The Economic Risks of Transposing the EU Product Liability Directive in Germany

The most immediate impact will be felt within Germany’s Information and Communication Technology (ICT) industry, which stands as one of the largest in Europe. The Ministerial Draft broadens the definition of a “product” to include software, digital files, and services like AI systems, exposing ICT firms to greater liability risks. As companies prepare to minimise the risk of liability issues, compliance procedures will intensify, leading to higher operational costs. Furthermore, in some cases, the Ministerial Draft overlaps with existing regulations which fuels legal uncertainty and discourages innovation.

Beyond the ICT industry, the Ministerial Draft poses risks to Germany’s broader manufacturing base. As digital technologies become increasingly embedded in the manufacturing process, any disruption in the ICT sector will directly affect other industries such as the automotive and medical technology sectors. The implementation of the Ministerial Draft in Germany’s new Product Liability Act may slow digital adoption and make the integration of these technologies more costly, ultimately hampering Germany’s industrial competitiveness.

Critically, the Ministerial Draft significantly increases the likelihood of collective actions. By expanding liability to a wider pool of companies – including component suppliers, service providers, and even app developers – the Ministerial Draft amplifies the risk of mass litigation. In addition, both the previous deductible for property damage and the overall liability cap are eliminated. Moreover, the introduction of rebuttable presumptions of defectiveness which significantly lowers the bar for claimants, together with the introduction of evidence disclosure obligations – a notable procedural departure for German law – increases the potential for costly and time-consuming legal battles.

To assess these costs, this Occasional Paper draws on empirical evidence from the US, where mass litigation has long been a challenge, to estimate the impact of collective actions on the German economy. While the implementation of EU PLD may not be the sole driver of increased mass litigation in Germany, it is undeniable that it will contribute to this trend. The presence of a well-developed ecosystem of lawyers, litigation funders and claims collectors – combined with a broader regulatory trend facilitating mass litigation in Germany, exemplified by the Consumer Rights Enforcement Act (VDuG) and its representative action mechanisms – makes the rise of representative- and collective actions a tangible economic risk.

The economic costs of mass litigation are significant. Private enforcement costs, litigation expenses, and the potential slowdown of innovation all add up. The total cost could amount to billions of euros annually, with the risk of mass litigation diminishing the market value of innovative firms by as much as €10 billion. Such disruptions not only affect businesses but could also impact the wealth of German families, as pension funds and insurance portfolios are tied to the performance of these companies.

The implementation of EU PLD may slow down Germany’s digitalisation efforts which would have an impact on the wider economy as ICT has become a cornerstone of Germany’s economic growth, and its role in the wider manufacturing sector is indispensable. The government has made strides to reduce bureaucracy and enhance competitiveness, but the Ministerial Draft may undermine these efforts by adding regulatory complexity and heightening legal risks. Policymakers must carefully weigh these economic consequences when they decide on how exactly they will transpose the EU PLD to avoid unintended setbacks that could hinder Germany’s future economic growth.

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