Developments in the field of automated and autonomous driving are progressing rapidly, which is having an impact on legal classifications as well. These developments are becoming increasingly relevant in civil law especially, and particularly for the relationship between seller and buyer. In this context, questions are being raised with regard to the software used, the requirements for an object to be considered free from (material) defects and the structuring of the individual contractual relationships in each case.
These questions were recently addressed by the District Court of Darmstadt in its Judgment (only in German) of 21 February 2022 (Case No. 26o 490/20). The case before the court involved the rescission of a contract of sale for a vehicle which the buyer considered to be defective due to problems with the vehicle’s driver assistance system. The underlying facts of the case were as follows: in March 2019, the buyer purchased a Tesla “Model 3” and two software packages featuring autonomous driving functions were offered to the buyer: the “autopilot” package was acquired at the time the contract of sale was concluded, while the “full potential for autonomous driving” package was not acquired until December 2019.
Individual contracts or single contract of sale?
Contrary to the view advanced by the defendant, the manufacturer and distributor of the vehicles, that the contract of sale and the two software agreements are separate and independent contracts, the District Court ruled in the above case that all of them are part of a single contract of sale. It found that the passage of time between the date the car was purchased and the date the second software package was acquired does not refute this assumption, particularly since the second purchase involved “embedded software” which can only be operated on the hardware for which it was programmed. Accordingly, the court found that the contract of sale includes purchase of the software packages as well.
Are missing functions a material defect?
The buyer in this case was entitled to expect that he would be able to fully utilize the services offered through the software packages. But this was not the case for several functions, such as e.g. the “traffic light and stop sign detection with automated stop/start” function. This function could not be used due to incompatibility with the “HW 2.5 computer” which had been installed in the vehicle.
The District Court ruled that this was a material defect in terms of § 434(1) Sentence 2 No. 2 of the Civil Code, finding that a vehicle equipped with a driver assistance system is not suitable for customary use and does not have the typically expected quality if the additional driver assistance functions acquired cannot be used due to the fact that the vehicle’s hardware and software are incompatible.
The fact that the vehicle can be re-equipped with a compatible “HW 3 computer” does not alter this conclusion, in the court’s view: it does not change the fact that the function does not work with the currently installed computer.
Legal classification of software under new law
This Judgment is based on the “old” law governing the sale of goods, which has been substantially altered by the “Act regulating the sale of objects with digital elements and other aspects of contracts of sale” (only in German) (as reuschlaw reported). These changes apply for contracts which are entered into as of 1 January 2022.
These new provisions may result in a different legal assessment of the underlying facts.
The newly adopted provisions, beginning with § 327 of the Civil Code, create specific rules for contracts involving objects which incorporate or are interconnected with digital products. This category should include vehicles which feature software which is not absolutely necessary for operation of the vehicle, such as software for autonomous driving functions. In this case, warranty rights would no longer be governed in all cases by § 434 of the Civil Code and the subsequent Articles, but rather by § 434 of the Civil Code and the subsequent Articles (for defects in the vehicle) and by § 327 of the Civil Code and the subsequent Articles (for defects in the software).
Since the aforementioned statutes differ in both the specific requirements for affirming that an object is free from (material) defects and the legal consequences of such defects, a differentiated analysis is indispensable in each individual case.
Summary and outlook
This Judgment by the District Court of Darmstadt demonstrates that it is essential for manufacturers and suppliers to ensure that their vehicles and components are compatible with any software options they may be offering.
An appeal challenging the District Court’s Judgment was lodged on 31 March 2022 and it remains to be seen how the appellate court will rule in this case. Nevertheless, companies would still be well-advised to keep in mind which warranty rules will apply for their vehicles and other products in the future and to verify the compatibility of the hardware and software included. Both the underlying contracts and technical incidents must be monitored at all time and checked for consistency.