The EU’s new Product Liability Directive (from a German perspective)

On 12 March, the European Parliament approved the new Directive on liability for defective products (Product Liability Directive). The European Council had previously indicated its approval. Following several declarations and negotiations, the European Commission, the European Parliament, and the Council had agreed on a final text on 14 December 2023. Entering into force 20 days after its publication, the Member States have 24 months to transpose the Directive into national law. In Germany it’s expected that the changes will come into force by mid-2026.

The Product Liability Directive is intended to replace the previous Product Liability Directive 85/374/EEC from 1985 and is part of a comprehensive EU regulatory programme that also includes, for example, the artificial intelligence liability directive. The AI Liability Directive takes into account in particular developments related to new technologies, including artificial intelligence (AI), new circular economy business models and new global supply chains. As a result, however, the Product Liability Directive leads to a substantial tightening of product liability for companies compared to the previous Product Liability Directive 85/374/EEC.

The key modifications are described below.

Extension of the product scope

According to Article 4(1) of the Product Liability Directive, product means all movables, even if integrated into or inter-connected with another movable or into an immovable. Product includes electricity, digital manufacturing files, raw materials and software.

The product scope is therefore extended in line with the aim of the Product Liability Directive of adapting to the digital world. The Product Liability Directive now includes explicitly digital manufacturing files (e.g. 3D printing files) and software. Software covers, in particular, to AI systems and is to be covered irrespective of the mode of its supply or usage (standalone or embedded software; stored on a device, accessed through a communication network or cloud technologies or supplied through a software-as-a-service model). However, Article 2(1a) of the Product Liability Directive excludes free and open-source software that is developed or supplied outside the course of a commercial activity.

Extension of the definition of defect

According to Article 6(1) of the Product Liability Directive, a product shall be considered defective if it does not provide the safety that can reasonably be expected or that is required under Union or national law. Even though the wording of the final Product Liability Directive is slightly inaccurate in this respect (“that a person is entitled to expect”), the expectations of the general public rather than those of a specific person are to be taken into account.

The previous Product Liability Directive 85/374/EEC defines the safety that may be expected on the basis of the presentation of the product and its use at the time it was placed on the market. Article 6 of the Product Liability Directive extends this standard in two ways:

In addition to the previous criteria (presentation of the product and its indented use), the Product Liability Directive lists the following non-exhaustive catalogue of criteria (“including”) for determining the defectiveness of a product:

• the effect on the product of any ability to continue to learn or acquire new features after it is placed on the market or put into service (e.g. AI systems);

• the reasonably foreseeable effect on the product of other products that can be expected to be used together with the product, including by means of interconnection;

• relevant product safety requirements, including safety-relevant cybersecurity requirements;

• product recall or any other relevant intervention by a competent authority (or an economic operator);

• the specific needs of the group of users for whom the product is intended (e.g. life-supporting medical products).

Furthermore, the Product Liability Directive extends the relevant point in time for determining the product defect. Currently the moment when the product was placed on the market is decisive. Under the new regime, it is now also relevant when the product was put into service or, if the manufacturer retains control over the product, the time when the product left the manufacturer's control (e.g. relevant in case of software updates or machine learning).

Extension of possible liable parties (economic operators)

The Product Liability Directive also extends the scope of possible liable parties and adjusts the provisions to global supply chains. In this context, Article 7 of the Product Liability Directive provides a gradual system of possible liable parties:

• Firstly, manufacturers and “quasi”-manufactures (e.g. by putting one’s name or trademark on the product) will remain liable for a product defect. In addition, manufacturers of a defective component (where that component has been integrated into, or inter-connected with the product) are also liable. Any natural person or legal entity that significantly modifies a product that has already been placed on the market or put into service are now also considered to be manufacturers too.

• If the manufacturer is based outside the European Union, not only – as at present - the importer of the defective product or component, but also the authorised representative of the manufacturer (defined as any natural person or legal entity established within the European Union who has received a written mandate from a manufacturer to act on its behalf in relation to specified tasks) can be held liable. If neither the importer nor the authorised representative of the manufacturer is established in the European Union, a fulfilment service provider (warehousing, packaging, addressing and dispatching services) may also be held liable on a subsidiary basis.

• Lastly, if the manufacturer, importer, authorised representative of the manufacturer and fulfilment service provider cannot be identified in the European Union, under certain conditions, distributors of the defective product and online platform providers may also be liable.

Disclosure of evidence

One of the most notable changes is the obligation for defendants (and claimants) to disclose evidence.

Article 8(1) of the Product Liability Directive requires the defendant to disclose relevant evidence that is at its disposal in proceedings before a national court upon request of the claimant who has presented facts and evidence sufficient to support the plausibility of the claim for compensation.

Article 8(2) of the Product Liability Directive obliges courts to ensure that the information (to be provided) is limited to what is necessary and proportionate. This is essential to ensure a fair balance between the legitimate interests of the parties (e.g. protection of business/trade secrets or confidential information), see also Article 8(3) and (4) of the Product Liability Directive. However, the requirements and scope of the (new) disclosure requirements seem to be unclear at the moment.

Contrary to the Commission’s draft, the (final) Product Liability Directive now also provides for a corresponding disclosure obligation of the claimant at the defendant’s request in Article 8(1a) of the Product Liability Directive. This should help level the playing field, at least in part, for companies defending itself against claims made for defective products.

The disclosure of evidence provided for in the Product Liability Directive seems to go (far) beyond the current options available in civil procedure in Germany (presentation of documents pursuant to Section 142 of the Code of Civil Procedure (ZPO)). How the German legislator will transpose this into German law and how courts in Germany will deal with the new provisions and whether or not they will exercise the necessary judgement when interpreting the limitations remains an open question.

Burden of proof

A further significant change is the introduction of new provisions relating to the burden of proof.

Article 9 of the Product Liability Directive still requires the claimant to prove the defectiveness of the product, the damage suffered and the causal link between the defectiveness and the damage. However, in contrast to the previous situation, the Product Liability Directive provides for a significant reduction of the burden of proof in favour of the claimant. This reduction of the burden of proof results in a reversal of the burden of proof once the claimant has conclusively demonstrated the defect and/or the causal link.

According to Article 9(2) of the Product Liability Directive, the defectiveness of the product shall be presumed, where 

• the defendant has failed to disclose relevant evidence (lit. (a));
• the claimant demonstrates that the product does not comply with mandatory product safety requirements laid down in Union law or national law that are intended to protect against the risk of the damage suffered by the injured person (lit (b)); or
• the claimant demonstrates that the damage was caused by an obvious malfunction of the product during reasonably foreseeable use or under ordinary circumstances (lit (c)).

Pursuant to Article 9(3) of the Product Liability Directive, the causal link between the defectiveness of the product and the damage shall be presumed, where it has been established that the product is defective, and the damage caused is of a kind typically consistent with the defect in question.

Finally, Article 9(4) of the Product Liability Directive provides for a presumption of the defectiveness of the product or the causal link between its defectiveness and the damage, or both, if the claimant faces excessive difficulties, in particular due to “technical or scientific complexity”, in proving the defectiveness of the product or the causal link between its defectiveness and the damage, or both. In this case, it should be sufficient if the claimant demonstrates that it is likely that the product is defective or that there is a causal link between the defectiveness and the damage, or both. It remains unclear when burden of proof should be “excessively difficult” (to be determined by national courts on a case-by-case basis) and what the requirements are for proving a “likely” product defect or causal link. Thus, there is a risk that entire product groups considered to be “technical or scientific complexity” will be subject to a general presumption of dangerousness.

Limitations and exemptions

Exemptions are set out in Article 10 of the Product Liability Directive, with some exemptions clarified or removed compared to the previous Product Liability Directive 85/374/EEC.

The previous excess of EUR 500 for property damage and the maximum amount for personal injury of EUR 85 million in Germany (at least EUR 70 million according to the Product Liability Directive 85/374/EEC) have been removed. The exclusion of liability for placing on the market outside professional activities has also been removed.

The defendant’s liability is still excluded generally if the product defect was unlikely to exist when the product was placed on the market, put into service or made available on the market. However, this exclusion should not apply where the defectiveness of the product is due to (i) a related service, (ii) software, including software updates or upgrades, (iii) the lack of software updates or upgrades necessary to maintain safety, or (ca) a substantial modification, see Article 10(2) of the Product Liability Directive.

According to Article 14a(1) of the Product Liability Directive, the (standard) limitation period of 3 years from the date on which the claimant became aware, or should reasonably have become aware, of the damage, the defectiveness and the identity of the defendant, remains in place. The limitation period of 10 years also continues to apply. However, a new provision extends the maximum period to 25 years if the claimant was unable to initiate proceedings within the maximum period due to the latency of a personal injury (Article 14a(2) of the Product Liability Directive).

Summary

The Product Liability Directive increases the liability of economic operators and explicitly includes AI systems. Companies that were not previously potential defendants will now be liable. The EU class action directive (directive on representative actions for the protection of the collective interests of consumers, and repealing Directive 2009/22/EC) and other future EU directives are expected to further increase the liability risk for companies. The new presumption rules on product defects and causality, combined with the (far-reaching) disclosure obligations of defendants, make the defence of defendants even more difficult.

Companies must therefore analyse their liability risks and prepare counter-measures at an early stage.