Product liability and safety EU/UK: Fit for the green and digital age

A revised Product Liability Directive

The current EU Product Liability Directive [1] is almost 40 years old and there has been a huge amount of technological advancement since its introduction. The European Commission recently revealed its proposal for a revised directive to update the EU’s product liability regime and provide recourse for those who suffer damage from new digital technologies which are defective. This includes defective software and artificial intelligence systems embedded in a product or placed on the market as a digital product in their own right.

If adopted, the proposal will make the Product Liability Directive much more claimant-friendly. It will also have a large impact on various economic operators by heightening their risk of exposure to product liability litigation. While the proposed revised directive is at the beginning of the legislative process, companies should review the suggested reforms in detail.

The UK government recently published an explanatory memorandum on the proposal. The revised directive will apply to Northern Ireland if it goes through.

We set out below some of the key features and go on to outline other related reforms to watch out for.

Change in scope

The proposed revised directive amends the definition of ‘product’ to include software and digital manufacturing files. It also brings loss or corruption of data within the remit of compensable damage. Together, these changes expand the scope of the current Directive to cover smart or intangible products such as AI-enabled goods and 3D printers.

Article 6 of the proposed revised directive widens the circumstances which should be taken into account when determining whether a product is defective. For example, product safety requirements (including safety-relevant cybersecurity requirements), the effect on the product of any ability to continue to learn after deployment, and the effect on the product of other products that can reasonably be expected to be used together with it.

A product will be considered defective when it doesn’t provide the safety which the public at large is entitled to expect, taking all circumstances into account.

Proving liability

The proposed revised directive sets out a number of rebuttable presumptions to address concerns that it’s become more difficult for consumers to prove claims involving technically complex products. A product will be presumed defective where:

• the defendant fails to comply with a disclosure obligation;

• the claimant establishes that the product doesn’t comply with mandatory safety requirements; or

• the claimant establishes that the damage was caused by an obvious malfunction of the product during normal use or under ordinary circumstances.

Notably, the proposal says that national courts should also presume the defectiveness of a product or the causal link between the damage and the defectiveness, or both, where, notwithstanding the defendant’s disclosure of information, it would be excessively difficult for the claimant, in light of the technical or scientific complexity of the case, to prove its defectiveness or the causal link, or both. In such cases, requiring proof would undermine the effectiveness of the right to compensation. Given that manufacturers have expert knowledge and are better informed than the injured person, it should be for them to rebut the presumption.

Potential defendants

The proposed revised directive expands the pool of economic operators that can be held strictly liable for damage caused by a defective product. This includes software and digital services providers, businesses that make substantial modifications to products, authorised representatives and fulfilment service providers.

Where the manufacturer of the defective product is established outside the EU, the importer and the manufacturer’s authorised representative can be held liable. Where neither of these is established in the EU, the fulfilment service provider can be held liable.

A fulfilment service provider is someone who offers, in the course of their commercial activity, at least two of the following services: warehousing; packaging; addressing; and dispatching of a product, without having ownership of it.

Where a manufacturer can’t be identified or, where they’re established outside the EU and none of the importer, authorised representative or fulfilment service provider can be identified, each distributor can be held liable where the claimant: requests that distributor to identify the economic operator or the person who supplied the distributor with the product; and the distributor fails to identify them within a month of receiving the request.

Restrictions on compensation

The proposed revised directive removes the minimum compensation threshold of €500 for property damage. It also prevents national laws from setting maximum or minimum financial limits for compensation.

The limitation period for personal injury cases where there is a delay in symptoms emerging is extended from 10 to 15 years.

Limitation may run from the date that substantial modifications are made to the product.

Other upcoming product liability and safety reforms

The product liability and safety regimes in both the EU and the UK are in a state of flux at the moment. Governments, parliaments and regulators are grappling with how best to make sure their respective legal and regulatory frameworks are fit for purpose in the green and digital age.

In the EU

• There’s been a flurry of activity over in Europe. The European Commission’s plan for a revised Product Liability Directive was one of two proposals adopted to adapt liability rules to the digital age, circular economy and the impact of global value chains. The other is an AI Liability Directive aimed at making it easier for victims of AI-related damage to get compensation. Both proposals will now need to be adopted by the European Parliament and Council.

• These developments follow the Commission’s recent proposal for a Cyber Resilience Act to protect consumers and businesses from products with inadequate security features.

• Other recent EU initiatives include a proposal for a new general product safety regulation to address new challenges to product safety caused by new technologies and online selling. This is part of the European Commission’s ‘New Consumer Agenda’.

• In April 2021 the Commission introduced a proposal for a new AI Act which will follow a risk-based approach. AI systems identified as high-risk include AI technology used in safety components of products.

• The Commission also proposed a new Machinery Regulation at the same time. Discussion is ongoing between the European Parliament and member states.

• In June 2022 the Commission published the latest version of its Blue Guide on the implementation of EU product rules. The document is intended to contribute to a better understanding of EU product rules; and to their more uniform and coherent application across different sectors and throughout the single market. Among other things, it sets out the different actors in the product supply chain and their obligations. It also considers the impact and consequences of the UK’s withdrawal from the EU.

In the UK

• The UK’s Office for Product Safety and Standards consulted last year on the long-term approach to product safety and how to ensure that the regulatory framework is fit for the future. Its November 2021 response concluded that, while the current framework has strengths, it’s facing significant and growing challenges. It needs to be radically reformed to be more adaptable and capable of responding to accelerating change. We await further developments. The OPSS published its Product Regulation Strategy 2022-2025 in August 2022.

• The government published a new AI paper in July 2022, outlining its approach to regulating the technology in the UK. The approach is based on six core principles that existing regulators must apply, with flexibility to implement them in ways that best meet the use of AI in the regulators’ sectors. The principles include defining legal persons’ responsibility for AI governance. The government’s long-awaited AI White Paper and public consultation is expected in late 2022.

• In related news, the House of Commons Science and Technology Committee recently launched an inquiry into the governance of AI.

• The Product Security and Telecommunications Infrastructure Bill is advancing towards the final stages of its journey to becoming law. The Bill includes provisions concerning the security of internet-connectable products and products capable of connecting to such products.

• Construction products regulatory reform was brought in by the wide-ranging Building Safety Act 2022. This includes the power to sue construction products suppliers and manufacturers.

• And finally, a Retained EU Law (Revocation and Reform) Bill was introduced to Parliament on 22 September 2022. The aim is to completely overhaul the body of UK domestic law known as retained EU law. This includes direct EU legislation and EU-derived subordinate legislation. Unless steps are taken to retain it, it could be gone at the earliest by 31 December 2023. This is certainly one to watch, given the potential for considerable disruption to the UK’s current product liability and safety regimes. It’s not yet clear how plans will progress under new PM Rishi Sunak.

How we can help

Our experienced team of specialists is on hand to provide advice and assistance on the full range of product liability and safety issues. Working together with our Commercial Dispute Resolution, International Trade and Technology & Digital colleagues, we act for clients across a wide range of sectors and at all stages of the supply chain.

We can advise on how the proposal for a revised Product Liability Directive alters your company’s risk profile to product liability claims. Please don’t hesitate to contact Claire or Nick if you have queries about the proposal, the current regime, or any of the other points covered above.

[1] Council Directive 85/374/EEC on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products