees have become an inte-

gral part of marketing”).

133

See ECC-N

, supra note 128, at 118.

134

Id. at 120.

135

Id.

136

Id.

137

Supra notes 15–21 and accompanying text.

138

See, e.g., Council Directive 1999/44, art. 1, 1999 O.J. (L 171) 12, 14 (EC) [hereinafter

CSD]. CSD is also known as the Consumer Sales and Guarantees Directive, do not consist-

ently cover all three types of sellers of EWSCs. See ICF, supra note 126, at 3.

139

See UCTD, supra note 60, art. 3(2), 3(3).

140

See Directive 2005/29/EC of the European Parliament and of the Council of 11 May

2005 Concerning Unfair Business-to-Consumer Commercial Practices in the Internal Market

and Amending Council Directive 84/450/EEC, Directives 97/7/EC, 98/27/EC and 2002/65/EC

of the European Parliament and of the Council and Regulation (EC) No 2006/2004 of the

European Parliament and of the Council, 2005 O.J. (L149) 22 (EU) [hereinafter UCPD] (con-

cerning unfair business-to-consumer commercial practices in the internal market).

141

Infra notes 173–83 and accompanying text.

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Unlike the U.S., the EU has increasingly differentiated consumer

contracts from general contract and commercial law. In particular, since

the 1990s, the EU has intensified efforts to regulate business-to-con-

sumer (B2C) transactions, most notably and initially, with the help of

numerous laws aimed at different areas or issues of the consumer

economy.

142

In the area of consumer guarantees, there are a handful of European

directives that provide a regulatory framework for the B2C market. At

the center of the scheme stands the CSD with its main focus on legal

guarantees. The key aim of the directive is to create a level playing field

for guarantees across the EU and to raise consumer protection standards

in a number of Member States by introducing a minimum period of two

years for legal guarantees.

143

This is accompanied by some additional

consumer protections, such as a partial reversal of the burden of proof

144

and the enunciation of a mandatory catalogue of minimum remedies.

145

The CSD incorporates additional rules for associated-integral guar-

antees or express warranties included in the sale of the product in Article

6 (guarantees). The CSD defines such guarantees as “any undertaking by

a seller or producer to the consumer, given without extra charge, to re-

imburse the price paid or to replace, repair or handle consumer goods in

any way if they do not meet the specifications set out in the guarantee

statement or in the relevant advertising.”

146

Article 6 guarantees have to

fulfill two primary requirements, notice and intelligible language.

147

With this obligation, the European legislature aimed to maximize

the certainty and comprehensibility level with respect to the rights of

142

These directives were part of what is usually called the “consumer acquis,” which is a

group of eight sectoral consumer directives focused on selected consumer issues introduced in

the EU during the end of the 20th century. See EC Consumer Law Compendium, supra note

129, at 1; see also S

TEFAN

RBKA

, E

UROPEAN

ONSUMER

CCESS TO

USTICE

EVISITED

162

(2015) (identifying the eight directives as “seven substantial law directives and one procedural

law directive”).

143

See CSD, supra note 138, art. 1(1), 5(1) (starting at the time of the delivery of the

goods).

144

See CSD, supra note 138, art. 5(3) (“Unless proved otherwise, any lack of conformity

[with the contract of sale as articulated in Article 2] which becomes apparent within six

months of delivery of the goods shall be presumed to have existed at the time of

delivery . . . .”).

145

See CSD, supra note 138, art. 3 (detailing means of determining the appropriate reme-

dies consumers may have available to them in the case of lack of conformity with the sales

contract as identified in Article 2).

146

See CSD, supra note 138, art. 1 (2)(e) (emphasis added).

147

“The guarantee shall: state that the consumer has legal rights under applicable national

legislation governing the sale of consumer goods and make clear that those rights are not

affected by the guarantee [and] set out in plain intelligible language the contents of the guaran-

tee and the essential particulars necessary for making claims under the guarantee, notably the

duration and territorial scope of the guarantee as well as the name and address of the guaran-

tor.” See CSD, supra note 138, art. 6(2).

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buyers.

148

Consumers must be made aware of the fact that the legal guar-

antees are an absolute, mandatory minimum and that Article 6 guarantees

cannot be limited in anyway. In addition, traders who offer Article 6

guarantees must make arrangements to enhance the understanding of

consumers about the content of the guarantee. Article 6 guarantees are

not comparable to what was earlier defined as EWSCs.

149

Paid-for

EWSCs fall outside the scope of Article 6 and the CSD in general.

Member States have implemented the relevant European defaults,

but have rarely exercised their legislative leeway (where granted) to go

beyond the minimum standards of the European directives. Consequen-

tially, most Member States apply a principally unified EWSC regime to

ensure the highest possible level of comprehensibility.

150

Some countries

have increased the level of protections beyond the mandatory minimum

standards provided in the CSD.

151

For example, in implementing the

CSD, some countries opted for a broad approach and introduced a com-

paratively comprehensive provision on consumer guarantees that reads as

follows:

(1) When an entrepreneur undertakes to a consumer to

improve or replace any defective good, to refund the

purchase price or otherwise make good the defect (com-

mercial warranty), he shall also inform the consumer of

the legal warranty imposed on the person handing over

the good and shall point out that such legal warranty

shall not be limited by the commercial warranty. The en-

trepreneur shall be bound by the promises made in the

warranty statement and its content as notified in his

advertising.

(2) The warranty statement shall include the name and

address of the warrantor and, in simple and straightfor-

ward terms, the content of the warranty, including but

not limited to the term and geographical application and

all other information necessary for drawing on the war-

ranty. If the warranted features are not made clear from

the statement, the warrantor shall be liable for the good

to have those features customarily required of it.

148

See CSD, supra note 138, art. 6(2).

149

Supra Part I.A.

150

See Oren Bar-Gill & Omri Ben-Shahar, Regulatory Techniques in Consumer Protec-

tion: A Critique of European Consumer Contract Law, (Coase-Sandor Inst. for Law & Econ.,

Working Paper No. 598, 2012).

151

See id.

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(3) The commercial warranty shall be furnished to the

consumer at his request in writing or by another perma-

nent data carrier that the consumer can make use of.

(4) If the warrantor violates Paragraphs 1 through 3

above, this shall not affect the validity of the commercial

warranty. The warrantor shall furthermore be liable to

the consumer for any loss or damage caused by such

violation.

152

Note that in those broad approaches, the concept of the “commercial

warranty” goes beyond integral guarantee, such as a manufacturer’s war-

ranty or integral guarantees offered by the seller, and encompasses

EWSCs.

153

The law does not merely refer to the manufacturer or seller,

but to the entrepreneur or warrantor in general.

154

As to substantive con-

tent the law is not very detailed but does require that the warrantor honor

its obligations made in the form of advertisements, disclose any geo-

graphic limitations, and clarify the content or scope of the warranty. In

the event of not providing a clear statement, the law provides: “If war-

ranted features are not made clear from the statement, the warrantor shall

be liable for the good to have those features customarily required of it.”

This provision mandates that courts perform a contextual interpretation

of the warranty. Contextualism in this instance refers to an interpretation

not based solely on the words of the warranty, but based upon the reason-

able expectations of the purchaser. These expectations are circumscribed

by what is “customarily required.” Thus, if the EWSC provides a lower

than customary level of protection, then it will be assumed that the

EWSC provides the higher customary level of protection.

For example, Section 443 of the German Civil Code (BGB) stipu-

lates as follows:

(1) Where the seller, the producer or some other third

party enters into obligation, in addition to his statutory

liability for defects, by way of making a declaration or in

relevant advertising that was available prior to the

purchase agreement being concluded or at the time of its

conclusion, such obligation being in particular to reim-

burse the purchase price, to exchange the thing, to repair

it or to provide services in this context should the thing

152

ONSUMENTENSCHUTZGESETZ

[KS

G] [C

ONSUMER

ROTECTION

]

UNDESGESETZBLATT

[BGB

], No. 140/1979 as amended, § 9b, translation at https://www.

ris.bka.gv.at/Dokument.wxe?Abfrage=erv&Dokumentnummer=ERV_1979_140 (Austria)

[hereinafter KSchG]. The term “commercial warranty” used by the translator is a synonym for

“EWSC.”

153

Id.

154

Id.

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not exhibit the quality or not fulfill other requirements

than those concerning its freedom from defects, in each

case as described in the declaration or in the relevant

advertisement (guarantee), the buyer shall be entitled, in

the case of a guarantee having been given, and notwith-

standing his statutory claims, to the rights under the

guarantee in relation to the person who has given the

guarantee (guarantor).

(2) To the extent that the guarantor gives a guarantee as

to the thing having a specified quality for a specified pe-

riod (guarantee of durability), the presumption will be

that a material defect, which appears during the guaran-

tee period [and] triggers the rights under the

guarantee.

155

Again, as found in the Austrian law, the German BGB Section 443(1)

emphasizes that the scope of an EWSC can be determined not only on

the written form but also by oral declarations, promises, and representa-

tion, as well as relevant advertising prior to the purchase.

156

No such

broad evidential base is found in American law. First, advertisements are

considered to be non-binding in nature.

157

Second, oral representations

before, or contemporaneous to, the signing of the EWSC are merged into

the written form and are barred by the parol evidence rule

158

from being

entered into evidence to contradict the written form. Section 443(2) re-

fers to the EWSC as a guarantee of durability and provides a legal pre-

sumption that any material defect is covered under the guarantee,

whether expressly stated or not.

159

Section 477 of the BGB adds special requirements for consumer

guarantees:

1) A declaration of guarantee (section 443) must be ex-

pressed simply and comprehensibly. It must contain:

1. a reference to the statutory rights of the consumer

and a statement that they are not restricted by the

guarantee, and

2. the contents of the guarantee and all essential in-

formation required for asserting rights under the

155

BGB, supra note 75, at § 443.

156

Id.

157

Professor Farnsworth states that common law courts “show a reluctance, in doubtful

cases, to characterize a proposal as an offer.” See F

ARNSWORTH

, supra note 49, at 237.

158

Parol evidence rule bars the admission of extrinsic evidence (prior dealings, course of

performance, trade usage) to contradict the plain meaning of a written contract intended to be

the final integration of the party’s agreement. See id. at 210; see also id. at 210–29 (explaining

the definition and application of the parol evidence rule).

159

See BGB, supra note 75, § 443(2).

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guarantee, including, without limitation, the dura-

tion and the area of territorial application of the

guarantee protection as well as the name and ad-

dress of the guarantor.

(2) The consumer may demand that the declaration of

guarantee is given to him in text form.

(3) The effectiveness of the duty under the guarantee is

not affected by the fact that one of the above require-

ments is not satisfied.

160

Section 477 makes clear that it is the obligation of the guarantor to pro-

vide the contents and all “essential information required for asserting

rights under the guarantee”

161

in a simple and comprehensible manner.

This language sets the interpretive threshold well above the practice of

obfuscation and hard selling of detailed standard form EWSCs in the

U.S. Also, the Austrian and German approaches have to be understood as

exemplary extensions of CSD Article 6 guarantees in several ways.

162

First, and unlike CSD Article 6, these national frameworks are not lim-

ited to no-cost guarantees, but additionally cover paid-for EWSCs.

163

The 2001 explanatory memorandum accompanying the Austrian amend-

ment to the Austrian Consumer Protection Act (national warranty re-

gime) described this framework as the wish to treat the beneficiaries of

paid-for EWSCs and no-cost EWSCs equally.

164

The explanatory memo-

randum further explains that the regulatory differentiation between these

types of guarantees in which greater protections are provided for non-

paid-for guarantees than are provided for paid-for guarantees is simply

not justifiable.

165

Second, the Austrian and German laws of guarantee show that the

circle of guarantors is wider than under the CSD. Whereas CSD Article 6

explicitly restricts the scope to the “seller or producer” of the respective

product, the Austrian and German laws have provided norms for ex-

160

BGB § 477.

161

Id.

162

Both national solutions are not the exception, but rather the rule. Member States have

widely opted for broader regulations of the EWSC regime at the national level. See, e.g., EC

ONSUMER

OMPENDIUM

, supra note 129 (reporting on the legislative techniques of Eu-

ropean Community Member States).

163

Compare CSD, supra note 138 (focusing on no-cost guarantees), with KS

G, supra

note 152, and BGB, supra note 75, § 477 (additionally covering paid-for EWSCs).

164

422 der Beilagen zu den Stenographischen Protokollen des Nationalrates XXI. GP

(Jan. 22, 2001) 25 (explanatory memorandum accompanying G

AHRLEISTUNGSRECHTS

NDERUNGSGESETZ

MENDMENT

AG] [W

ARRANTY

] B

UNDESEGESETZBLATT

[BGB

I] No. 48/2001, as amended, https://www.parlament.gv.at/PAKT/VHG/XXI/I/I_

00422/fname_202157.pdf (Austria)).

165

Id.

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panding the scope to cover third parties (other than the producer).

166

this sense the national regimes cover “pseudo” guarantees

167

given by

sellers, as well as “genuine” guarantees

168

given by third parties (manu-

facturers and other third parties including third-party insurers). At the

same time, however, it should be noted that in practice the situation re-

mains complex. German scholars point out that despite the comprehen-

siveness of the German EWSC regime, distinctions continue to be made

with respect to the type of guarantees in a wider sense. This is largely

the case because the provisions do not go beyond “dependent” guaran-

tees,

169

which are guarantees that relate to the contractual conformity

most notably by extending the duration of legal guarantees or broadening

the scope of liable parties to third-party insurers that would finance a

repair or replacement of a defective good. Hence, “independent” guaran-

tees

170

merely cover for accidental damage. These types of guarantees do

not cover contractual non-conformities and therefore there is no right to

repair or replacement costs related to such non-conformity. This distinc-

tion between harm caused by accident and harm caused by non-conform-

ity is the basis for the division between EWSCs and EWSC equivalent

insurances on the one hand and insurances that are to a greater extent

standalone.

171

The standalone-types of third-party insurance have fea-

tures that are different from ordinary guarantee remedies, such as only

making compensation payments instead of repair and replacement.

172

Drawing clear distinctions between the different types of insurance and

associated hybrids proves difficult. In practice, one would have to closely

look at the contractual relationships between the parties and the terms of

the respective guarantee.

Three additional, broader directives add perspective to the regula-

tion of guarantees under EU law, albeit in different ways. The Unfair

Contract Terms Directive (UCTD) was introduced in 1993 with the aim

of establishing a common framework relating to the use of standard con-

166

See Christian Berger, § 443, in B

URGERLICHES

ESETZBUCH

: BGB (Rolf St¨urner et al.

eds., 15th ed. 2014) § 443 Recital 8 (German law); Christian Berger, § 477, in B

URGERLICHES

ESETZBUCH

: BGB § 477 Recital 1 (Rolf St¨urner et al. eds., 15th ed. 2014); Georg Kathrein &

Thomas Schoditsch, § 9b KSchG, in ABGB K

URZKOMMENTAR

§ 9b KSchG Recital 1 (Helmut

Koziol, Peter Bydlinski & Raimund Bollenberger eds., 4th ed. 2014) (Austrian law); Peter

Apathy, § 9b KSchG, in ABGB P

RAXISKOMMENTAR

-B

AND

5 § 9b KSchG Recital 1 (Georg

Kodek & Michael Schwimann eds., 4th edn. 2014).

167

Apathy, supra note 166, at §9b KSchG, Recital 2 (unechte Garantien).

168

Id. (echte Garantien).

169

Berger, supra note 166, § 443, Recital 9 (unselbst ¨andige Garantien).

170

Id. (selbst¨andige Garantien).

171

Under European nomenclature, extended warranties or service contracts provided by

third parties would be considered an insurance product and not a commercial guarantee. Thus,

EWSC-like is an EWSC issued by a third-party (insurance company). In the U.S., such a

product would be simply known as an EWSC. See supra Part I.A.

172

See infra Part II.C.

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tract forms, terms, and conditions that have a negative impact on con-

sumer interests.

173

The UCTD is remarkably wide in its application and,

in principle, does not necessitate distinguishing between different guar-

antee and insurance instruments.

174

Most notably, the UCTD covers both

third-party agreement types of insurance and genuine insurance.

175

However, the impact of the UCTD and its national implementations

as a means of regulating EWSCs is not likely to be significant, even if

future findings of planned obsolescence show that such regulation is

needed. EWSCs’ failure to offer durations long enough to cover obsoles-

cence-related repairs may not meet the threshold of unfairness required

by the UCTD. The perceived “unfairness” would not be of a nature that

would cause “a significant imbalance in the parties’ rights and obliga-

tions arising under the contract, to the detriment of the consumer.”

176

The Annex of UCTD lists “indicative and non-exhaustive”

177

unfair

terms. Cases of insufficiently long guarantee periods are not covered.

Overall, it remains highly questionable and uncertain whether the dura-

tion of EWSCs would constitute unfairness, particularly, in cases where

the offeror of the guarantee had no knowledge about the expectable lifes-

pan of the product. Also, since EWSCs provide an additional period of

protection, even for a short period of time, beyond the mandatory dura-

tion of legal guarantees they make a weak case for a party claiming un-

fairness under the UCTD.

178

Roughly ten years after the introduction of the UCTD, the EU legis-

lature enacted the Unfair Commercial Practices Directive (UCPD).

179

The UCPD amended a number of older initiatives on banning socially

and widely unacceptable business strategies that had been applied to

maximize profits.

180

The directive includes a number of provisions that

prohibit unfair commercial practices.

181

Most notably, the broadly de-

173

See UCTD, supra note 60.

174

See O

FFICE OF

AIR

RADING

(OFT), U

NFAIR

ONTRACT

ERMS

UIDANCE

: G

UI-

DANCE FOR THE

NFAIR

ERMS IN

ONSUMER

ONTRACTS

EGULATIONS

1999 35–36, 50–51

(Sept. 2008), https://assets.publishing.service.gov.uk/government/uploads/system/uploads/at

tachment_data/file/284426/oft311.pdf.

175

Id.

176

See UCTD, supra note 60, art. 3(1), at 31.

177

UCTD, supra note 60, art. 3(3), at 31.

178

One can justifiably argue that such clauses relate to the main subject matter of the

guarantee contract and hence, in principle, are exempted by the UCTD, as explained in its

recitals as follows: “[F]or the purposes of this Directive, assessment of unfair character shall

not be made of terms which describe the main subject matter of the contract nor the quality/

price ratio of the goods or services supplied.” Id. at 30.

179

See UCPD, supra note 140.

180

See UCPD, supra note 140; see also Jana Valant, European Parliamentary Research

Serv., Application of the Unfair Commercial Practices Directive: Overview of the Commis-

sion’s May 2016 Guidance Document, at 4 (Jan. 2017).

181

See Valant, supra note 180.

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fined catalogue of UCPD Article 5 includes misleading and aggressive

business practices.

182

Compared with the UCTD, the UCPD might offer

a more suitable approach towards banning “abusive” sale of EWSCs,

particularly in the context of planned obsolescence.

183

Notably, the

UCPD Article 5(2)(a) requires the applied commercial practices be “con-

trary to the requirements of professional diligence” to be considered un-

fair in the sense of the directive. Hence, here as well, one would have to

identify a culpability element to allow for remediation under the law.

In an attempt to standardize the fragmented nature of older con-

sumer directives, the 2011 Consumer Rights Directive (CRD; also

known as the Directive on Consumer Rights) repealed two earlier direc-

tives on distance and doorstep selling and added a Member State obliga-

tion to inform the EU Commission of stricter national legislation that is

passed as consequence of the legislative leeway provided by the UCTD

and CSD. In the present context, particularly noteworthy are the two in-

formation catalogues of the CRD—one for distance and off-premises

B2C transactions (CRD Article 6(1)) and one for B2C transactions other

than distance and off-premises contracts (CRD Article 5(1)).

184

With re-

spect to guarantees, the information obligations are similar in both

groups. Traders have to inform consumers “in a clear and comprehensi-

ble manner” about “the existence of a legal guarantee of conformity for

goods,” as well as where applicable, “the existence and the conditions of

. . . commercial guarantees.”

185

The CRD and its possible application to

EWSCs will be further discussed in the next Part.

186

C. Regulatory Insufficiencies Related to EWSCs in the EU and EU

Member States

Though some national schemes have gone beyond the minimum re-

quirements enshrined in EU laws,

187

there is a need for further ancillary

regulations, especially due to challenges posed by planned obsolescence

to be discussed in Part III.

188

The 2015 ECC-Net Report commences with a summary of some of

the positive and negative characteristics of EWSCs.

189

First, EWSCs of-

fer some additional protections that go beyond legal guarantees.

190

Most

182

See UCPD, supra note 140, at 27.

183

See G

ERAINT

OWELLS

& S

TEPHEN

EATHERILL

, C

ONSUMER

ROTECTION

210

(2d ed. 2005) and text accompanying note 197.

184

CRD, supra note 21, at 74–76.

185

CRD, supra note 21, arts. 5(1)(e), 6(1)(l) & 6(1)(m), at 74–76.

186

See infra Part IV.B.0 (Austrian and German laws).

187

See observations in supra Part III.B.2.

188

ECC-N

, supra note 128; I

PSOS ET AL

., supra note 132.

189

See ECC-N

, supra note 128, at 7.

190

Id.

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notably these include longer guarantee periods, additionally liable par-

ties, or additional coverage, such as repair at home services or compensa-

tion for damages due to accident.

191

In the context of the present analysis on EWSCs and planned obso-

lescence, the incremental length of the extended duration provided by

EWSCs becomes the key issue. The length of guarantee periods, given

engineered product lifetimes, becomes central to the assessment of

whether guarantees are really worth the money charged or are cases of

overreaching. The findings revealed in the 2015 ECC-Net Report on the

average durations of EWSCs (related to the sale of photo cameras, wash-

ing machines and televisions) showed that in a significant number of

cases, the duration of the advertised EWSCs actually added little, if any,

additional benefits to the consumer.

192

In 95 of the 173 examined cases

(55%) the EWSC offered did not exceed the two-year period of legal

guarantees, which is the minimum duration required by CSD Article

5(1).

193

The 2015 ECC-Net Report further shows that in cases where

extensions were offered, the vast majority did not go beyond a total of

five years (i.e. an extension of three years past the two years provided by

legal guarantees).

194

The 2015 Market Study found a slightly higher percentage where

EWSCs offered longer guarantee durations than legally required; never-

theless, that study found that approximately one-third of the examined

paid-for EWSCs did not include any extension of duration of

coverage.

195

Particularly in cases where longer product lifetimes are justifiably

expected, the true extra benefits remain questionable.

196

Geraint Howells

and Stephen Weatherill’s review of the 2015 Market Study on the EWSC

market concluded that:

In theory this two tier guarantee level—normal [i.e. le-

gal] and extended [i.e. commercial] guarantee—should

be applauded as it allows consumers to select the level of

cover desired, but does not force all consumers to pay

for long-term guarantees. The danger is that the addi-

191

Id. at 7, 50–51.

192

Id. at 62–63.

193

Id. at 116.

194

Id.

195

Market Study, supra note 1, at 92.

196

ECC-N

, supra note 128, at 116–17. Just see the example of washing machines.

Among the tested product categories, washing machines showed the highest percentage of

extended warranties. But even here, the offered durations stayed largely behind the standard

lifetimes generally expected or examined. See id. at 117. A similar, but slightly more critical

way is proposed by Petra Kirchhoff, Garantie-Vertr¨age—Teurer Extraschutz, FAZ (May 11,

2009), www.faz.net/aktuell/rhein-main/wirtschaft/garantie-vertraege-teurer-extraschutz-

1799624.html.

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tional cover is both overpriced and provides only what

consumers had come to expect under the normal

guarantee.

197

It should be noted that in a considerable number of jurisdictions, such as

Sweden, Iceland, Norway, Ireland, the U.K., the Netherlands and Fin-

land, the legally required duration of legal guarantees exceeds the CSD

model of two years from delivery.

198

These extended guarantee durations

are on the surface pro-consumer, but some of the unintended negative

consequences include less coverage derived from paid-for EWSCs and

higher prices.

Overall the 2015 ECC-Net Report is inconclusive as to the benefit

of EWSCs relative to costs.

199

Thus, more study is needed on issues ex-

posed by the Report. First, the European EWSC industry is characterized

by a significant degree of non-transparency and often fails to provide

appropriate, effective consumer information. This is despite the mandates

in the CSD

200

and CRD

201

that require the disclosure of consumer infor-

mation. As outlined above, Article CSD 6(2) obliges the offeror of

EWSCs to:

state that the consumer has legal rights under applicable

national legislation governing the sale of consumer

goods and [to] make clear that those rights are not af-

fected by the guarantee [and to] set out in plain intelligi-

ble language the contents of the guarantee and the

essential particulars necessary for making claims under

the guarantee, notably the duration and territorial scope

of the guarantee as well as the name and address of the

guarantor.

202

Comparable provisions can be found in the CRD, most notably in Article

5(1)(e) (for contracts other than distance or off-premises contracts) and

in Article 6(1)(m) (for distance and off-premises contracts). Moreover,

197

ERAINT

OWELLS

& S

TEPHEN

EATHERILL

, C

ONSUMER

ROTECTION

210 (2d

ed. 2005).

198

ECC-N

, supra note 128, at 96. The duration of the legal guarantee provided under

national legislation is three years in Sweden; five years in Iceland, Norway, and Scotland; and

six years in Ireland, England, Wales and Northern Ireland. Id. In Finland and the Netherlands,

the duration is more flexible and takes the expected lifetime of the product into consideration

(with a minimum duration of two years). Id. For details and references to domestic legislation

on these and other European schemes, see ICF, supra note 126, at 13–16.

199

ECC-Net, supra note 128, at 73–83.

200

See CSD, supra note 138, art. 6(2).

201

See CRD, supra note 21, art. 26.

202

See CSD, supra note 138, art. 6(2).

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many Member States have opted for an even stricter approach that covers

scenarios not encompassed by the pan-EU instruments.

203

Despite these legal requirements, the EWSC industry may either

lack knowledge of the regulatory standards or simply fail to fully com-

ply; or, more importantly, regulators may have been lax in enforcing the

disclosure requirements. In response to non-enforcement or non-compli-

ance issues, Article 9 of the 2014 Consumer Protection Cooperation Reg-

ulation (CPC Regulation) encourages national consumer protection

authorities to participate in market surveillance and enforcement activi-

ties, commonly referred to as “sweeps.”

204

The EU has now codified the

need for sweeps in Article 29 of a new CPC Regulation, which takes

effect on January 17, 2020.

205

In the 2014 Sweep on Guarantees in the

Electronic Goods Sector (2014 Guarantee Sweep), consumer protection

authorities in twenty-six Member States

206

surveyed a substantial num-

ber of websites with Iceland and Norway screening more than 400 web-

sites on which EWSCs were offered on electronic goods.

207

The websites

were graded on their conformity with the information and disclosure re-

quirements of pertinent EU legislation.

208

Irregularities were found in

more than half of the cases.

209

The most common issues concerned mis-

leading information with respect to the duration or geographical scope of

the advertised EWSCs, the identity (including the name and address) of

the guarantor,

210

and a lack of reference to mandatory legal guaran-

tees.

211

The 2014 Guarantee Sweep confirmed that consumers were not

provided sufficient information to make informed decisions. Though, the

203

See supra Part III.B.2.

204

Regulation (EC) No 2006/2004 of the European Parliament and of the Council of 27

October 2004 on Cooperation Between National Authorities Responsible for the Enforcement

of Consumer Protection Laws (the Regulation on Consumer Protection Cooperation), 2004

O.J. (L 364) 1, 6.

205

Regulation (EU) No 2017/2394 of the European Parliament and of the Council of 12

December 2017 on Cooperation Between National Authorities Responsible for the Enforce-

ment of Consumer Protection Laws and Repealing Regulation (EC) No 2006/2004, 2017 O.J.

(L 345) 1, 20.

206

See Better Application of EU Guarantees in Online Shopping of Electronics, E

ONSUMER

. A

USTRIA

(June 1, 2015), http://europakonsument.at/en/page/better-applica-

tion-eu-guarantees-online-shopping-electronics. Austria and Poland did not take part in the

sweep. Id.

207

See Sweeps, E

. C

OMMISSION

, https://ec.europa.eu/info/live-work-travel-eu/consum

ers/enforcement-consumer-protection/sweeps_en.

208

Id.

209

Id.

210

See Commission Staff Working Document, Impact Assessment, Accompanying the

Document Proposal for a Regulation of the European Parliament and of the Council on Coop-

eration Between National Authorities Responsible for the Enforcement of Consumer Protec-

tion Laws, at 5, COM (2016) 283 final (May 25, 2016) (both occurred in 20% of the examined

cases) (both occurred in 20% of the examined cases).

211

Id. (both occurred in 40% of the examined cases).

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sweep did lead to a significant improvement as authorities intervened to

increase compliance levels from 46% to 82%.

212

Another key finding is the inconsistency of the regulatory schemes

between EWSCs sold by manufacturers and retailers versus those sold by

third-party insurers. The regulatory situation with respect to sellers and

producers appears widely coherent. In both cases the requirements, par-

ticularly as introduced by the CSD and CRD and their national imple-

mentations, apply equally to EWSCs sold by manufacturer-retailers. In

contracts, the regulation relating to EWSCs offered by third-party insur-

ers remains complex and incoherent.

213

In this context, the 2015 ECC-

Net Report looks at the differences between EWSC-like insurances and

genuine insurances given that different legal frameworks apply to

them.

214

EWSC-like insurances (particularly if provided for by national

legislation) might be treated equally to ordinary EWSCs. Genuine insur-

ances, on the other hand, are explicitly exempted from the applicability

of the CRD

215

and fall within the domain of sectoral legislation, most

notably the 2002 Distance Marketing of Consumer Financial Services

Directive

216

and the 2009 Solvency II Directive (Solvency II).

217

The ECC-Net and other studies indicate that the complexity of the

regulatory framework has practical relevance. The 2015 ECC-Net Re-

port, for example, notes that at least 13% of the evaluated EWSCs con-

cerned third-party stakeholders that offered either commercial guarantees

or genuine insurances.

218

The 2015 Market Study found that 30% of the

212

See Sweeps, supra note 207.

213

Recall already the narrow definition of EWSCs used by the CRD. CRD Article 2(14)

on the definition of EWSCs principally excludes agreements with third parties (other than

manufacturers) from the scope of application. See CRD, supra note 21, at 73. With respect to

“genuine” insurances see further the exclusion by Article 3(d) CRD. Id. at 73–74. A definition

of financial services is found in Article 2(12) CRD: “any service of a banking, credit, insur-

ance, personal pension, investment or payment nature.” Id. at 73 (emphasis added).

214

See ECC-N

, supra note 128, at 81–82.

215

See CRD, supra note 21, arts. 2(12), 3(3)(d), at 73–74.

216

Directive 2002/65/EC of the European Parliament and of the Council of 23 September

2002 Concerning the Distance Marketing of Consumer Financial Services and Amending

Council Directive 90/619/EEC and Directives 97/7/EC and 98/27/EC, 2002 O.J. (L 271) 16;

see CRD, supra note 21, at 68 (“Member States should . . . draw inspiration from existing

Union legislation when legislating in areas not regulated at Union level, in such a way that a

level playing field for all consumers and all contracts relating to financial services is

ensured.”).

217

Directive 2009/138/EC of the European Parliament and of the Council of 25 Novem-

ber 2009 on the Taking-up and Pursuit of the Business of Insurance and Reinsurance (Sol-

vency II), 2009 O.J. (L 335) 1 [hereinafter Solvency II]. Solvency II broadly aligns national

insurance frameworks in the EU. For the sake of focusing on the key topics EWSCs and

planned obsolescence, it shall suffice to highlight that Articles 183–86 of Solvency II because

they contain substantive rules on the content of insurance contracts. Id. at 74–76. They cover

questions relating to, for example, pre-contractual information, withdrawal rights and cooling-

off periods and the monitoring of unfair contract terms. Id.

218

ECC-N

, supra note 128, at 113.

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screened guarantee services were insurance-based.

219

A number of im-

portant, more generally applicable regulatory frameworks, such as the

UCTD and UCPD could apply regardless of the design of the guarantee

product. But practical issues might arise when trying to determine

whether the concrete package constitutes an EWSC-like insurance that

would fall under the regulatory regime for EWSCs or genuine insurance

that would have to be treated differently. This difficulty in distinguishing

EWSC and genuine insurance is discussed in the 2015 ECC-Net Report:

“Given the content of some commercial warranties and the organizations

providing them, especially if they are not free, it is tempting to draw a

parallel with insurance. It is an open question whether some commercial

warranties are not actually insurance policies. Some are even sold as

such.”

220

Taking the complexity of the instruments and the possible lack

of legal knowledge of the average buyer and seller, it is imperative that

rules on EWSC-like insurances are aligned with those that apply to genu-

ine insurances to avoid unnecessary confusion.

221

By aligning or unify-

ing the regulatory frameworks, consumers will be better equipped to

make informed decisions in purchasing EWSCs and EWSC-like service

packages that include genuine insurances.

III. P

LANNED

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EWSC

The issue in the EWSC industry is not the long-term durability of

the product, but the durability of the product during the period of the

EWSC. Is the seller of the contract a gambler betting that the premium or

219

Market Study, supra note 1, at 92.

220

ECC-N

, supra note 128, at 81. For a practical example, see “Amazon Protect” ad-

vertised on Amazon Germany for a wide range of electronic goods. See Amazon Protect Prod-

ucts,

AMAZON

, https://www.amazon.de (enter “amazon protect” into search bar). Offered

and sold by a third-party insurer—at the time of writing this Article: London General Insur-

ance Company Limited—it comes in different package principally distinguishing between

time-wise extensions—“extra guarantees” (Extra-Garantie)—on the one hand and additional

cover—“device protection” (Ger¨ateschutz)—on the other. See id. Purchasers would have to

contact Amazon service centers. The services offered would financially be covered by the

third-party insurer, who himself operates pursuant to agreements with Amazon. See id. Are

these products genuine insurances that fall outside the regulatory scope of the CRD or could

they—per analogy—be considered as EWSC like insurances, or as “ancillary contracts” in the

sense of Article 2(15) CRD, supra note 21, at 73. Case-law has yet to settle this issue.

221

One should additionally note the likely relevance of Articles 2(15) and 15 CRD on

ancillary contracts that could introduce a third category. See CRD, supra note 21, at 73, 80.

Article 2(15) CRD defines ancillary contracts as “contract[s] by which the consumer ac-

quires . . . services related to a distance contract or an off-premises contract and where . . .

those services are provided by the trader or by a third party on the basis of an arrangement

between that third party and the trader.” Id. at 73. With respect to this third group (and under

the condition that the contract is not excluded by Article 3(d) CRD), alternative regulations

come into play, most notably Article 15 CRD on the effect of withdrawals from the main

contract and Article 15 of the Consumer credit agreements directive to which Article 15(1)

CRD refers. Id. at 80.

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price paid for the EWSC will exceed the cost of any claims? This seem-

ing gamble is a sure win for the seller. In the ad hoc case, the outlay of

costs of repair may be larger than the price paid for the EWSC, but over

a large quantity of cases, the surplus generated in favor of the seller

(price minus costs or repair) is always substantial. The certainty of gener-

ating great profits is due to the planned or engineered obsolescence of a

product extending beyond the term of the EWSC. Putting it in more sin-

ister terms, the manufacturer plans and produces its products to fail, in

order to generate future revenues related to the products’ lack of durabil-

ity, but beyond the time of the EWSC. A side benefit to the manufacturer

is any repairs require the purchase of manufacturer-specific replacement

parts. This fact lowers the costs in the probability calculation.

222

The

benefits to the manufacturer from planned obsolescence continue since

the sale replacement after the expiration of the EWSC provides an addi-

tional source of revenue. The actual level of intentionality or culpability

is found in the files of the manufacturers; especially those that sell

EWSCs.

The problem with planned obsolescence is that the purchaser is no

longer able to use price as a surrogate for quality or, more minimally, for

the durability of products. Planned obsolescence, generally an industry-

wide phenomenon, often results in the reduction of durability (less than

is achievable using state of the art design and materials) across product

categories and brands within a given category of products. This dimin-

ishment of the state of art is motivated by the manufacturers seeking to

increase future sales or repairs.

223

This industry-wide manipulation of

product quality produces a collusion or antitrust effect by lowering com-

petition in the area of durability, as high-end (brand-related) and high-

priced products are manufactured with lower-grade or less durable

materials.

A. United States

The regulation of EWSCs can take two forms. First, existing con-

tract law principles can be applied to police abusive practices in the sale

of EWSCs. Second, federal and state governments could enactment new

222

The price of the EWSC is based upon the seller’s probability estimate of the cost of

future claims. The probability calculation is the mathematical side of what has been called

planned obsolescence. From the manufacturer-provider perspective of EWSC: Price (-)

probability of claim X average costs of claim = profits. The part of the calculation that states:

“probability of claim X average costs of claim” is based upon the planned obsolescence deter-

mined by the manufacturer.

223

State of the art may be related to different characteristics of a product. For example, an

appliance may reflect, or not reflect, various states of art—technological state of the art (the

things the appliance can do); quality or durability state of the art, energy efficiency state of the

art, and environmental state of the art.

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laws or regulations targeted at the EWSC industry. Unfortunately, unlike

some of the initiatives taken in Europe, there has been little interest in

such oversight in the U.S.

1. Contract Law’s Response to Planned Obsolescence

The U.S. does not have a separate, holistic consumer sales or con-

tract law regime. Consumers are protected by implied warranties, but

they are easily disclaimable.

224

A gap in this piecemeal regulatory net-

work has been demonstrated by the evolution of the EWSC industry,

which remains largely unregulated.

225

However, tying of planned obso-

lescence to the duration of EWSCs could theoretically make the EWSC

part and parcel with the sale of goods. This would allow EWSCs to be

captured by the general principles of Articles 1 and 2 of the UCC.

226

The

general principles, whether taken from the UCC or the common law—

including unconscionability, good faith and fair dealing, misrepresenta-

tion, duress, and undue influence—are inherently malleable creatures.

However, that the courts have neither utilized these principles to

monitor the EWC industry nor have the developed specialized rules to

regulate EWSCs. This is unfortunate for two reasons. First, the principles

of unconscionability and good faith could easily be applied to the EWSC

scenario. There is both strong evidence of procedural unconscionability

(EWSCs are almost always sold to consumers; high pressure sales tac-

tics; contracts of adhesion or standard forms; no representation by a

lawyer; severe informational asymmetries) and substantive unconsciona-

bility (exorbitant price of product). Second, the courts have developed

specialized rules to monitor other troublesome contract clauses.

227

Thus,

there are established precedents where the courts have escaped the gravi-

tational pull of freedom of contract to develop rules to protect the weaker

party from the stronger party; such rules should be developed for

EWSCs. These fairness-based tendencies have always existed in the

common law dating back hundreds of years with equitable principles

continuing to influence the law and judicial discretion in the name of

224

U.C.C. § 2-316.

225

See Vehicle Service Contract Industry: How Consumers Lost Millions of Dollars, B

ET-

TER

. B

UREAU

, http://stlouis.bbb.org/storage/142/documents/vehicleservicecontract-

study2011.pdf (last updated Feb. 18, 2019); see also David Bakke, 6 Reasons Why You Should

Never Purchase an Extended Warranty, U.S. N

EWS

& W

ORLD

. (Apr. 24, 2012), http://

money.usnews.com/money/blogs/my-money/2012/04/24/6-reasons-why-you-should-never-

purchase-an-extended-warranty (explaining that warranties are not cost-effective; necessity of

repairs is rare).

226

See Arthur Leff, Contract as Thing, 19 A

. U. L. R

. 131, 151 (1970).

227

Examples of such clauses, many created in the common law and later codified by the

U.C.C., real estate law, and so forth, include: covenants not-to-compete, liquidated damages or

penalty clauses, attorney fee clauses, anti-assignment clauses in commercial leases, and limita-

tion of damages and limitation of remedies clauses. See, e.g., U.C.C. § 2-718.

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justice.

228

But, courts have refused to see the abusive nature of EWSCs

and have fully enforced them.

2. Regulatory and Judicial Responses

Even though the steps toward regulation in Europe are tentative or

first steps, the regulatory response in the United States has been non-

existent. Information on durability or reliability of automobiles and other

products are readily available online, but federal and state governments

have not intervened to regulate the sale of overpriced EWSCs. Further-

more, the courts have been reluctant to use existing constructs, such as

price gouging statutes

229

or the doctrine of unconscionability

230

to curb

excesses in this industry.

231

The only significant case involving planned obsolescence is Tatum

v. Chrysler Group,

232

which involved a class action suit against Chrysler

in the sale of the Dodge Journey crossover vehicle. The plaintiff alleges

that the brakes on the vehicle required frequent and costly repairs.

Chrysler’s “advertisements, which touted the Journey as safe, durable

and reliable.”

233

Chrysler claimed that: “the brakes routinely outlasted

their sales warranty, and that the advertising was not intended to create a

literal representation, but was merely puffery.”

234

A stronger case of mis-

representation would be available under most European advertising laws,

which see such statements as factual in nature. The court rationalizes that

228

See T. L

EIGH

NENSON

, J

UDGING

QUITY

: T

USION OF

NCLEAN

ANDS

1–4

(forthcoming 2019); L

ARRY

A. D

ATTEO

, E

QUITABLE

AW OF

ONTRACTS

: S

TANDARDS AND

RINCIPLES

xii (2001).

229

Price gouging statutes are targeted to the overcharging for services and goods due to

natural disasters or emergencies. F

. S

TAT

. § 501.160 (2005). “Florida’s law prohibits the

unconscionable pricing of commodities during a state of emergency. It is prima facie evidence

that a price is unconscionable.” Edward J. Page & Min K. Cho, Price Gouging 101: A Call to

Florida Lawmakers to Perfect Florida’s Price Gouging Law, 80 F

. B

J. 49, 49 (2006).

230

See U.C.C. § 2-302 (unconscionability). The hard selling of EWSCs meets the two

requirements for a claim of unconscionability: procedural unconscionability (high-pressure

selling tactics, no legal representation, unsophisticated purchasers, lack of full disclosure of

clear information) and substantive unconscionability (highly inflated prices), but courts have

not seen as such, preferring to view EWSCs as products of freedom of contract and fair bar-

gaining. See infra discussion accompanying notes 231–42.

231

A Lexis search of cases using the phrase “planned obsolescence” uncovered only six-

teen federal and state cases and only two were relevant to the sale of durable goods. See search

results, L

EXIS

, https://advance.lexis.com (search “planned obsolescence”); see e.g.,

Tatum v. Chrysler Group LLC, No. 10-4269, 2011 U.S. Dist. LEXIS 32362, at *1 (D.N.J.,

Mar. 28, 2011).

232

Tatum, 2011 U.S. Dist. LEXIS 32362. Another case in which planned obsolescence

was discussed in dissent is not relevant to the current analysis because it involved the assess-

ment of property; further, this case involved an unpublished opinion and under Michigan Court

of Appeals Rules, has no precedential value. See Danse Corp. v. City of Madison Heights, No.

215486, 2001 Mich. App. LEXIS 1058, at *1 (Ct. App. Mar. 23, 2001).

233

See Tatum, 2011 U.S. Dist. LEXIS 32362, at *2.

234

Id.

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the statement of products’ durability and reliability is not a misrepresen-

tation by placing the failure of the braking system in the context of the

automobile as a whole. Since it is a single component of many in the

vehicle, then braking failure does not contradict the claim of durability

and reliability.

235

Unfortunately, the court granted summary judgement determining

that there was not a sufficient factual record to decide the case on its

merits. However, in dictum, the court addressed the issue of planned

obsolescence as the basis for a claim, but dismissed the idea out of hand:

“Planned obsolescence, either deliberately or accidentally engineered, is

not actionable, and if the brakes outlasted their sales warranty even by a

day or a mile, there would be nothing rising to the level of a design flaw

for Defendants to warn of.”

236

Thus, the court equates planned obsoles-

cence with the express warranty: as long as the product works properly

during the period of the warranty, then planned obsolescence that results

in failures soon after the expiration of the warranty is not actionable. The

court goes further by reasoning that there is no claim in products liability

for defects of design since there is no such patent defect if the product

lasts through the warranty period. This is an unusually narrow interpreta-

tion of products liability.

The court reasoned that two factors weighed against the vehicle

owners’ claim. First, “that the complaint alleges nothing more than dis-

appointed consumer expectations, which may well turn out to be cor-

rect.”

237

Second, the “Court [wa]s struck, however, by the apparent fact

that none of the cars detailed in the complaint save for one, seem to have

suffered brake failure until after the one year or 12,000 mile sales war-

ranty had expired.”

238

The court further “note[d] that if the sales war-

ranty covered the Journey’s brakes up to 12,000 miles, and the brakes

routinely failed at 12,001 miles, Chrysler would have had no obligation

to repair them.”

239

The court rejected the idea that reasonable expecta-

tions of the purchasers could be used to sustain a claim of products liabil-

ity, misrepresentation, or unconscionability.

235

As to the claims of misrepresentation durability and reliability in Chrysler’s advertise-

ments, the court suggests that “to the extent that any warranty of reliability and durability

could be teased from the advertising, durability and reliability may be based on multiple fac-

tors, not just one element of the car, albeit a vitally important one. Absent specific claims as to

the braking system, Defendant’s general advertising was puffery [hyperbole] as that is under-

stood in the law.” Id. at *13–14.

236

Id. at *10.

237

Tatum, 2011 U.S. Dist. LEXIS 32362, at *8. Again, the court did not rule that this was

in fact true, but its phraseology indicates that it is likely to be true once a full factual record is

produced during the trial. Id.

238

Id.

239

Id. at *9.

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The court then referred to the case of Abraham v. Volkswagen of

America, Inc.

240

decided by the Second Circuit for the following

proposition:

The Abraham Court concluded “virtually all product

failures discovered in automobiles after expiration of the

warranty can be attributed to a ‘latent defect’ that existed

at the time of sale or during the term of the warranty. All

parts will wear out sooner or later and thus have a lim-

ited effective life. Manufacturers always have knowl-

edge regarding the effective life of particular parts and

the likelihood of their failing within a particular period

of time. Such knowledge is easily demonstrated by the

fact that manufacturers must predict rates of failure of

particular parts in order to price warranties and thus can

always be said to ‘know’ that many parts will fail after

the warranty period has expired. A rule that would make

failure of a part actionable based on such ‘knowledge’

would render meaningless time/mileage limitations in

warranty coverage.”

241

The Abraham Court saw the warranty as the only protection owed to the

purchaser. The use of planned obsolescence to ensure failures soon after

the expiration of the warranty period was not seen as anything sinister

but is viewed simply as a business model. The court rejected the owners’

claim of reasonable expectations that the brakes would last beyond the

warranty period. The owners claim that “the size of the brakes compared

to the weight of the car cause the brake pads and rotors to wear out

prematurely “after under 20,000 miles, rather than the 40,000 which

would normally be expected” begs the questions who might have had

those expectations, and on what were they based? If, as Defendant sug-

gests, they are nothing more than consumer expectations and not based

on representations by Chrysler there is nothing actionable.”

242

Again,

this is an affirmation that the use of planned obsolescence to set warran-

ties and escape liability is a perfectly acceptable business practice.

B. The EU and Member States

This section analyzes a number of studies and reports authorized by

institutions of the EU. It then outlines selected national initiatives and

implementations in Austria, Belgium, Finland, France, Italy, the Nether-

lands, and Germany.

240

795 F.2d 238 (2d Cir. 1986).

241

Tatum, 2011 U.S. Dist. LEXIS 32362, at *9–10 (quoting Abraham, 795 F.2d at 250

(2d Cir. 1986)).

242

Id. at *11–12.

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1. Legal Development at the EU level

In the 20th century, the phenomenon of planned obsolescence did

not attract significant attention among EU policy-makers. The first, indi-

rect references date back to the start of the new millennium, when envi-

ronmental directives and regulations addressed the issue of reducing

waste in general. Examples include the Waste Electrical and Electronic

Equipment Directive

243

and the Waste Framework Directive.

244

Others,

such as the Ecodesign Directive

245

and the Energy Labelling Directive

246

aimed to provide consumers with information on ecologically relevant

information to allow for an informed decision-making by buyers inter-

ested in purchasing eco-friendly products.

Recently, there has been some movement by a number of stakehold-

ers to recognize a link between obsolescence and legal guarantees, as

well as EWSCs. In 2011, the European Parliament held a forum for an

exchange of views on the sustainability of products. The European Com-

mission was asked to provide answers to a series of Parliamentary ques-

tions concerning planned obsolescence and existing EU law. In this

context the Commission expressed the opinion that planned obsolescence

had become a substantial problem. To accommodate the quest for more

sustainable and resource efficient production, the Commission pointed

out three legal instruments that might be used to regulate product dura-

tion: competition law,

247

the UCPD,

248

and the CSD.

249

Subsequently, the European Economic and Social Committee

(EESC) adopted an opinion on planned obsolescence.

250

The EESC re-

ferred to planned obsolescence broadly as “a form of industrial produc-

243

See Directive 2002/96/EC of the European Parliament and of the Council of 27 Janu-

ary 2003 on the Waste Electrical and Electronic Equipment (WEEE), 2003 O.J. (L 37) 24.

244

See Directive 2008/98/EC of the European Parliament and of the Council of 19 No-

vember 2008 on Waste and Repealing Certain Directives, 2008 O.J. (L 312) 3.

245

See Directive 2009/125/EC of the European Parliament and of the Council of 21 Octo-

ber 2009 Establishing a Framework for the Setting of Ecodesign Requirements for Energy-

Related Products, 2009 O.J. (L 285) 10.

246

See Directive 2010/30/EU of the European Parliament and of the Council of 19 May

2010 on the Indication by Labelling and Standard Product Information of the Consumption of

Energy and Other Resources by Energy-related Products, 2010 O.J. (L 153) 1, 2.

247

See supra notes 24–25 and accompanying text (describing the Phoebus Cartel); Janez

Poto`enik (European Commissioner for the Environment), Written Questions: E-001284/11, E-

002875/11, E-004273/11, E

UROPEAN

ARLIAMENT

(July 8, 2011), http://www.europarl.europa.

eu/sides/getAllAnswers.do?reference=E-2011-001284&language=EN. The Commission sug-

gests that—under the assumption that culpable behavior is constituted—“the fact that a trader

does not inform the consumer when a product has been designed to have a limited lifetime

could be considered as an unfair commercial practice.” Id.

248

See UCPD, supra note 140.

249

See CSD, supra note 138.

250

See generally Opinion of the European Economic and Social Committee and the Com-

mittee on “Towards More Sustainable Consumption: Industrial Product Lifetimes and Restor-

ing Trust Through Consumer Information,” 2013 O.J. (CCMI 112) 1.

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tion that relies on a minimum renewal rate for its products,” leading to

consumer abuse.

251

The committee highlighted different advantages of

sustainable production, ranging from positive influences on the environ-

ment to greater economic innovation.

252

With respect to guarantees, the

EESC suggested an enhanced system to “curb . . . out the most flagrant

cases.”

253

The Committee suggested that greater sustainability could be

achieved by the introduction of “a minimum operating period, during

which the cost of any repairs should be borne by the producer.”

254

This

type of regulation would severely reduce the attractiveness of EWSCs.

The initial work by the EU Commission and the EESC was fol-

lowed by additional investigations by other European institutions and

committees aimed at evaluating ways to ensure product durability and to

improve the disclosure of information with respect to product lifetimes.

The Influence of Lifespan Labelling on Consumers study (2016 EESC

Study) concluded that the introduction of lifespan labeling would likely

have a positive effect in terms of the purchase of sustainable products.

255

First, a significant number of consumers would have an interest in ob-

taining information on product lifespans. Second, comprehensible infor-

mation would increase the sale of sustainable products.

256

Also in 2016,

European Parliament’s Committee on Internal Market and Consumer

Protection (IMCO) intermediary report (2016 IMCO Report)

257

con-

cluded that longer product lifetimes (reduction of planned obsolescence)

would produce overall benefits for society, the environment, consumers,

as well as some industrial sectors that would outweigh possible costs.

258

Although extending product lifetimes would reduce the sale of new prod-

ucts, it would create new opportunities in the repair and maintenance

sector as well as product service systems.

259

The 2016 IMCO Report lists

nineteen possible regulatory strategies that range, most notably, from du-

rability labeling to additional consumer support to possible extensions of

251

Id.

252

Id. at 5–6.

253

Id. at 1.

254

Id. at 3.

255

ILLC Study: The Influence of Lifespan Labelling on Consumers, E

. E

CON

. & S

OMM

. 2, 84 (Mar. 2016), https://www.eesc.europa.eu/resources/docs/16_123_duree-dutilisa

tion-des-produits_complet_en.pdf.

256

Id. at 2. “The results of the test show that lifespan labelling has an influence on

purchasing decisions in favour of products with longer lifespans. On average, sales of products

with a label showing a longer lifespan than competing products increased by 13.8%.” Id.

257

See Carlos Montalvo, Devid Peck & Elmer Rietveld, Directorate-General for Internal

Policies, Comm. on the Internal Mkt. & Consumer Protection, A Longer Lifetime for Products:

Benefits for Consumers and Companies (June 2016), http://www.europarl.europa.eu/RegData/

etudes/STUD/2016/579000/IPOL_STU(2016)579000_EN.pdf.

258

See id. at 81, 82–83.

259

Id. at 83.

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guarantee periods, as well as mechanisms to monitor planned obsoles-

cence cases.

260

In June 2017, the IMCO released its final report touting the benefits

from prolonging the lifetime of products for benefits for consumers and

companies (2017 IMCO Report).

261

The 2017 IMCO Report was mostly

a restatement of the findings of the 2016 EESC study, the 2016 IMCO

Report, and some earlier studies.

262

The 2017 IMCO Report emphasizes

the expected advantages of longer product lifetimes and explicitly links

the debate to planned obsolescence and the role of guarantees. The Com-

mittee suggested a mix of measures ranging from a closer examination of

alleged obsolescence cases and deterrent strategies (such as whistle

blower protection and undefined “dissuasive measures for producers”) to

encouraging Member States to intensify domestic initiatives.

263

Focusing

predominantly on legal guarantees, the 2017 IMCO Report arrives at a

twofold strategy. First, buyers should receive enhanced, conspicuously

displayed information on their statutory rights.

264

Second, the 2017

IMCO Report suggests that in cases where “the reasonably expected pe-

riod of use [of products] is longer” than the statutorily enshrined guaran-

tee period, refined mechanisms could be introduced.

265

Unfortunately, it

does not define what refined measures would entail, but a tailor-made

approach to setting guarantee periods based upon the expected duration

of given products might arguably be one such measure.

2. Situation in Selected Member States

Parallel to the debates in the EU Parliament and Commission, sev-

eral Member States began to intensify discussions of possible mecha-

nisms to counteract the manipulation of product duration. The first

concrete result was presented in France in 2015, when the legislature

crafted an explicit prohibition of planned obsolescence. The key provi-

sion is found in Article L213-4-1 (I) and (II) of the French Consumer

Code: “Planned obsolescence is defined as any measure with the intent to

conceptually reduce the operating life of a good for economic considera-

tions” and “[i]t is punishable with two years of imprisonment and a fine

260

See id. at 86–88.

261

See Comm. on the Internal Mkt. & Consumer Protection, Report on a Longer Lifetime

for Products: Benefits for Consumers and Companies (June 9, 2017), http://

www.europarl.europa.eu/sides/getDoc.do?pubRef=//EP//TEXT+REPORT+A8-2017-0214+0+

DOC+XML+V0//EN [hereinafter 2017 IMCO Report].

262

Id.; see, e.g., TNS Political & Soc., Directorate-General for the Env’t, Attitudes of

Europeans Towards Waste Management and Resource Efficiency (June 2014), ec.europa.eu/

commfrontoffice/publicopinion/flash/fl_388_en.pdf.

263

See 2017 IMCO Report, supra note 261, at 11–12.

264

Id. at 12.

265

Id.

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of EUR 300,000.”

266

Thus, French lawmakers felt that the shortening of

product lifespans merely for economic reasons (e.g., manufacturer-seller

profits) was serious enough to impose a criminal penalty. A more recent

French strategy includes the possible introduction of a tailor-made life-

time labelling scheme.

267

In 2015, the Italian Parliament considered draft bills on regulating

planned obsolescence. At the time of writing this Article, both initiatives

were still being discussed in the Chamber of Duties.

268

One of the pro-

posed key provisions aims to guarantee the sustainable use of products

by obliging manufacturers to offer spare parts for a minimum period of

five years.

269

Manufacturers and sellers would be required to inform

consumers of their right to repair parts during the statutory period.

270

In 2012, the Belgian Senate passed a resolution on limiting planned

obsolescence requesting the government to develop strategies to combat

planned obsolescence.

271

This project has led to a number of draft bills,

which are currently pending. The proposed approaches range from new

contract law rules to sanctions under criminal law.

272

Other ideas being

discussed, likely influenced by the above studies at the EU level, include

recognizing planned obsolescence as an unfair commercial practice,

lifespan labeling for energy-related goods, and the expansion of legal

guarantees. In the area of guarantee law, potential reforms include the

extension of warranty-legal guarantee periods and adopting a more flexi-

266

Loi 2015-992 du 17 aoˆut 2015 relative a la transition energ´etique pour la croissance` ´

verte [Law 2015-992 of August 17, 2015 on the Energy Transition for Green Growth], J

OUR-

NAL

FFICIEL DE LA

EPUBLIQUE

RANCAISE

] [J.O.] [O

FFICIAL

AZETTE OF

RANCE

] , Aug.

18, 2015, art. L.213-4-1, p. 14263, https://www.legifrance.gouv.fr/affichCodeArticle.do?cid

Texte=LEGITEXT000006069565&idArticle=LEGIARTI000031053376 (translated by an au-

thor of this Article, Stefan Wrbka) [hereinafter French Consumer Code].

267

See Marion Candau, France Pushes for Product ‘Lifetime’ Labeling, E

URACTIV

(Nov.

21, 2018, 12:07 AM), https://www.euractiv.com/section/circular-economy/news/france-

pushes-for-product-lifetime-labelling.

268

See Proposta di Legge 4 november 2015, n.3404, Disposizioni per il Contrasto

del’Obsolescenza Programmata dei Beni di Consume [Draft Provisions on Fighting Planned

Obsolescence of Consumer Goods] (It.), https://parlamento17.openpolis.it/atto/documento/id/

163692 (Known as Camera dei deputati).

269

Id. art. 4(1), at 10.

270

Id. art. 4(4).

271

For its basis, see Senat de Belgique, Session de 2010-2011, Proposition de r´esolution

en vue de lutter contre l’obsolescence programm´ee des produits li´es `a l’´energie [Proposal for

a Resolution to Combat the Planned Obsolescence of Energy-related Products], (Oct. 7,

2011), www.senate.be/www/?MIval=/publications/viewPub.html&COLL=S&LEG=5&NR=

1251&VOLGNR=1&LANG=fr (Belg.) [hereinafter Belgian resolution] (S´enat de Belgique).

272

See Ana¨ıs Michel, Product Lifetimes through the Various Legal Approaches within the

EU Context: Recent Initiatives Against Planned Obsolescence, PLATE 266, 269 (Conny Bak-

ker & Ruth Mugge eds., 2017) (pointing out that the plans comprise contractual nullity and

reimbursement measures (under the Belgian Civil Code) as well as comparatively strong crim-

inal punishments—with up to five years of imprisonment).

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ble system that takes account of the respective product or product

category.

273

In Germany, there have been a number of political initiatives dis-

cussing strategies for regulating planned obsolescence. Most notably the

German Federal Environment Agency and the German Green Party com-

missioned reports suggesting a proactive regulatory approach towards

ensuring the production of sustainable goods.

274

In 2013, two draft bills

emanating from these studies were introduced.

275

Although neither bill

was passed into law, the initiatives increased the level of visibility of the

problem of planned obsolescence. A more recent 2017 position paper

issued by the German Federal Environment Agency

276

suggests, unlike

the Belgian approach of revising the existing guarantee framework that

would affect all sellers,

277

the implementation of additional guarantees

that would only apply to manufacturers.

278

Under this approach, manu-

facturers would be obligated to guarantee a minimum period of

usability.

279

Austrian legal academics have recently intensified debates on

planned obsolescence in response to greater awareness by public stake-

holders.

280

One of the most active institutions has been the Vienna

Chamber of Labour, which has hosted a number of events on planned

obsolescence and its regulation.

281

It commissioned an expert opinion to

273

Id.

274

See Umweltbundesamt, Einfluss der Nutzungsdauer von Produkten auf ihre

Umweltwirkung: Schaffung einer Informationsgrundlage und Entwicklung von Strategien

gegen ‘Obsoleszenz’ [Strategies Against Obsolescence: Ensuring a Minimum Product Life and

Improving Product Life and Consumer Information] (Nov. 2016), http://www.umwelt

bundesamt.de/sites/default/files/medien/378/publikationen/texte_11_2016_einfluss_der_nut

zungsdauer_von_produkten_obsoleszenz.pdf; Arge Regio, Stadt-und Regionalentwicklung

GmbH, Geplante Obsoleszenz [Planned Obsolescence] (2013), https://www.gruene-

bundestag.de/fileadmin/media/gruenebundestag_de/themen_az/umwelt/PDF/Studie-Obsoles-

zenz-aktuell.pdf (The German Federal Environment Agency is Umweltbundesamt, and the

German Green Party is B¨undnis 90/Die Gr¨unen).

275

EUTSCHER

UNDESTAG

: D

RUCKSACHEN

[BT] 17/13096 [Printed Matter 17/13096],

17/04/2013, on “Ressourcenschutz durch Vorgabe einer Mindestnutzungsdauer f¨ur technische

Produkte” (Ger.); D

EUTSCHER

UNDESTAG

: D

RUCKSACHEN

[BT] 17/13917 [Printed Matter 17/

13917], 12/06/2013, on “Geplanten Verschleib stoppen und die Langlebigkeit von Produkten

sichern” (Ger.).

276

Umweltbundesamt, Strategien gegen Obsoleszenz: Sicherung einer Produktmindestle

bensdauer sowie Verbesserung der Produktnutzungsdauer und der Verbraucherinformation

[Strategies Against Obsolescence] (Nov. 2017).

277

Belgian resolution, supra note 271 and accompanying text.

278

Umweltbundesamt, supra note 274, at 13.

279

Id.

280

See, e.g., H

ELMUT

OZIOL

, O

BSOLESZENZEN IM OSTERREICHISCHEN

ECHT

ELTENDES

ECHT

, S

CHUTZL

UND

EFORMBEDARF

(Wein, Jan Sramek Verlag ed.,

UCKEN

2016).

281

See, e.g., R

ENATE

UBNER

, G

EKAUFT UND SCHON KAPUTT

. L

EBEN IN EINER

EGWERFGESELLSCHAFT

? (2013).

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evaluate the use of legal guarantees in obsolescence cases.

282

In 2014,

the Austrian Standards Institute took a pioneering role in the lifespan

labelling movement by issuing the non-binding “Label of Excellence”

for durable, repair-friendly designed electrical and electronic appli-

ances.

283

It recommends the use of specific labels to indicate compliance

with a minimum period of usability—five years in the case of brown

goods (home entertainment equipment) and ten years with respect to

white goods (household appliances).

284

This trend relating to the issue of

planned obsolescence or minimum levels of durability is likely to con-

tinue in Austria.

Finally, it should be pointed out that a number of Member States

have extended or, alternatively, have diversified or created tailored legal

guarantee periods to cover as many obsolescence cases as possible. Par-

ticularly noteworthy in this respect are the flexible regimes found in the

Netherlands and Finland. In both jurisdictions the regulatory schemes

now take account of different product types and link the guarantee dura-

tion to the expected average lifetimes of the products.

285

IV. R

ECOMMENDATIONS FOR

EGULATORY

EFORM

There are various conceivable approaches to dealing with the ma-

nipulation of product life by manufacturers and the related issue of the

sales of EWSCs tailored to expire within those lifespans. The simplest

approach would simply be to refine the law to require longer warranties.

This would require the recognition of planned obsolescence as a hidden

or latent defect. As such, the fixed manufacturer warranty period would

be tolled until the discovery of the product’s lack of durability. In sum,

the law would recognize a connection between warranty and planned

obsolescence.

A more preferable approach would be to enact a new regulatory

scheme based upon the disclosure of information and more free market

friendly forms of self-regulation. Such an approach would incentivize

282

TEFAN

RBKA

, G

EPLANTE

BSOLESZENZ AUS

ICHT DES

AHRLEISTUNGSRECHTS

(2015).

283

Austrian Standards Institute, ONR 192102:2014, G¨ ¨utezeichen fur langlebige,

reparaturfreundlich konstruierte elektrische und elektronische Ger¨ate [Label of Excellence for

Durable, Repair-Friendly Designed Electrical and Electronic Appliances] (2014).

284

Id. criteria 10, 40.

285

In Finland, this task falls on an ombudsman, who has the competence to define the

expectable product lifetimes. See Statutory Liability for Lack of Conformity and Guarantee in

the Sale of Consumer Goods, F

INNISH

OMPETITION

& C

ONSUMER

UTH

. (Aug. 8, 2018),

https://www.kkv.fi/en/decisions-and-publications/publications/consumer-ombudsmans-guide

lines/by-subject/statutory-liability-for-lack-of-conformity-and-guarantee-in-the-sale-of-consu

mer-goods/; see also 2017 IMCO Report, supra note 261 (referencing specific measures intro-

duced in additional Member States); supra discussion in note 262–64 & infra discussion in

note 305.

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manufacturers to brand the durability of their products, thus allowing

manufacturers to differentiate their products, while at the same time im-

proving consumer protection.

There are numerous existing templates relating to safety, quality,

health, and environmental standards and regulations, such as energy effi-

ciency standards. Also in place are customary lifetime ratings and disclo-

sures for items such as automobile tires and batteries, windshield wiper

blades, other types of batteries (flashlight, electronic devices), light

bulbs, and so forth.

286

Thus, there are three currently plausible approaches to the regula-

tion of product durability and EWSCs. First, reforming current warranty

law by mandating longer durations to cover the period for planned obso-

lescence. Second, requiring additional information disclosures similar to

energy efficiency disclosures that estimate the lifetime efficiency of a

product. Third, combining extended warranty periods with disclosure of

expected lifespan information. Existing examples of the third approach

are seen in twenty-year-rated tires or twenty-year-rated roof shingles,

which allow a pro rata price credit on replacement tires or shingles based

upon the actual lifetime of the product. Replacement ratings are subject

to manipulation by manufacturers or rating agencies, but such manipula-

tion would be a case of fraud that could be regulated privately through

litigation or through statutory regulations. Such required disclosures are

likely to incentivize manufacturers to produce more durable products to

protect the marketability of their brand. Presently, most consumers use

price as a surrogate for quality, denying them the choice of buying a

lesser-priced product with an as long or longer life span.

287

A. Initial Considerations

This Section highlights the most striking conclusions derived from

the current research. Based on these conclusions a number of regulatory

approaches will be examined and recommendations will be offered. For

the purpose of clarification, before assessing regulatory options it first

needs to be determined, from a sustainability perspective, the reasons

why consumers consider the purchase of EWSCs. The 2015 Market

286

There are also numerous private rating services for durable products. For example,

Consumer Reports rate refrigerators on a number of criteria including “predicted reliability.”

See Refrigerators, C

ONSUMER

EPORTS

, https://www.consumerreports.org/products/bottom-

freezer-refrigerator/ratings-overview. Some national “experiments” have been initiated on a

few European countries such the initiative by the Austrian Standards Institute, supra note 283

(proposing voluntary lifetime labelling). Such labelling allows manufacturers to brand their

products as satisfactorily durable. See also supra notes 266–67 (discussing France’s legal re-

gime) and notes 271–73 (discussing Belgium’s legal regime).

287

Although some consumers may choose less durability for high-tech products with

shorter lifespans because they are susceptible to defects that have higher repair costs.

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Study on guarantees makes a commonsensical conclusion that consumers

who pay for EWSCs do so because they want additional protection in

fear of obsolescence and the high costs of repair that makes an extended

guarantee period appealable.

288

This was verified in the Market Study’s

listing of the most common consumer responses as wanting a “longer

guarantee coverage period,” “peace of mind,” and “cost of repairing the

product would be too high.”

289

In short, most consumers, with the excep-

tion of those who purposely purchase disposable items prefer purchasing

durable goods; and these consumers are disappointed by or fear relatively

short technical product lifetimes, as well as the high costs of repairs,

whether real or imagined. It is this irrational fear that makes consumers

susceptible to the high-pressure sales tactics discussed at the beginning

of this Article, and it is also the reason that sellers of EWSC are able to

charge exorbitant prices.

The current state of EWSCs and the profitability of this growing

industry works against the durability interests of consumers. The rise in

popularity of EWSCs incentivized manufacturers and sellers of EWSCs

to capitalize on obsolescence. From an alternative perspective, the

EWSC market is a market of the manufacturers’ own creation. Planned

obsolescence may have been motivated by economic motives to increase

future sales and the product repair market. But, it soon became apparent

that the period from the expiration of the express warranty and the end of

the time of planned obsolescence provided a new avenue for profit.

Based on the vulnerability of purchasers of automobiles and durable

products, enhanced marketing techniques were developed in the creation

of the EWSC marketplace.

The above scenario has resulted in a vicious cycle. Producers have

an interest in shortening product lifetimes to force end-users to buy new

products more frequently. At the same time, the EWSC and “genuine”

insurance markets flourish because consumers are willing, with the en-

couragement of manufacturer-sellers, to purchase additional coverage.

While this is not always necessarily an abuse in the strict sense, it

presents a number of moral hazard problems—questionable shortening

of product lifecycles and marketing of dubious and non-transparent

EWSCs—that should be removed through additional regulations of the

EWSCs market.

Before going into detail, regulation for the sake of regulation may

have unintended consequences, so what is needed is a refinement of cur-

rent warranty law or new, targeted regulation of planned obsolescence

and EWSCs. The focus should be put on efficiency and effectiveness.

The main characteristic of an appropriate EWSC regulatory framework

288

See Market Study, supra note 1, at 92–93.

289

Id.

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must include ideas on product sustainability within the parameters of

fairness, informed-decision making, product durability, proportionality

(lowest possible or necessary degree of state interference), and consumer

satisfaction. The following suggestions and considerations all address

one or more of these concepts.

B. Generalized Versus Specialized Rules

There has been a long running theoretical debate over the benefits

of a general rules regime versus specialized bodies of rules.

290

General-

ization is the essence of the common law of contracts and civil codes.

Contract law’s abstractness is needed because its rules and principles

must be applied to various, disparate types of contracts. The benefits of

generalized rules are that they provide a single place in which contractual

obligations are predicated. The twentieth century has witnessed the de-

velopment of specialized bodies of rules for particular transaction

types.

291

The most obvious preemption of the common law of contracts

in the U.S. was the adoption of the UCC with its specialized rules for

sale of goods, leasing of goods, letters of credit, secured transactions, and

negotiable instruments. However, American contract law has retained its

generality regarding commercial and consumer contracts. The same set

of contract rules apply to both. In contrast, EU Directives outlined in this

Article have diminished the generality of contract law, so much so that it

can be said that there is a separate consumer contract law in the EU.

Before specialized bodies of rules are adopted, the costs of develop-

ing and applying such rules need to be balanced against the benefits of

retaining a general law of contracts. This balance can be determined by

asking: (1) has the general law of contracts become obsolete or an ill fit

for a particular type of contract? (2) Does the general law of contracts

fail to provide adequate or comprehensive coverage of an evolving con-

tract-type? (3) Does the particular contract or transaction-type

292

require

a specialized body of rules to deal with issues not adequately dealt with

by the general law of contracts? These questions may be applied to

290

See e.g., Nathan B. Oman, Bargaining in the Shadow of God’s Law: Islamic Mahr

Contracts and the Perils of Legal Specialization, 45 W

AKE

OREST

L. R

. 579, 582 (2010)

(asserting that the common law of contracts was a better fit for Islamic marriage contracts than

the specialized rules of divorce law or prenuptial agreements); Nathan B. Oman, A Pragmatic

Defense of Contract Law, 98 G

. L.J. 77 (1990) (reviewing the critiques of general contract

law).

291

See Christopher T. Wonnell, The Abstract Character of Contract Law, 22 C

ONN

. L.

. 437, 440–42 (1990) (documenting the diminishment of abstraction in contract law).

292

Karl Llewellyn, a founder of the American Legal Realist Movement and Reporter of

the UCC, coined terms such as transaction-types and situation sense, which were core concepts

in his view of contract law as specialized areas of contract types, in which the application of

contract law is context dependent. See K

ARL

LEWELLYN

, T

OMMON

RADITION

ECIDING

PPEALS

260, 368 (1960).

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EWSCs as a new type of contract in need of specialized rules to prevent

overreaching by the manufacturer-seller.

The common law’s continual insistence that consumer contracts are

the product of true consent has prevented the creation of a body of spe-

cialized rules relating to consumer contract law. The likelihood of the

adoption of specialized consumer contract law even in the long-term is

slim. One of the questions presented in this Article is whether EWSCs

deserve a special body of rules to prevent consumer abuse. The issues

raised throughout this Article strongly indicate that, at the very least, a

set of explicit rules is necessary given the size of the EWSC industry.

293

The new approaches, as discussed in this Article, taken by the EU and

some EU Member States support the need for express, specialized rules

relating to the sale of EWSCs. Developments in Europe emphasize the

“practical relevance”

294

of EWSCs by introducing specific regulatory

concepts. However, there has been no recognition as to the best method

of regulating the EWSC industry. Most EU countries have no specialized

regulations, while some countries, such as Austria and Germany, have

taken first steps in regulating EWSCs as a separate product area. The

problem of planned obsolescence lags behind the study of EWSCs re-

quiring more investigation and deliberations at the EU and Member State

levels. With the exception of the remarkably specific regulation of

planned obsolescence in France,

295

no other countries at this time have

enacted tailored law on this subject.

C. Comprehensive and Specialized Laws are Needed

The current state of affairs relating to EWSCs presents numerous

issues that to a large extent have already been addressed in Europe, but

have yet to be met by stronger regulations in the U.S. Some of the issues

that should be regulated include: (1) how long can the administrator (re-

pairer) keep an automobile or other product in order to make necessary

repairs? (2) What are the consumer’s legal rights when the product has to

be continuously repaired? (3) Should the seller of an EWSC be required

to subtract the product warranty period from the advertised EWSC pe-

riod?

296

(4) Should the seller of a service contract be required to disclose

if the product is or is not likely to need repairs or the expected costs of

293

There are other instances where the American law of contracts has developed special-

ized rules for troublesome clauses, such as covenants not-to-compete and liquidated-penalty

clauses. See, e.g., U.C.C. § 2-718.

294

Practical relevance signifies that an issue is of substantial importance to the common

market to warrant investigation and possible enactment of law.

295

See supra note 266–67 and accompanying text.

296

For example, instead of representing the period of the EWSC as 8 years, the seller

must represent it as a 5-year duration because of duplicate coverage of the 3 years provided

under the product warranty.

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repairs?

297

(5) Should the seller be required to alert the consumer to any

exemptions from liability in the service contract, such as a clause al-

lowing the company to deny coverage if the consumer fails to follow

instructions for routine maintenance? (6) Should the seller be required to

alert the consumer of expenses not covered by the service contract?

298

(7) Should specific regulations be imposed on after-point-of-sale market-

ers of EWSCs (cold call or mail solicitations) that use high-pressure sales

tactics, often requesting a deposit or financial information before actually

providing the terms of the contract? Affirmative answers to these ques-

tions seem to be reasonable and rational. The following Sections explore

strategies for responding to the above questions.

D. Improving Informed Decision-Making

Informed decision-making refers to strategies aimed to provide con-

sumers with the information needed to make rational decisions. But since

human beings possess “bounded rationality,”

299

too much information is

likely to be ignored or not fully processed by the purchaser. How infor-

mation is delivered is just as important as the actual disclosure or content

of the information. Few consumers read overly long and detailed form

contracts or long lists of online terms and conditions.

300

There are two

elements to information dissemination: one from the seller’s and the

297

Such information surely exists and can be disclosed. An example by analogy is the

current controversy in American law school admissions, where likeliness of passing the bar

exam is available. Evidence shows a strong connection between law school admission test

scores (LSAT) and the likelihood of passing the bar exam. Some schools have lowered admis-

sion standards so low that they are admitting students in the bottom 8% of LSAT test scores,

thus resulting in low bar exam passing rates. This and other relevant information are not dis-

closed to law school applicants, making this a potential case of misrepresentation or fraud.

This allows the law schools to continue their revenues flows, while leaving their students with

high student loan debt and worthless degrees. See Myanna Dellinger, Desperate Times for Law

Schools, C

ONTRACTS

ROF

LOG

(Nov. 21, 2017), https://lawprofessors.typepad.com/contract-

sprof_blog/2017/11/desperate-times-for-law-schools.html.

298

These questions were derived from information provided by the U.S. FTC. See Col-

leen Tressler (Consumer Education Specialist), Warranties and Service Contracts 101, C

ON-

SUMER

NFO

., F

. T

RADE

OMM

’

(Jan. 15, 2015), https://www.consumer.ftc.gov/blog/2015/

01/warranties-and-service-contracts-101; Extended Warranties and Service Contracts, C

ON-

SUMER

NFO

., F

. T

RADE

OMM

’

, https://www.consumer.ftc.gov/articles/0240-extended-

warranties-and-service-contracts (last visited May. 2, 2019).

299

Bounded rationality recognizes that humans use heuristics or short cuts in making

quasi-rational decisions. Even if full information is provided or is available, humans generally

will not take the time or possess the cognitive capacity to process the information. See Amos

Tversky & Daniel Kahneman, Judgment Under Uncertainty: Heuristics and Biases, 185 S

1124, 1124 (1974) (discussing the use of heuristics and related biases to assess and predict

uncertainties); Melvin Aron Eisenberg, The Limits of Cognition and the Limits of Contract, 47

TAN

. L. R

. 211, 212 (1995) (using behavioral biases to justify regulations in contract law);

Cass R. Sunstein, Behavioral Analysis of Law, 64 U. C

. L. R

. 1175, 1179–93 (1997)

(reviewing a list of heuristics and biases).

300

See S

TEFAN

RBKA

, E

UROPEAN

ONSUMER

CCESS TO

USTICE

EVISITED

292–94

(2015) (discussing American and European studies).

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other from the buyer’s perspective. First, sellers through the manipula-

tion of information, emphasizing only positive features or using high-

pressure sales tactics, are able to frame the desirability of the EWSC.

Second, the reception of the information by the purchaser—characteris-

tics like prior experiences,

301

level of sophistication, and independent re-

search—can counter the manipulative presentations of information.

These two elements are intimately interconnected. The binary nature of

informational manipulation and bounded rationality is a core reason for

regulatory intervention. For example, if key information is required to be

presented in a conspicuous and intelligible manner, then the buyer will

be better able to process the benefits and costs of the EWSC.

In the present context, effective information disclosure must include

posting or marking the expected period of usability of products. In this

sense, effective information would allow buyers interested in purchasing

durable products to make informed decisions. Arguably the most effec-

tive strategy is using “durability labels” that follow the example of EU

“eco labels.” In 1992, the EU introduced a color-coded energy consump-

tion label with a classification of covered goods, largely household

goods, and then was extended to other types of products.

302

Under the

eco label scheme, products are classified, with a letter grade with the

most eco-friendly products given an “A” rating.

303

The energy consump-

tion labels contain intelligible information and have become an integral

part of the consumer and commercial marketplaces.

To provide buyers with a comparable degree of comprehensibility,

tailor-made durability labels could be introduced to signify the expected

lifespans of products. This is, for example, highlighted by more recent

policy discussions in the EU, where a number of national policy-makers

301

Behavioral law and economics have shown that biases, such as prior experience, often

intervene to prevent the decision-maker from making a less than rational decision. See Amos

Tversky & Daniel Kahneman, Availability: A Heuristic for Judging Frequency and

Probability, 5 C

OGNITIVE

SYCHOL

. 207 (1973) (describing a heuristic that predicts that people

evaluate risk more seriously when a past incident is readily called to mind).

302

The color code runs from green to red. One of the most recent examples is the provi-

sional agreement between the EU Parliament, Council, and Commission to identify the energy

performance of buildings. See, e.g. Welcomes Agreement on Energy Performance of Buildings,

UROPEAN

OMMISSION

(Dec. 19, 2017), http://europa.eu/rapid/press-release_IP-17-

5129_en.htm (proposing new legislative methods for improving the energy performance of

buildings).

303

See Council Directive 92/75/EEC of 22 September 1992 on the Indication by Label-

ling and Standard Product Information of the Consumption of Energy and Other Resources by

Household Appliances, 1992 O.J. (L 297) 16, 17, repealed by Directive 2010/30/EU of the

European Parliament and of the Council of 19 May 2010 on the Indication by Labelling and

Standard Product Information of the Consumption of Energy and Other Resources by Energy-

Related Products, 2010 O.J. (L 153) 1, 1, further repealed by Regulation (EU) 2017/1369 of

the European Parliament and of the Council of 4 July 2017 Setting a Framework for Energy

Labelling and Repealing Directive 2010/30/EU, 2017 O.J. (L 198) 1.

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have given this topic serious consideration.

304

A two-level labeling sys-

tem would signify the expected durability of comparable products, prod-

ucts of the same category and identify the evaluated lifespan of a specific

product, Durability Level 1 and Durability Level 2.

One of the parameters to determine the general expected durability

would be the overall level of technical development with respect to a

product category. Examples of systems utilizing the first level or type of

durability include the Finnish ombudsman system’s defining of expected

usability periods and the labeling initiative of the Austrian Standards In-

stitute, which were previously discussed.

305

The Durability Level 1 refers

to a durability period that function as a mandatory minimum standard for

products that are not explicitly sold as “disposable products.” Durability

Level 2 adds a more flexible system that gives manufacturers of longer-

lasting products the chance to label them as more durable in order to

attract potential buyers with strong preferences for sustainability. This

two-fold durability label scheme would allow a clearer linkage between

sustainable products and guarantees.

A durability rating system would enhance an informed decision-

making process. Added value to such a rating system would include the

provision for comprehensive information on the applicable guarantee

schemes. To vest potential purchasers with the ability to assess the value

of an EWSC, guarantees should be required to provide concise, intelligi-

ble, accurate, and appropriately complete information in a visible way.

The effectiveness of this disclosure regime would be improved through

effective enforcement and stakeholder guidance. The importance of en-

forcement and guidance will be discussed in a subsequent section.

306

In summary, producers should be required to comply with sus-

tainability and guarantee labeling standards. The benefits of such

mandatory disclosures would include increased consumer confidence,

stimulation of competition in the production of more innovative, durable,

and eco-friendly products. The EWSC market would need to be re-

tooled; the new disclosure requirements would incentivize sellers of

EWSCs to design more attractive guarantees.

E. Refined Warranty Regime

A three-level guarantee framework would provide an optimal mix

of legal, integral (no-cost), and paid-for EWSCs while also maximizing

the potential of durability labeling schemes. Following the examples of

304

See supra Part IV.H.

305

See supra note 285 (discussing the Finnish ombudsman scheme); supra notes 280–84

(discussing the Austrian Standards Institute’s initiative).

306

See infra Part IV.F.

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the Netherlands and Finland,

307

products would be classified into prod-

uct-specific durability categories that determine the generally expected

minimum period of usability for that respective product category. These

periods would further define the length of the respective legal guaran-

tee—the duration of legal guarantees would principally follow the dura-

bility period of the respective product category.

308

Manufactures who want to produce longer-lasting products would

be able to attract customers interested in long product lifespans or con-

sumers who are eco-minded. The manufacturer would signal its products

durability with a Durability label. To ensure the functionality of the re-

spective product during the longer durability periods and to prevent mis-

leading information, the respective product would have to provide an

extended guarantee or integral EWSC at no additional cost, covering the

time between the expiration of the legal guarantee and the durability pe-

riod stated in the Durability label. Optional EWSCs could then be offered

to customers wanting protection beyond the legal guarantee and integral

EWSCs. Thus, adding a third level of guarantees. Such a scheme would

create a level playing field for stakeholders participating in the sale of

goods and guarantees EWSC markets through enhanced transparency

and comprehensibility.

The three-level scheme proposed above may lead to further diversi-

fication of the market and greater consumer choice. First, some manufac-

turers might want to produce less durable, “disposable” products with

expected durations shorter than the generally expected duration of goods

in the same product category. This goes hand in hand with the interests

of buyers who want to purchase less durable products, in particular if

they come at a significantly lower price. To accommodate this market,

the above-tiered system of guarantees would need to be fine-tuned with a

shorter running time than the generally expected. This exception would

be consistent with the goal of informed decision-making if such products

were visibly and clearly labeled as “less durable than the standard” of

durability of that category of products. This would be consistent with

preventing the manipulation of information tied to planned obsolescence

and the overpricing of EWSCs. The labeling of goods as less durable

aligns planned obsolescence with informed decision-making.

Second, it must be noted that there are a variety of EWSC-like prod-

ucts whose purpose is not to temporarily extend the duration of guarantee

periods, but to provide for extra services, such as enhanced repair ser-

vices or extending liability to other parties. Such variety or diversifica-

tion, whether in products or in paid for guarantees is a good thing as long

307

See supra note 285 (outlining the Finnish ombudsman scheme).

308

Exceptions and shorter legal guarantee durations apply with respect to disposable

products.

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as the strict standards of clarity and comprehensibility proposed above

are applied.

F. Enhanced Support and Enforcement

The studies, reports and initiatives referred to in this Article indicate

a lack of transparency on product durability coupled with unintelligible

or misleading information and slick selling tactics in the sale of EWSCs.

The 2014 Sweep on Guarantees in the Electronic Goods Sector high-

lighted the practical issues in the sale of such extended guarantees as

their failure to reference applicable, mandatory legal guarantees and

overlapping coverage. For example, does the EWSC extend the duration

of coverage beyond the legal guarantee or does it merely provide some

additional services?

New regulatory requirements for the use of clear, intelligible lan-

guage in EWSCs offers a certain degree of improvement. But in many

instances, existing regulatory language remains imperfect for EWSCs.

Article 6(2) CSD, for example, seems to be comparatively precise when

it states that EWSCs should “set out in plain intelligible language the

contents of the guarantee and the essential particulars necessary for mak-

ing claims under the guarantee, notably the duration and territorial scope

of the guarantee as well as the name and address of the guarantor.” In

practice, however, the lack of concrete guidelines has made application

of these requirements problematic. Hence, a more precise substantive

regulatory regime would denote clear, specific requirements and criteria.

The 2014 Guarantee Sweep and comparable projects show the

EWSC market is characterized by a considerably high degree of non-

compliance with existing rules. Thus, a refined regulatory scheme needs

to be coupled with enhanced enforcement. In modification of the motto

“ubi non accusator ibi non iudex” (“where there is no claimant, there is

no judge”), one of the most proportionate and adequate ways would be to

establish information and monitoring authorities. Such authorities should

be imbued with competencies to launch enforcement actions. The market

surveillance activities (sweeps) performed under the CPC Regulation

have been a highly effective mechanism to identify shortcomings in ex-

isting regulations and cases of non-compliance. As repeatedly shown, the

actions launched by competent government agencies or private institu-

tions

309

have significantly improved the level of pertinent compliance.

310

309

To assist market surveillance institutions, local and nationwide business and consumer

information centers could support substantive regulation and help to decrease levels of non-

transparency and incomprehensibility, and limit the necessity to involve courts and other dis-

pute resolution bodies.

310

For more information on the CPC Regulation sweeps conducted prior to 2015, see,

e.g., S

TEFAN

RBKA

, E

UROPEAN

ONSUMER

CCESS TO

USTICE

EVISITED

66–67 with further

references. For information on more recent sweeps see, e.g. Sweeps, supra note 207.

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In some cases, non-complying businesses do not possess sufficient

knowledge of the law or elect to strategically non-comply.

311

However,

in cases of intentional non-compliance or partial compliance, harsher ac-

tions are needed, such as standing to sue for overpricing and injunctions,

and decertification for repeat offenders.

ONCLUSION

There are many regulatory gaps in the law; rightly so, otherwise,

overregulation would smother the free market system. A balance needs

to be struck between freedom of contract and the regulatory need to en-

sure a fair marketplace. This balance has been recalibrated from time to

time. Human and societal preferences are the bases of capitalism; as

such, they have increasingly defined that balance as creating an eco-

friendly, sustainable use of resources, fair and competitive markets that

encourage technological advancements and innovation in the interests of

consumers in a transparent, rights-observing marketplace. Achieving

such a balance requires greater disclosure of the durability of products so

that consumers and other purchasers are provided the means to make

informed decisions. Currently, the Extended Warranty-Service Contract

(EWSC) market can be characterized as unfair, non-transparent, and

overreaching (price gouging). Studies support the view that a truly sus-

tainable marketplace would benefit from regulation of this growing

market.

This Article discusses both the EWSC markets and the phenomenon

of planned obsolescence (products engineered to fail prematurely) in the

United States and Europe. Both pose challenges from the viewpoint of

creating a fair and level playing field. Most notably, concerns include the

absence of clear regulatory rules and, in cases where such rules exist,

there have been numerous enforcement issues. Recommendations are

provided for the creation of more comprehensive and effective rules to

ensure procedural fairness in the purchase of EWSCs: labeling schemes,

refined techniques of enforcement, monitoring, and support institutions.

In effectuating such rules, the phenomenon of planned obsolescence can

be brought out of the shadows and made transparent in the marketplace.

In the end, the regulation of EWSCs and the issue of planned obsoles-

cence are inherently interconnected.

311

See Daniel T. Ostas, Cooperate, Comply, or Evade? A Corporate Executive’s Social

Responsibilities with Regard to Law, 41 A

. B

. L.J. 559 (2004) (arguing that businesses do

not have an absolute duty to obey the law). The reciprocal reversion of strategic compliance is

strategic enforcement. See Margaret H. Lemos & Alex Stein, Strategic Enforcement, 95 M

INN

L. R

. 9 (2010).