Modernisation of product liability law: EU Commission presents new draft directive

The EU is planning concrete steps to modernise product liability law and thus further strengthen consumer protection. The outdated EU Product Liability Directive, on which the German Product Liability Act [Produkthaftungsgesetz, ProdHaftG] is based, aims in particular to take into account advanced digitisation, developments in artificial intelligence and the increasingly widespread circular economy. 

In civil law, the mandatory statutory strict product liability vis-à-vis injured parties supplements product safety provisions under public law, which are also currently being revised at EU level. In its new draft directive, the EU Commission emphasises that it is endeavouring to strike a balance between the interests of industry and consumers. However, it significantly expands the liability potential for companies. In its draft, for example, the EU Commission itself assumes that there will be rising insurance premiums - albeit in its view only moderate - for companies wishing to insure themselves against product liability risks in the future. 

In our opinion, the most significant changes and innovations are the following:

Extension of the definition of product to include software

In future, software, whether as a standalone product or integrated into a physical product, shall fall under the definition of product. Exceptions to this are only the source code as pure information and open source software. Smart products, IoT, 3D printing, automated vehicles, etc. will therefore be included in the scope of applicability of strict liability.

Extension of the definition of "defectiveness”

For a damage claim to be established, a product must be defective. Under current law, the presentation, the reasonable expected use, and the time of placing the product on the market must be taken into consideration. 

This catalogue is going to expand significantly in the future. For example, the EU Commission proposes that a further relevant factor should be whether the product is capable of further learning after it has been brought onto the market, therewith including the topic of AI. Relevant product safety requirements, including cyber-security requirements, are also explicitly mentioned in the draft directive as factors requiring consideration. This is also the case if a product safety problem has already occurred previously, where a regulatory authority or other economic operator intervened. 

By including an additional reference to the expectations of the consumer for whom the product is intended, the European legislator could also introduce a subjective component into the assessment of a product’s possible defectiveness.

Liability also for outdated and upgraded products

Circular economy initiatives are to be strengthened by giving consumers a right to compensation in the event of defectively modified products. Products are to be more durable, reusable, repairable and upgradable. If a modification to the product results in a defect, the manufacturer must bear the liability for it, unless the substantial modification was beyond its control. In this case, the party modifying the product is considered to be a new manufacturer. 

Expansion of the list of potential parties against whom claims can be asserted

In addition to the importer of a manufacturer's goods outside the EU, the EU Commission also wants to make it possible for any authorised representative of the manufacturer to be held liable for product damage. Furthermore, claims can even be asserted on a subsidiary basis against fulfilment service providers, i.e. storage, packaging and shipping service providers.
Under certain circumstances, dealers can already be held liable under current law. The new directive will extend this to online marketplace providers. 

Expansion of the definition of damage

Although mental health impairment is fundamentally already recognised as compensable damage according to case law, under the draft directive, mental health impairment is now explicitly mentioned as a form of damage and has thus been accorded greater value. The loss or impairment of data that is not intended exclusively for professional use should now also be able to lead to compensable damage. The draft directive distinguishes this from the possible liability of commissioned data processors and controllers under the GDPR for material and immaterial damage caused by data processing breaches of the GDPR. 

Material damages to items other than the actual defective product shall no longer only be covered by product liability in case of the mainly private use or consumption of the damaged item. In future, only exclusively commercially used property shall be excluded from the scope of application of the directive. 

Deletion of the threshold of 500 euros and the maximum liability amount of 85 million euros

The threshold of 500 euros for pure property damage and the maximum liability amount of 85 million euros for personal injury caused by a product or identical products with the same defect are no longer included in the draft for the revised directive. The elimination of the de minimis threshold could lead to significant changes in the litigation landscape, especially in conjunction with the implementation of the EU Directive on Representative Actions for the Protection of the Collective Interests of Consumers (Directive (EU) 2020/1828), which will enable representative actions in Germany from June 2023 at the latest. This is due to the fact that it permits quasi class actions by consumer groups, which makes even the pursuit of only small financial claims attractive. 

Extension of the maximum liability period

At present, claims can no longer be asserted once a defective product has been on the market for ten years. This is to be changed with the new directive. It provides for an exception in the event that the injured party was unable to initiate proceedings within ten years due to the latency period of a personal injury. In this case, the maximum liability period increases to 15 years. This creates significant additional obligations for companies with regard to the retention of records and documentation.

New burden of proof rules

A further novelty is that the draft provides for the introduction of rebuttable factual presumptions in order to ease the difficulties of furnishing evidence encountered by injured parties in certain cases. Although the injured party still has to prove that the product was defective, the intention of the EU Commission is to rebuttable presume defectiveness if (i) the party against whom a claim is made fails to fulfil its information obligations under the new product liability law or (ii) the injured party proves that the product did not comply with the relevant safety requirements or (iii) the damage was caused by an obvious malfunction during normal use. Similarly, causality between the defectiveness of a product and damage is to be rebuttably presumed if the product is shown to be defective and the nature of the damage typically relates to such defect. 

Furthermore, the defectiveness, the causal link between defectiveness and damage, or even both, are presumed if a court concludes that the technical or scientific complexity makes it excessively difficult for the injured party to prove the product’s defectiveness or the causal link between its defectiveness and the damage. The prerequisite for this, however, will be that the injured party proves that the product contributed to the occurrence of the damage and that it was probably defective, or that the product’s defectiveness probably led to the damage suffered.

Greater disclosure obligations of the party defending against the claim

If the injured party has sufficiently represented and proven that his asserted damage claim seems plausible, the draft directive would allow national courts to order the defendant to disclose the relevant evidence available to it. However, the duty of disclosure is to be limited to what is necessary and appropriate, if applicable while safeguarding business secrets.

Following presentation of the draft by the EU Commission, the European Parliament and the Council of the EU are the next to deal with the draft directive. Once the directive comes into force, however, the transition period is comparatively short. According to the draft, the member states are going to have just twelve months to transpose it into national law. In the meantime, technology companies, online marketplaces and fulfilment service providers, in particular, should take a closer look at the imminent changes and how they will impact their business and risk profile in terms of product liability.

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