Improved consumer protection: the EU Product Liability Directive

What improvements for consumers do the EU bodies promise?

The objectives of those in charge are threefold: on the one hand, it is important to establish uniform rules for the member states. Furthermore, the renewal of the directive improves the smooth functioning of the digital and circular economy. In addition, consumers should receive fairer compensation for defective products.
 

The revision of the Product Liability Directive was also urgently needed because the ongoing development of new technologies, particularly in the field of information technology (IT) and artificial intelligence (AI), makes an adaptation necessary. This is because these developments could not have been foreseen in 1985, when the current directive came into force, given their scope and complexity.

Key content of the revision

The main cornerstones of the original proposal are as follows:

• Continued strict liability of the producer of a defective product when a person suffers harm to their life or physical integrity
• Clarification of the definition of a “product”: clarification regarding software, including firmware and AI systems
• Safety-related cybersecurity requirements are classified as defects for the first time
   
• The previously applicable deductibles (500 euros for property damage) and liability limits (85 million euros for personal injury) will no longer apply.
• In the future, placing a product on the market will no longer be the only decisive point of contact for product liability.
• In the future, manufacturer liability may also apply if the manufacturer has the opportunity to continue to control his product after it has been placed on the market (e.g. by means of appropriate security and software updates).
   
• Easing of the burden of proof for the defectiveness of the product and for the causality between defect and damage and disclosure of evidence
• In the future, the fulfillment service provider and authorized representatives of the manufacturer (in addition to the manufacturer, quasi-manufacturer and importer) may also be liable.
   

What are the consequences of the draft for companies?
 

In particular, the planned easing of the burden of proof can have very adverse effects for companies. In the future, the court could oblige companies to present evidence in their possession. This means, for example, that injured parties can gain insight into design documents or findings from product monitoring. This obligation to disclose evidence can shift the balance to the detriment of companies, since product liability does not require fault.
 

However, the obligation to disclose is to be limited to what is necessary and proportionate to support a claim. Accordingly, companies should only be required to grant access to documents if there is well-founded suspicion. In order to maintain proportionality, there should also be a legal remedy against the order to disclose evidence. However, if a defendant does not comply with the disclosure obligation, a (rebuttable) presumption of a violation of the duty of care should be made.
 

The draft also stipulates that both the defectiveness of products and the causality between product defect and damage can be assumed if the following conditions are met: on the one hand, the burden of proof must be “excessively difficult for the consumer plaintiff due to technical or scientific complexity”; on the other hand, the plaintiff must have “proven on the basis of sufficient evidence” that:

1. the product contributed to the damage,
    
2. the product was likely defective,
3. and the defect was likely to have caused the damage.

The use of vague terms such as “undue difficulty” or “reasonable evidence” alone means that manufacturers face a great deal of uncertainty regarding possible claims. 
 

AI: the new legal challenge
 

In addition to the draft amendment to the Product Liability Directive, other EU initiatives are being addressed as part of a “digital strategy” that deals in more detail with the impact of artificial intelligence (AI).

The EU has also drafted an AI liability directive, which was adopted by the European Commission on September 28, 2022, and thus transferred to the further procedure. The main contents of this draft are:
 

• The regulations only concern fault-based liability, but apply to all parties concerned, i.e. private individuals and companies.
• Access to evidence in the case of high-risk AI systems can be obtained by court order.
• There is a presumption of causality between a breach of duty and damage for any type of AI system.
•  

Another building block at the EU level for regulating AI is the European Parliament's decision in favor of a regulation to govern civil liability when using artificial intelligence (AI). This distinguishes between frontend and backend operators as subjects of liability, and between “high-risk” and “other AI systems” when it comes to AI systems. The proposal also contains regulations on maximum liability limits, statutes of limitation, and insurance.
 

Finally, there is also the “Proposal for a European Commission Regulation on harmonized rules for artificial intelligence” of April 21, 2021, which is intended to lead to a “law on artificial intelligence”.
 

The objective of this initiative is to set up a legal framework to ensure the safety of AI systems and to uphold fundamental rights and values in the EU. In particular, this is intended to describe and classify “high-risk AI systems” and to provide a legal framework for the providers, manufacturers and users of such systems. This draft also includes fines that could be as high as six percent of total worldwide annual revenue.
 

The EU Directive on Representative Actions

In addition to the various initiatives to specifically regulate liability, particularly in the area of artificial intelligence, the implementation of the EU representative action directive must also be mentioned, which has taken place in Germany with the entry into force of the Consumer Rights Enforcement Act (VDuG) on October 13, 2023. The introduction of the (new) action for redress regulated therein facilitates the assertion and enforcement of claims by many consumers.

Companies face greater risk

The initiatives introduced tend to significantly tighten liability when products are placed on the market. Consumer protection is being strengthened.

Despite all the precautions taken by companies, product liability claims, especially for hazardous products, pose a constant, high and sometimes even existential risk for companies. This risk is likely to increase in the future.
 

deas offers risk protection solutions.

This makes it all the more important to cover such risks as well as possible or to avoid them altogether when drawing up contracts. In addition to monitoring production and the products sold as comprehensively as possible and carefully documenting the monitoring measures, it is important to exclude such risks as far as possible when drafting the contract and to take out adequate insurance. This also includes regularly checking whether the sum insured and the subject matter of the product or public liability insurance still meet the existing liability risk.
 

In the event of damage, the insurance company should be informed as quickly as possible by the insurance broker in charge and the next steps should be coordinated. It also makes sense to involve legal counsel at an early stage, in coordination with the insurer, in order to provide the best possible support in the event of such damage. This is because mistakes made in the early stages of such a claim are very difficult to correct later on. deas will always support and advise you in your best interest.

Jörg Linnert