On 28 September 2022, the European Commission (EC) published its proposals for a new directive to replace the EU Product Liability Directive (85/374/EEC) (PLD). The new PLD was announced alongside a separate proposal for a directive on adapting non-contractual civil liability rules to artificial intelligence (AI) that seeks to address challenges faced by victims of AI-related damage to make claims and receive compensation, and will interact with member states’ fault-based liability regimes (AI Liability Directive). The AI Liability Directive is not intended to overlap with the PLD.
The text of the new PLD is not yet final and it is open for feedback until 11 December 2022. However, if adopted in its current form, the new PLD will introduce significant changes to the existing product liability regime, which principally seeks to ensure that the PLD is fit for purpose in the 21st century. The proposals are likely to have a considerable impact on product manufacturers and increase the potential for product liability litigation.
The new PLD provides for extensive changes to the status quo. Key proposed changes include the following:
- Scope of PLD: The new PLD would allow strict product liability claims to be made for defective products that cause “loss or corruption of data” in certain circumstances. Previously, the scope of liability was limited to personal injury and property damage.
- Software/AI: The definition of “product” has been expanded to apply to software, AI systems, AI-enabled goods and digital manufacturing files (such as those that are used for purposes of 3D printing). In addition, related services (such as a digital service interconnected with a product that is required for the product’s functions to be performed) could be considered to be a component part of a product.
- Producer or manufacturer: The term “producer” has been replaced with “manufacturer” and the scope of the definition has been expanded. For example, providers of software, providers of digital services and online marketplaces can now face liability under the PLD.
- Expanded concept of defect: Whilst the test for determining whether a product is defective remains substantively the same, factors such as the interconnectedness or self-learning functions of products and a product’s cybersecurity vulnerabilities have been added to the non-exhaustive list of factors to be taken into account by courts when assessing defectiveness.
- Scope of liability: Under the new PLD, liability is no longer assessed simply by reference to when a product was put into circulation. The time after circulation, including once the product has been placed on the market, can be considered if a manufacturer retains control of a product, for example via software updates.
- Burden of proof: To avoid “expos[ing] manufacturers to significantly higher liability risks” and to prevent the hampering of innovation, the burden of proof has not been reversed (an idea that had previously been considered by the EC). However, the proposed PLD allows the burden of proof to be alleviated in some circumstances. In particular, there is proposed a rebuttable presumption of defectiveness under the following circumstances:
- A defendant fails to comply with its (new) obligation to disclose the evidence necessary for the claimant to be able to understand how a product was produced and how it operates
- A claimant establishes that the product does not comply with mandatory safety requirements
- There is an obvious malfunction in a product.
There is also a rebuttable presumption of the causal link between defect and damage in cases where it is established that the product is defective and the damage caused is of a kind typically consistent with the defect. Significantly, the new PLD also provides that, where the claimant faces excessive difficulties in proving defect or causation due to the technical or scientific complexity of a claim, then both can be presumed if 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.
- 10-year longstop: The 10-year longstop for product liability claims remains in place subject to amendments that allow for a 15-year longstop in relation to some latent personal injuries and for the limitation period to restart if a product is substantially modified.
This is a unique time in the area of product compliance and liability. Traditionally, developments in this area have been slow, with there being only a few significant updates over the last couple of decades. By contrast, what we are seeing now is a significant amount of activity and businesses will need to be ready to grapple with these changes.
Some of the proposed amendments to the PLD, such as the expansion of the definition of “product” to include intangible products, have been anticipated for a number of years. However, other changes, such as extending the scope of the PLD to cover claims for loss or corruption of data and proposals to recast the burden of proof, are more interesting.
The proposed changes clearly intend to strike a different balance between the interests of industry and consumer than what has been in place for over 30 years. Whilst the proposal does not necessarily open the floodgates to a much larger number of claims, the position taken by the EC is clearly consumer-friendly. The proposals come at a time during which we await adoption by EU member states of the new EU Directive 2020/1828 on Representative actions for the protection of the collective interests of consumers (Directive) that will enable representative actions to be brought on behalf of claimants across the EU. This Directive, due to come into force mid-next year, has wide application, covering 66 consumer protection focused pieces of EU legislation, including the PLD.
Once this proposal makes its way through the legislative process, EU member states will be required to implement the new PLD into their own national laws. Although no longer in the EU, given the global nature of the products market, the UK will need to consider whether to follow suit to avoid significant divergence, while UK-based manufacturers selling products in the EU will be exposed to the greater risks posed by the new PLD if it comes into effect.
For further information about this and related developments, see our recent webinar “Product Compliance & Liability: A Brave New World?” that is available here.