Product Liability

The Product Liability Directive 85/374/EEC applies to any product marketed in the European Economic Area (EU, Iceland, Liechtenstein and Norway) and establishes an EU-wide regime under which the producer is liable if a product is defective and causes injury or damage to consumers.

Why

In its latest yearly report (May 2018) on the application of the Directive, the European Commission concluded “the Product Liability Directive continues to be an adequate tool.” However, it also acknowledged that the Directive is not perfect and that given the ubiquity of digital products and services now available to consumers or forming part of the supply chain, “its effectiveness is hampered by concepts, such as ‘product’, ‘producer’, ‘defect’ or ‘damage’, that could be more effective in practice.”

Technological revolution affecting consumer products, exponential developments in hardware and software engineering, the rapid take-up of digital marketing, the Internet of Things, artificial intelligence, robotics and cybersecurity inter alia, require the concepts on which the Directive was drafted to be re-evaluated.

How

The European Commission has set up an Expert Group to investigate these issues, which is working in two sub-groups:

• The 'product liability formation' to provide expertise and assistance to the Commission in drawing up guidance on the Directive;
• The 'new technologies formation' to assess the implications of emerging digital technologies for the wider liability frameworks at EU and national level.

Where do we stand

On 28 September 2022, the European Commission proposed a directive to update the Product Liability Directive (PLD) from nearly 40 years ago, aiming to modernise the liability regime for defective products, including digital products. The revised PLD introduces no-fault liability for producers, meaning consumers need only to prove that a product was defective, caused damage to a person, and there is a link between the defect and the damage.

Key provisions of the proposal include:

• Considering software as a product.
• Including lack of software updates and cybersecurity issues as product defects.
• Extending liability to refurbished products and those manufactured outside the EU.
• Easing the burden of proof for consumers.
• Covering psychological health harm and data loss.

The European Economic and Social Committee (EESC) supported including AI in the no-fault liability regime in January 2023. The EESC recommended maintaining a balanced no-fault liability regime that ensures legal certainty for both consumers and manufacturers, adapts to digital challenges including AI, aligns with existing EU laws, and simplifies obligations across legal texts for consistency.

The Council adopted its common position in June 2023, adding raw materials to the product definition and extending the compensation period for certain injuries to 20 years.

Parliament's Committees on Internal Market and Consumer Protection and Legal Affairs adopted a report in October 2023. The amendments include:

• Adding raw materials as products.
• Setting a 1000€ threshold for data corruption compensation.
• Defining defectiveness based on the safety expected by an average person.
• Allowing national compensation schemes for victims.
• Exempting small software producers from liability.

A provisional agreement between the Parliament and the Council was reached on 14 December 2023, accepting the amendments proposed by the Committees and extending the definition of ‘product’ to digital files and software, and including psychological harm and data corruption in the definition of damage. The liability period extends to 25 years for slow-emerging symptoms. The Council confirmed the agreement in January 2024, and Parliament endorsed it in March 2024.

The product liability framework resulting from this political agreement is expected to lead to higher legal complexities and risks for European businesses as well as to increasing mass litigation in the EU. The national implementation process (e.g. with regards to definitions) will continue to be decisive, as it will further determine the balance between fairness, innovation, competitiveness and consumer protection.