Product Liability Directive

The term “product” now expressly includes software, which eliminates any uncertainty as to whether non-embodied software is also covered, and the term “software” expressly includes artificial intelligence. Free and open-source software developed or supplied outside the course of a commercial activity remains excluded, however. The term “product” further includes raw materials. While digital files do not normally fall within the scope of the new Directive, an exception applies to digital manufacturing files, which are expressly included in the term “product”. In addition, liability has been extended to cover integrated or inter-connected digital services (“related services”), such as integrated voice assistants that allow products to be controlled.

The defectiveness of a product will continue to be assessed based on an objective analysis of the safety that the general public may expect. Examples of defectiveness include:

• A product does not fulfil safety-relevant cybersecurity requirements; as a result, the manufacturer is liable for intentional damage caused by third parties (such as hackers).
• Defects due to the effects of an AI system that is able to learn or acquire new features after it is put into service.

Product safety law comes into play: product recalls or interventions by public authorities will result in products being deemed defective in future. An important change is that the first placing of a product on the market is no longer the only point of reference for liability. Instead, manufacturers can also be held liable if they continue to control a product after it is placed on the market, for example, through software updates. If a product significantly changes as a result of an update or the learning of an AI system, it will be deemed newly provided or put into service from that point in time.

On the side of the injured parties, natural persons may assert claims for damages based on their own right, or are subrogated to the right of an injured party. In addition, representative product liability actions can be brought throughout the EU.

On the side of the parties causing damage, the manufacturer of a defective component may be liable in addition to the manufacturer of the product. As a result, if damage is caused by such a defective component, the injured party may claim damages from both. Several companies are liable jointly and severally.

If the manufacturer is established outside the EU, the importer, the authorised representative or the fulfilment service provider may also be held liable. If the manufacturer cannot be identified, each distributor of the product may be held liable under certain circumstances. Even online platforms may be held liable if the party causing the damage cannot be identified. Furthermore, a person that substantially modifies a product and then places it on the market again is also liable.

The definition of the term “damage” has been broadened to include the destruction or corruption of data not used for professional purposes.

The limitation period for claims for damages by injured parties is ten years. Where an injured person has not been able to initiate proceedings within ten years due to the latency of a personal injury, this period is extended to 25 years.

An important change concerns the obligation to disclose evidence in legal proceedings. If the claimant has demonstrated the plausibility of the claim for damages, the court may require the defendant to disclose relevant evidence. If the defendant fails to comply with its obligation to disclose relevant evidence, the defectiveness of the product and the causal link between product defect and damage will be presumed in favour of the claimant. The same presumptions will be made if the claimant demonstrates that it is likely that the product was defective and/or that its defectiveness caused the damage.

The obligation to disclose is limited to what is necessary and proportionate, taking into account the interests of all parties concerned, including third parties. This will be an important aspect of any defence in future. Furthermore, companies will have to consider carefully what information to store and what information not to store in future. There is a tension between the need to meet the legal requirements in the event of official measures under product law and the need to minimise the risks that may result from storing an excessive amount of information if a request for information is made. The national courts can take appropriate measures to protect confidential information and trade secrets. Courts may also require, due to the complexity of certain evidence, that the evidence be presented in an easily accessible and easily understandable manner.

Under German civil procedural law, there is currently no equivalent to these disclosure rules, which are reminiscent of the common law principle of discovery and disclosure. It remains to be seen how the German legislature will implement them, for example, by means of amendments to the German Code of Civil Procedure or the German Product Liability Act.

As a general rule, the injured party remains responsible for proving the defectiveness of the product, the damage suffered and the causal link between the two. However, defectiveness is presumed if:

• the defendant fails to comply with its disclosure obligation under Article 9(1);
• the claimant demonstrates that the product does not comply with mandatory product safety requirements laid down in Union or national law that are intended to protect against the risk of the damage suffered by the injured person; or
• the claimant demonstrates that the damage was caused by an obvious malfunction of the product during reasonably foreseeable use or under ordinary circumstances.

Furthermore, the causal link between product defect and damage is presumed where the defectiveness of the product has been established and the damage is of a kind typically consistent with the defect in question. These presumptions also apply where, despite disclosure, the claimant faces difficulties in proving the defectiveness of the product and/or the causal link between its defectiveness and the damage, for example, due to technical or scientific complexity, and can demonstrate that it is likely that the product is defective and/or that there is a causal link between the defectiveness of the product and the damage. Consequently, presenting technical/legal facts in a clear and comprehensible manner will be crucial when it comes to defending claims.

The new Directive prohibits limiting or excluding liability by a contractual agreement or by national law. As a result, 500-euro deductibles for property damage and maximum liability limits of 85 million euros for personal injury will cease to apply. A defect in a product that was not identifiable when the product was placed on the market will no longer exonerate the manufacturer if it could have been rectified by means of a software update.

The new Product Liability Directive brings with it numerous new obligations and stricter requirements for industry while creating more legal certainty and a level competitive playing field. This could increase acceptance of, and trust in, new technologies such as AI. The level of protection for consumers and natural persons will be significantly increased by the new rules, the aim being to maintain a fair balance between the interests of injured parties and product manufacturers. The new Directive nevertheless imposes significant burdens on companies. The requirements for disclosure obligations require a clear strategy on dealing with company information. It will be crucial to carefully consider and strike a sensitive balance between the fulfilment of legal requirements and the protection of sensitive data. Forward-looking information and product file management will help minimise risks and manage the tension between disclosure and confidentiality in a legally watertight manner. In addition, the legal terms used also leave considerable room for interpretation. No-fault liability remains an effective instrument that has been significantly expanded by the new provisions.