EU proposes replacement Product Liability Directive for the digital age

The European Commission has proposed to replace the EU Product Liability Directive (85/374/EEC, the “PLD”) with a new directive (the “Proposed Directive”). The Proposed Directive updates the legal safety net for compensating people who suffer injury and/or damage to property caused by defective, unsafe products to address the emergence of new digital technologies and artificial intelligence (AI), the circular economy business model and the challenges of global supply chains. 

These long-awaited proposals will update the EU's core product liability regime, which was conceived in a largely pre-internet world and had increasingly been considered to be lagging behind in the digital age.  It will be of interest and relevance to all stakeholders producing or distributing products including into the EU.

The Proposed Directive is intended to work alongside the recently proposed Artificial Intelligence Liability Directive (AILD) and, in short, expands the types of products and damage within its scope, updates the range of defendants that can be liable to consumers, eases the evidential burden for claimants, and loosens the restrictions on compensation claims.   

In this article we outline why revision of the PLD is necessary and summarise the key provisions of the Proposed Directive, and how the Proposed Directive and the AILD work together.

Why revision of the Product Liability Directive is necessary

Since the adoption of the PLD in 1985, the green and digital transitions have significantly changed the way products are produced, distributed and operated. New types of products have emerged, such as modified and remanufactured products and AI-enabled smart products. In short, the landscape of consumer products has shifted and so have the risks of harm.     

Recognising this shift, the European Commission reviewed the PLD in 2018 and concluded that the PLD ‘was, on the whole, an effective and relevant instrument’. However, a number of shortcomings were identified, including:

• the definitions and concepts within the PLD are out-dated and difficult to apply to products in the modern digital and circular economies;
• the burden of proof has become more challenging for injured persons to overcome due to the difficulty of gathering evidence to prove that complex products are defective (e.g. those involving pharmaceuticals and AI);
• injured persons face excessive limits on compensation claims (e.g. claims for property damage worth €500 or less are entirely excluded); and
• there is an imbalance in the protection afforded to consumers who purchase goods originating outside the EU without there being a manufacturer or importer based within the EU.

As revisions are required to almost every article, the Commission has decided the suitable approach is to replace the PLD entirely, albeit parts of the PLD are replicated in the Proposed Directive.      

The key changes

What damage is covered?

The Proposed Directive expands the current definition of “product” to include ‘electricity, digital manufacturing files and software’, bringing AI-enabled products, software, and programs ‘enabling the automated control of machinery or tools’ (such as 3D printers) within the remit of the compensation regime.

As with the PLD, consumers can claim compensation for “damage” caused by a defective product, meaning death or personal injury and/or harm to or the destruction of property (other than the defective item itself). However, the Proposed Directive updates the notion of compensable damage to include:

• ‘medically recognised harm to psychological health’;
• property used for a combination of private and professional use (except for damage to the defective product itself, a product damaged by a defective component of that product, and ‘property used exclusively for professional purposes’ is excluded);
• the ‘loss or corruption of data that is not used exclusively for professional purposes’ (the Commission suggests content deleted from a hard drive as an example); and 
• to clarify that ‘a product damaged by a defective component of that product’ will not be compensable (where “components” will include ‘any item, whether tangible or intangible, or any related service
  , that is integrated into, or inter-connected with, a product by the manufacturer of that product or within that manufacturer’s control’).   

When is a product defective?

Under the existing PLD, a product is determined “defective” if it ‘does not provide the safety which a person is entitled to expect’, taking all (including certain listed) circumstances into account.

The Proposed Directive adjusts the standard of safety to that ‘which the public at large is entitled to expect’, rather than any particular person. The Commission suggests this should be assessed by taking into account:

• ‘the intended purpose';
• ‘the objective characteristics and the properties of the product in question’; and
• ‘the specific requirements of the group of users for whom the product is intended’.  

However, to address the characteristics of products in the digital age, the Proposed Directive includes additional factors to be taken into account when determining defectiveness, including:

• ‘the effect on the product of any ability to continue to learn after deployment’ - to reflect the design of some products’ underlying software to prevent hazardous product behaviour; 
• ‘the effect on the product of other products that can reasonably be expected to be used together with the product’ - to reflect the interconnectedness of many digital products;
• where the manufacturer retains control over a product after it is placed on the market or put into service, ‘the moment in time when the product left the control of the manufacturer’ - to reflect the fact that manufactures often exercise ongoing control over products with digital elements, for example, where a product receives digital software updates remotely; and
• ‘product safety requirements, including safety-relevant cybersecurity requirements’ – meaning that a product could be found defective on account of its cybersecurity vulnerability;
• ‘the specific expectations of the end-users for whom the product is intended’; and 
• ‘any intervention by a regulatory authority or by an economic operator … relating to product safety' – the Commission gives a product recall as an example of an ‘intervention’ but clarifies that such interventions should not, in themselves, create a presumption of defectiveness.

Who is liable?

The current position in the PLD places strict, no-fault liability for defective products on:

• ‘the manufacturer of a finished product’;
• ‘the producer of any raw material or the manufacturer of a component part’ of the product;
• ‘any person who, by putting his name, trade mark or other distinguishing feature on the product presents himself as its producer’; and
• ‘any person who imports into the Community a product for sale, hire, leasing or any form of distribution in the course of business’.

The PLD also contains some ‘backstop’ provisions which may pass liability on to the supplier of a product where the relevant producer cannot be identified.

Alongside some changes to terminology, the Proposed Directive expands the “economic operators” who can be held strictly liable to better protect consumers from defective products manufactured outside the EU or remanufactured in the circular economy:

• Products made outside the EU - Where a product is defective and the manufacturer, importer, and authorised representative of the manufacturer are all based outside of the EU, the “fulfilment service provider” can be held liable for the damaged caused by the defective product. In general, this will catch persons who do not own the product but offer at least two of the following services in the course of commercial activity: ‘warehousing, packaging, addressing and dispatching of a product’ (except for postal services). 

The Commission’s purpose behind this revision is to ensure that there is always an economic operator in the EU against whom a compensation claim can be made.

• Remanufactured products - An economic operator who ‘modifies a product that has already been placed on the market or put into service’ will be held liable as a manufacturer for any defects in the product. To be caught, the modification must be: 1) ‘considered substantial under relevant Union or national rules on product safety’; and 2) ‘undertaken outside the original manufacturer’s control’.

The Commission’s purpose here is to extend consumers’ right to compensation for harm caused by defective products which have been modified or upgraded after being placed on the market by the original manufacturer.   

The Proposed Directive also expands the ‘backstop’ provision, meaning that where relevant economic operators cannot be identified, liability may fall on each “distributor” involved in the supply chain of a defective product. This includes providers of “online platforms” that enable consumers to conclude distance contracts with traders.  

The joint and several liability of parties who are liable for the same damage under the PLD remains unchanged in the Proposed Directive.  

Who is exempt from liability?

The exemptions from liability for economic operators under the Proposed Directive remain broadly similar to those available to producers in the PLD, save for minor amendments to adapt the exemptions for manufacturers, importers and distributors. As before, economic operators must prove the existence of any exempting circumstances.

However, the Proposed Directive creates a new exemption for persons who modify products (i.e. remanufacturers), who will not be liable where they prove that ‘the defectiveness that caused the damage is related to a part of the product not affected by the modification’. 

In addition, a new carve-out is introduced to the liability exemption where it is probable the defectiveness causing the damage did not exist when the product was brought to market. Economic operators will no longer be able to rely on this exemption ‘where the defectiveness of the product is due to any of the following, provided that it is within the manufacturer’s control’:

• ‘a related service’ (i.e. a digital service that is integrated into or inter-connected with a product and necessary for one or more of its functions);
• ‘software, including software updates or upgrades’; or 
• ‘the lack of software updates or upgrades necessary to maintain safety’.

The Commission’s objective here is to ensure that manufacturers who maintain control over their products after bringing them to market (e.g. through software updates or related services) remain liable for defectiveness that comes into being as a result of their control. On the flip side, the carve-out also means that manufacturers remain ‘on the hook’ for defectiveness resulting from a lack of software updates or upgrades necessary to address cyber security vulnerabilities and safety hazards.

Note also that the Proposed Directive removes the option of EU states to derogate from the exemption afforded to manufacturers for scientifically and technically undiscoverable defects.

Who bears the burden of proof?

The burden of proof remains on the claimant (i.e. the injured person), who must ‘prove the defectiveness of the product, the damage suffered and the causal link between the defectiveness and the damage’. 

However, in recognition of the difficulties of gathering evidence in respect of increasingly technically complex products, the Proposed Directive seeks to alleviate the claimant’s burden by introducing three rebuttable presumptions:

1. The defectiveness of the product will be presumed where either:
   1. The defendant has failed to comply with an ‘obligation to disclose relevant evidence at its disposal’ (see below);
   2. The claimant establishes that ‘the product does not comply with relevant mandatory safety requirements laid down in Union law or national law’ that are intended to protect against the damage in question; or
   3. The claimant establishes that ‘the damage was caused by an obvious malfunction of the product during normal use or under ordinary circumstances’.
2. The causal link between the defectiveness of the product and the damage will be presumed ‘where it has been established that the product is defective and the damage caused is of a kind typically consistent with the defect in question’.

Either or both elements may be presumed where a national court judges that the claimant ‘faces excessive difficulties, due to technical or scientific complexity to prove the defectiveness of the product or the causal link between its defectiveness and the damage, or both’, these may be presumed where the claimant has demonstrated with ‘sufficiently relevant evidence’ that:

• ‘the product likely contributed to the damage’; and
• ‘it is likely that the product was defective or that its defectiveness is a likely cause of the damage, or both’.  

Note that the defendant has a specific right to contest the grounds of the third presumption and a general right to rebut any of the presumptions. 

The Commission’s rationale for these presumptions is that the growing difficulty facing claimants to discharge their evidential burden undermines the right to compensation. Instead, where claimants can produce sufficient evidence, it should be for manufacturers to rebut the presumptions by using their expert knowledge of their products.  

As mentioned above, the burden of proof in respect of liability exemptions falls on economic operators (i.e. the economic operator must prove the existence of any exempting circumstances).

Who has disclosure obligations?

To increase claimant’s access to evidence to be used in legal proceedings, the Proposed Directive empowers national courts to order a defendant to disclose relevant evidence that is at its disposal in certain circumstances. 

National courts may make a disclosure order only upon the request of a claimant who has presented facts and evidence sufficient to support the plausibility of a claim for compensation. Any disclosure must be limited to what is necessary and proportionate to the claim.    

What are the restrictions on compensation?

The Proposed Directive removes the PLD’s damage threshold of €500 and prevents any upper limit being imposed on the compensation payable to claimants.   

In terms of limitation periods, the 3-year time limit for claimants to initiate proceedings remains unchanged. Economic operators remain liable (subject to exception) for defective products for a 10-year period starting from the date when the product was placed on the market, put into service or substantially modified.

Where a claimant is delayed in initiating proceedings because the symptoms of personal injury are slow to emerge (e.g. due to the ingestion of a defective food product), a longer 15-year limitation period applies.

How the Proposed Directive fits with the Artificial intelligence Liability Directive proposal

The Proposed Directive is part of the European Commission’s package of reforms to address emerging technologies. The Commission has also put forward its proposals for the regulation of AI in the draft AI Act along with the Artificial Intelligence Liability Directive (AILD), which seeks to ensure that ‘persons harmed by artificial intelligence systems enjoy the same level of protection as persons harmed by other technologies’. 

The Proposed Directive and the AILD are intended to be complementary.  According to the EU:

• Where the Proposed Directive imposes strict liability on economic operators for defective products, the AILD concerns EU member-states’ fault-based liability regimes that require injured people to prove that wrongful behaviour caused the damage suffered.
• In some cases, the two directives will are intended to provide consumers with a choice of claims, and in other cases the AILD is intended to enable claims not covered by the Proposed Directive, such as breaches of privacy or damages caused by safety issues. 

What next? 

The European Commission put forward the Proposed Directive on 28 September 2022. The European Parliament and the Council will need to formally adopt the Proposed Directive before it can enter force.

At present it is not clear whether the UK government intends to adopt a similar set of measures to address the recent emergence of technologies including artificial intelligence (AI), the circular economy business model and new global supply chains. Following a 2021 call for evidence, there is similar recognition that the UK product safety regime also needs to be modernised albeit that the UK is keen to explore regulatory advantages of divergence where appropriate following Brexit.

If you would like to discuss how to procure, develop and deploy digital and AI products or what regulation is on the horizon - please contact Tom Whittaker or Brian Wong.

The PLD’s objective is to provide an EU-level system for compensating people who suffer physical injury or damage to property due to defective products. Since the adoption of the PLD in 1985, there have been significant changes in the way products are produced, distributed and operated, including the modernisation of product safety and market surveillance rules. ... The revision of the PLD seeks to ensure the functioning of the internal market, free movement of goods, undistorted competition between market operators, and a high level of protection of consumers’ health and property.

https://ec.europa.eu/transparency/documents-register/detail?ref=COM(2022)495&lang=en