EU Product Liability Reforms Represent a Major Shakeup

Editor's note: Authored by Anushi Amin and Edward Turtle, this article was originally published in Law360.

On Dec. 14, 2023, the European Union Parliament and Council reached provisional agreement on the text for a new product liability regime in Europe. The provisionally agreed text was published on Jan. 25.

The reforms represent a major shakeup, fully revising the EU's existing strict liability — no fault — regime under the Product Liability Directive for the first time in nearly 40 years.[1]

They will expand the scope of claims that can be brought, the range of damages that can be recovered and make it easier for consumers to prove their claims.

The reforms are driven by a concern that the EU's existing product liability regime was becoming outdated and not fit for purpose in the digital world, including in the context of risks posed by connected products, artificial intelligence, the circular economy and e-commerce.

While the remit for reform was fairly narrow, the changes agreed are broad and affect all product sectors.

Background

The existing directive established a strict liability regime for product liability claims in the EU. It was adopted in the 1980s, in the wake of high-profile cases such as Thalidomide, with the intention of making it easier for consumers to recover for damage caused by defective products.

As liability is strict, producers are responsible for defective products, regardless of whether the defect is their fault. Claimants just need to show that:

• A product was defective;
• They suffered damage; and
• There was a causal link between the defect in the product and the damage they suffered.

As there is no need to establish fault, proving that a product was defective is usually the biggest hurdle to bringing a claim under the directive.

In a number of recent cases under the directive, claimants have failed to overcome this hurdle. The revisions to the directive are likely to alter this trend and make it much easier for claimants to establish a defect in future cases.

Reforms to Product Liability Framework

Key reforms include steps to:

• Expand the scope of claims, e.g., to cover not only hardware but also stand-alone software and AI systems for the first time;

• Expand the damages that can be recovered, e.g., to include destruction or corruption of data and medically recognized harm to psychological health; and
• Ease the burden of proof for claimants by introducing presumptions of defect in certain circumstances and creating a new disclosure mechanism, similar to U.S. discovery. This will be completely new in some EU jurisdictions, e.g., Germany, which have no existing mechanism.

The reforms also have implications for product safety and cybersecurity issues, including how long software updates should be provided to avoid potential liability.

The following summary provides a more detailed overview of the key reforms.

Expanded Scope of Application

Definition of "Product"

Under the revised directive, the definition of "product" will include software and digital manufacturing files.

Software includes operating systems, firmware, computer programs, applications, or AI systems, irrespective of whether the software is stand-alone or embedded in other products, with limited exceptions for certain free and open-source software developed or supplied outside of commercial activity.

The definition also extends to certain digital manufacturing files and product-related services that are integrated into, or interconnected with, a product, e.g., a voice assistant service that allows control of one or more products using voice commands.

Concept of Defect

This will also be expanded to introduce strict liability for defects from software updates, AI and machine learning, among others. Under the revised rules, a product may also be rendered defective on account of any cybersecurity vulnerabilities, including where the producer fails to issue software updates necessary to address these vulnerabilities.

New Test for Defect

Under existing rules, a product is considered defective if it does not provide the level of safety that a person is entitled to expect, taking all the circumstances into account.

In a significant change to this test, amendments introduced by Parliament and agreed during the three-way negotiations add an alternative basis for a product to be considered defective where the product does not provide the safety required under EU or national law.

Range of Economic Operators

The range of economic operators that can be held liable for defective products has been expanded to include authorized representatives, fulfillment service providers and online platforms, in certain circumstances.

The intention of these changes is to ensure that there will always be an EU-based business that can be held liable for damages caused by a defective product. According to the council's press release, this will "strengthen the level-playing field between EU and non-EU manufacturers."[2]

Further, in an effort to reflect the nature of the circular economy, those who substantially modify a product outside of the original manufacturer's control and make it available on the market or put it back into service will be considered the manufacturer of the modified product and can be held liable under the revised rules where the modification makes the product defective.

Expanded Scope of Recoverable Damages

The definition of "damage" under the revised directive will be extended to include medically recognized damage to psychological health as well as destruction or corruption of data.

At the same time, the reforms also remove minimum thresholds and maximum limits for compensation claims. The impact of this change, particularly when combined with the introduction of the EU's new class actions mechanism, is likely be to a significant risk of mass claims for relatively trivial claims of data destruction or corruption.

Easier Burden of Proof

To make it easier for claimants to succeed in their claims, the reforms reverse the burden of proof in certain circumstances, so claimants no longer need to prove elements of their case.

In particular, the revised regime introduces circumstances in which defect or causation can be presumed. Two of these circumstances are:

• Where there is noncompliance with relevant EU product safety regulations; and

• If it is excessively difficult on account of the technical or scientific complexity of a product for a claimant to prove either that

• A product is defective; or
• There is a causal connection between the defect and the damage.

The recitals of the provisionally agreed text suggest that examples of products to which this could apply include medical devices and products that use AI technologies.

Extension of Claims Period

Where symptoms are slow to emerge, the claims period is extended from 10 years following placement of the product on the market under the existing rules — the so-called long stop — to 25 years in certain cases.

For producers of certain products, particularly medicinal products and medical devices, this very long exposure period will significantly increase liability risks.

New Requirements for Discovery

The revised directive provides for disclosure of necessary and proportionate evidence to both claimants and defendants during proceedings to correct any asymmetry of information between the parties.

As many EU countries have limited or no disclosure mechanisms under their national laws, this will be an important tool for claimant law firms seeking to make out their case.

It will also increase the importance for stakeholders to ensure that they are fully compliant from a regulatory perspective, and have appropriate document and internal communications procedures in place.

Next Steps

The text of the provisional agreement will be formally approved by the full European Parliament at plenary, tentatively scheduled for April 10, and then by the council. Following this, it will be signed and published in the Official Journal of the EU and enter into force 20 days later.

A 24-month transition period has been agreed — meaning the laws look set to enter into force in the first half of 2024 and will start applying from 2026.

Looking to the Future

A new, more claimant-friendly product liability regime in Europe has the potential to significantly change the risk of doing business in the EU.

Moreover, the reforms sit alongside parallel policy initiatives — such as the EU's class action mechanism, proposals for new AI regulation and liability rules, the circular economy and cybersecurity.

Taken together, these reforms are a fundamental shift in the European risk landscape.

[1] Product Liability Directive 85/374/EEC.

[2] https://www.consilium.europa.eu/en/press/press-releases/2023/12/14/agreement-between-the-council-and-the-european-parliament-makes-eu-liability-rules-fit-for-the-digital-age-and-circular-economy/?utm_source=dsms-auto&utm_medium=email&utm_campaign=Agreement+between+the
+Council+and+the+European+Parliament+makes+EU+liability+rules+fit+for+the+digital+age+and+circular+economy.

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