A brave new world for product liability?

On 28 September 2022, the European Commission (EC) published its proposals to reform the EU Product Liability Directive (85/374/EEC) (PLD). We set out key points here, although there will be much to digest and discuss as to the potential impact of the proposals, should they be adopted. Any changes to the PLD will not directly impact the law in England and Wales post Brexit but will, of course, be monitored closely.

The PLD came into force in July 1985 and remains the law governing redress for defective products across the EU and in the UK. The legislation, which imposes strict liability for defective products which have caused injury to consumers, covers a wide range of products, from medical devices to vehicles to toys. However, after 37 years, during which time the concept of a ‘product’ has evolved considerably, it is ripe for reform.

The case for reform

Whilst the EC evaluation of the PLD in 2018 concluded that it was, generally, an effective instrument and fit for purpose, it also identified several shortcomings, including:

• A lack of clarity as to whether the PLD applied to complex, emerging digital technologies, such as artificial intelligence (AI) which are often intangible in nature.
• Uncertainty as to the application of the PLD to products in the circular economy, for example, products that are subject to modification or repair after they are put to market.
• That the burden of proof could be challenging for claimants in complex cases.

These issues were further analysed in a series of reports and expert reviews, followed by a consultation which took place between October 2021 and January 2022, and which sought to gather views and insights from the public and relevant stakeholders as to how the PLD could be improved, and how the specific challenges and risks of AI should be addressed.  

This extensive investigation and analysis has culminated in the EC publishing its long-awaited proposal for a revised PLD (the Proposal), which notably recommends repealing the current PLD. The Proposal is accompanied by an ‘Impact Assessment Report, which provides substantial legal context and background.

Objectives of the Proposal

The Proposal pledges to ensure the functioning of the internal market, the free movement of goods, undistorted competition between market operators and a high level of effective consumer protection. Its key aims are to:

• Ensure liability rules reflect the nature and risks of products in the digital age and circular economy.
• Ensure there is always an EU-based business liable for defective products bought from producers outside the EU.
• Ease the burden of proof in complex cases and ease restrictions on making claims while ensuring a fair balance between the interests of manufacturers, injured persons and consumers.
• Ensure legal certainty by better aligning the PLD with the new legislative framework for the marketing of products and with product safety rules, and by ‘codifying PLD-related case law’.

Summary of key proposed changes

Definition of product

Current PLD: ‘all movables, with the exception of primary agricultural products and game, even though incorporated into another movable or into an immovable (…). ‘Product’ includes electricity’ (Article 2)

Proposed revised PLD: ‘all movables, even if integrated into another movable or into an immovable. ‘Product’ includes electricity, digital manufacturing files and software’ (Article 4)

Commentary: The definition of product has considerably expanded in scope to include intangible products such as software, AI systems and AI-enabled goods. It also encompasses digital manufacturing files such as 3D printing.

Producer or manufacturer?

Current PLD: ‘producer means the manufacturer of a finished product, the producer of any raw material or the manufacturer of a component part of any person who, by putting his name, trademark or other distinguishing feature on the product presents himself as its producer’ (Article 3)

Proposed revised PLD: ‘manufacturer means any natural or legal person who develops, manufactures or produces a product or has a product designed or manufactured, or who markets that product under its name or trademark or who develops, manufactures or produces a product for its own use’ (Article 4)

Commentary: The concept of ‘producer’ is no longer used in the text of the proposed revised PLD. The focus is now on the concept of ‘manufacturer’ which has also expanded in scope. For example, providers of software and providers of digital services can be held liable. Online marketplaces can also be held liable.

Test as to defect

Current PLD: ‘a product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including:

(a) the presentation of the product;
(b) the use to which it could reasonably be expected that the product would be put;
(c) the time when the product was put into circulation’ (Article 6)

Proposed revised PLD: ‘a product shall be considered defective when it does not provide the safety which the public at large is entitled to expect, taking all circumstances into account, including the following:

(a) the presentation of the product, including the instructions for installation, use and maintenance
(b) the reasonably foreseeable use and misuse of the product;
(c) the effect on the product of any ability to continue to learn after deployment;
(d) the effect on the product of other products that can reasonably be expected to be used together with the product.
(e) the moment in time when the product was placed on the market or put into service or, where the manufacturer retains control over the product after that moment, the moment in time when the product left the control of the manufacturer;
(f) product safety requirements, including safety-relevant cybersecurity requirements
(g) any intervention by a regulatory authority or by an economic operator referred to in Article 7 relating to product safety;
(h) the specific expectations of the end-users for whom the product is intended’ (Article 6)

Commentary: The test as to defect broadly remains the same, with reference to safety expectations.
Significantly, the circumstances to be taken into account when assessing defect have widened substantially. For example, there is now a clear reference to a product’s instructions for use.

Interestingly, the Proposal provides that “the specific expectations of the end-users for whom the product is intended” must be taken into account. This is somewhat at odds with the concept of ‘entitled expectation’ which the Proposal states should involve “an objective analysis and not refer to the safety that any particular person is entitled to expect”. This expectation of product safety will be assessed by reference to the public at large.

There is also express reference to product safety requirements, including safety-relevant cybersecurity requirements and interventions by regulatory authorities such as the issuing of a product recall notice. This has the potential to significantly increase product liability exposures for manufacturers, although the Proposal makes clear that such interventions do not, of themselves, create a presumption of defectiveness.  

Manufacturers will be relieved that the proposed changes to the PLD fall short of reversing the burden of proof entirely as it recognised that it would “expose manufacturers to significantly higher liability risks”.

Definition of damage

Current PLD: ‘(a) damage caused by death or by personal injuries; (b) damage to, or destruction of, any item of property other than the defective product itself, with a lower threshold of 500 Euros’ (Article 9)

Proposed revised PLD: ‘material losses resulting from:

(a) death or personal injury, including medically recognised harm to psychological health
(b) harm to, or destruction of, any property, except:
     (i) the defective product itself
     (ii) a product damaged by a defective component of that product
     (iii) property used exclusively for professional purposes
(c) loss or corruption of data that is not used exclusively for professional purposes’ (Article 4)

Commentary: The definition of damage has not been significantly altered, although there is now a clear reference to ‘psychological health’ which confirms the recent movement towards expanding the list of heads of damage in various EU Member States.

Damage also encompasses “loss or corruption of data”, which goes hand in hand with the wider definition of product to account for emerging technologies.

The previous lower threshold of EUR500 for property damage has also been removed.

Time limits

Current PLD: ‘10 years from the date on which the producer put into circulation the actual product which caused the damage’ (Article 11)

Proposed revised PLD: ‘10 years from the date on which the actual defective product which caused the damage was placed on the market (…) where an injured person has not been able to initiate proceedings within 10 years due to the latency of a personal injury, the rights conferred (…) shall be extinguished upon the expiry of a limitation of 15 years’ (Article 14)

Commentary: The three year limitation period remains the same. However, whilst the longstop period remains the same (i.e., 10 years from the date the product was placed onto the market), the Proposal now provides for a long stop period of 15 years in the event of latent injury.

Commentary

The Proposal recommends some new provisions which do not appear in any form in the PLD, some of which could have significant implications for product manufacturers:

• The disclosure of evidence (Article 8): national courts are to be empowered to order defendants to disclose ‘relevant evidence that is at its disposal’ in some circumstances, such evidence to be ‘necessary and proportionate’ to support the claim. This will increase the burden of disclosure on manufacturers which is relatively limited in most Member States.
• Burden of proof (Article 9): the claimant is required to prove ‘the defectiveness of the product, the damage suffered and the causal link between the defectiveness and the damage’. The EC has indicated that the Proposal is aimed at sharing the burden of proof more fairly between claimants and manufacturers in complex cases, such as those involving pharmaceuticals or AI enabled products.
• A presumption of defect (Article 9): where (i) a defendant fails to comply with an obligation to disclose relevant evidence; (ii) the claimant establishes that the product does not comply with mandatory safety requirements; and (iii) the claimant establishes that the damage was caused by an obvious malfunction of the product during normal use or under ordinary circumstances, then the defectiveness of the product will be presumed (although defendants will have the right to rebut any such presumptions).

Significantly, the Proposal provides that, where a national court considers that the claimant faces excessive difficulties in proving defect or causation owing to the technical or scientific complexity of a claim, defect and/or causation shall be presumed where the claimant demonstrates, on the basis of sufficiently relevant evidence, that the product contributed to the damage and it is likely that the product was defective, or its defectiveness is a likely cause of the damage, or both. Although the Proposal provides that a defendant has the right to contest the existence of “excessive difficulties”, this provision will be of particular concern to manufacturers of products, particularly new technologies.

Whilst the Proposal does not provide for a complete overhaul of the existing regime, it contains substantial changes which are likely to have a considerable impact on product manufacturers.  Whilst some of the proposed changes were expected – such as the widening of the definition of ‘product’ to encompass emerging technologies – others are distinctly more profound, with potential to increase the risk profile for certain products and provide fertile ground for product liability litigation.

Other EU legislative proposals in relation to product safety are running in tandem with the Proposal, including the draft Artificial Intelligence Act, the proposed Machinery Regulation, the proposed General Product Safety Regulation and the proposed Cyber-resilience Act. All of these initiatives will interact with the Proposal and will have implications for product manufacturers across all industries and sectors. We will continue to report on these significant legislative developments.

Read other items in London Market Brief – November 2022