Revision of Directive 85/374/EEC on liability for defective products

On 28 January 2024, the informal agreement in the trilogue procedure on a new EU Product Liability Directive (hereinafter "Product Liability Directive") was confirmed in the Permanent Representatives Committee. Even though further votes will be on the agenda in the European Parliament in the near future, it is now largely clear that the EU Product Liability Directive will not only be published in the Official Journal of the European Union soon, but will also apply throughout the EU 24 months after it comes into force.

European product liability law will continue to be based on the strict principle of strict liability for the industry (so-called strict liability), which in the Federal Republic of Germany is flanked by fault-based liability in accordance with Section 823 (1) of the German Civil Code (so-called producer liability). Producer liability is particularly relevant for the so-called aftermarket, as European product liability law does not deal with the period after the product has been placed on the market, either now or in the future.

The following section provides an outlook on the new European product liability law, although some of the standards referred to are likely to change.

A. Effective date and national transposition deadline

The dates for the entry into force and implementation of the EU Product Liability Directive are particularly important in practical terms. In this respect, Art. 18 et seq. of the Product Liability Directive are decisive. While the Directive is to enter into force 20 days after its publication in the Official Journal of the EU (Art. 19), the national transformation acts are to be adopted and in force 24 months after the Directive enters into force. The implementation period has therefore been significantly extended by a further year from the originally planned 12 months. The EU member states must expressly refer to the Product Liability Directive as part of the national transformation (Art. 18 (1)).

At the same time, the old EC Product Liability Directive (Directive 85/374/EEC) is repealed. However, it continues to apply to all products placed on the market or put into service before the relevant date, Art. 17 (1) of the Product Liability Directive.
 

B. Purposes of the EU Product Liability Directive

The new EU Product Liability Directive is intended to fulfil several purposes. Specifically, the proposal aims to

• ensure that a company based in the EU is always available, precisely because European consumers are increasingly buying directly from EU third countries (online) without the existence of manufacturers or importers,
• ensure that European product liability law is further harmonised with European product safety and market surveillance law, in particular Decision No 768/2008/EC and product safety legislation, and
• strengthen harmonisation through common rules on liability and thus improve the smooth functioning of the internal market.

The creation of a level playing field is emphasised more strongly than before in the final version of the EU Product Liability Directive. The first point mentioned in turn gains importance in view of the currently intensified discussions about online platforms such as Temu, Wish or Alibaba.
 

C. Extension of the product concept

As a result, the EU Product Liability Directive has retained a broad product definition. The Directive aims to establish comprehensive product liability regulations in the EU. The product definition is anchored in Art. 4 Para. 1 of the Product Liability Directive. According to this, product continues to be the name of all movable objects, even if they are integrated into or connected to another movable or immovable object, Art. 4 para. 1 sentence 1 of the Product Liability Directive. What is new, however, is that this should no longer only include electricity, but also digital construction documents, raw materials and software, Art. 4 para. 1 sentence 2 of the Product Liability Directive. According to Art. 4 para. 2 of the Product Liability Directive, a digital construction document is named a digital version of a movable item or a digital version thereof which contains the functional information necessary for the manufacture of an item. A digital construction document is therefore the basis for the production of a material object by enabling the automatic control of machines, tools (e.g. milling machines) or printers.

The clarification regarding software, which was intended from the start of the legislative process, is certainly particularly important. This puts an end to long-standing discussions about the relevance of software under product liability law. Software covered can be operating systems, firmware, computer programs, applications or AI systems. Neither the type of provision nor its use plays a role, i.e. it does not matter whether software is placed on the market as an independent product or whether it is accessed via cloud technologies or provided as part of software-as-a-service models.

However, the source code should not be software in this sense, as this is purely information. The recitals make it clearer than at the beginning of the legislative process that information should not be subject to European product liability law.
 

D. Relevant date

Even if the placing on the market (with a view to Art. 10(a) of the Product Liability Directive, for example) continues to mark the relevant point in time from which product liability can generally be considered, the new criterion in Art. 6(1)(e) of the Product Liability Directive should not be overlooked in this context. This now specifies the relevant criteria for determining the defectiveness of a product. Currently, these are still listed in Art. 6 para. 1 Directive 85/374/EEC and in § 3 para. 1 ProdHaftG. As far as the relevant criterion in letter e) is concerned, it is now based on the 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," when the product left the control of the manufacturer.

This means that a product defect can be recognised even if the product itself was still free of defects when it was placed on the market. The prerequisite for extended liability is continued control over the product. The relevant point in time in this scenario is the moment at which this control ends. Continued liability is therefore the flip side of product control. In this context, it should be noted that in future there will be many more circumstances to be taken into account when assessing the defectiveness of a product. In the corresponding catalogue of Art. 6 (1) of the Product Liability Directive, aspects such as artificial intelligence (AI; letter c)), combination risks (letter d)) or recalls ordered by competent authorities (letter g)) are also considered relevant.

Consequently, the manufacturer's control also plays a role in the liability exclusions in Art. 10 of the draft. This applies, for example, to the still recognised development defect, which is now also based on the time of putting into service and the period of product control by the manufacturer (para. 1 letter e)). And it also applies to the exclusion of liability for defects that probably did not exist when the product was placed on the market or only arose later; because if the manufacturer continues to have control over the product, he cannot invoke this exclusion, for example, if software updates or upgrades that are necessary to maintain safety are missing (para. 1 letter c), para. 2). Against this background, the importance of security updates will increase significantly.

Finally, commissioning in accordance with Art. 4 Para. 10 of the Product Liability Directive and thus the in-house manufacture of products will clearly also play a role relevant to product liability law in the future.
 

E. Extension of the liability addressees

The updated provision in Art. 7 of the Product Liability Directive is of particular importance. It now summarises "economic operators liable for defective products". Currently, according to Art. 1, 3 Directive 85/374/EEC, only the manufacturer is primarily liable, whereby the so-called quasi-manufacturer is also included. The importer (in future: importer) in turn is liable as a manufacturer in accordance with Art. 3 Para. 2 Directive 85/374/EEC. The supplier, on the other hand, is only liable on a subsidiary basis in accordance with Art. 3 Para. 3 Directive 85/374/EEC. He is only liable if the manufacturer cannot be identified and he is unable to name the manufacturer or his supplier to the injured party within a reasonable period of time, Art. 3 para. 3 sentence 1 Directive 85/374/EEC. In the Federal Republic of Germany, the supplier has at least four weeks to provide the relevant information after receiving the request from the injured party, § 4 para. 3 sentence 1 ProdHaftG.

What is new is that the following players will also be liable in future:

• the authorised representative if the manufacturer of the defective product is established outside the EU (Art. 7(1)(c)(ii) of the Product Liability Directive)
• the fulfilment service provider if the manufacturer of the defective product is established outside the EU and there is neither an importer nor an authorised representative (Art. 7 (1) (c) (iii) of the Product Liability Directive)

The four actors named in Art. 7 para. 1 of the Product Liability Directive - manufacturer, importer, authorised representative and fulfilment service provider - are clearly distinguished from subordinate liable distributors and providers of online platforms, which are only brought into focus after para. 1. On the other hand, there is also a distinction from the person who significantly modifies a product.

The distributor remains liable on a subsidiary basis. It is now only liable if neither the manufacturer and importer nor the authorised representative and fulfilment service provider can be identified in accordance with Art. 7 para. 1 of the Product Liability Directive, Art. 7 para. 5 of the Product Liability Directive. Even if all of the aforementioned actors are not present, the distributor can "discharge himself" if he names the economic operator in accordance with Art. 7 para. 1 of the Product Liability Directive or his own supplier within one month of receiving the application. It is noteworthy that the distributor is still liable after the fulfilment service provider.

The providers of online platforms that enable consumers to conclude distance contracts with traders are in turn treated in the same way as traders, Art. 7 (6) of the Product Liability Directive. According to this, they may also be considered as potential liability addressees; de facto, however, they (like traders) will be able to "exonerate" themselves without any problems.

On the other hand, Art. 7 para. 4 of the Product Liability Directive does not introduce any changes, as anyone who significantly modifies a product is rightly already a manufacturer at present. In this respect, product liability law refers to the influencing of safety characteristics, which should result in such a legal consequence. A substantial modification within the meaning of product safety law is unquestionably such an influence on safety characteristics.

It was only during the legislative process that a new Art. 7 para. 6a of the Product Liability Directive was finally adopted. The standard deals with the case that an injured party cannot obtain compensation because, in particular, none of the players named in Art. 7 para. 1-6 of the Product Liability Directive can be held liable or because they are insolvent. In this scenario, the EU Member States can utilise existing national compensation schemes or set up new compensation schemes to ensure adequate compensation. However, public funds should not be prioritised for this purpose.
 

F. Law of damages

The changes in relation to compensable damage are also relevant. Firstly, there is currently not only the possibility in the EU Member States to limit "the total liability of the manufacturer for damage resulting from death or personal injury caused by the same article with the same defect to an amount not less than ECU 70 million", Art. 16 (1) Directive 85/374/EEC. In addition, the excess in the event of damage to property is ECU 500, Art. 9 (b) Directive 85/374/EEC. In Germany, a maximum liability amount of EUR 85 million applies in accordance with Section 10 (1) ProdHaftG and a deductible of EUR 500 in the event of property damage in accordance with Section 11 ProdHaftG. The two restrictions, which do not exist in German producer liability law in accordance with Section 823 (1) BGB, will no longer apply in future.

Secondly, from the EU-wide date of application, there will no longer be the restriction on property damage according to which items used for professional purposes are generally not eligible for compensation. Instead, only property "used exclusively for professional purposes" is to be excluded, Art. 5a para. 1 letter b) iii) of the Product Liability Directive.

Thirdly, the loss or falsification of data "used exclusively for professional purposes" should also be relevant as damage, Art. 5a para. 1 lit. c) of the Product Liability Directive.
 

G. Extension of the burden of proof

The new regulations on the burden of proof in Art. 9 of the Product Liability Directive should also be emphasised, as up to now there has simply been no facilitation of the burden of proof for the injured party or plaintiff. Currently, according to Art. 4 of Directive 85/374/EEC, the injured party must prove "the damage, the defectiveness of a product and the causal link between the two". In the near future, there will not only be new presumptions of defectiveness in para. 2, e.g. in the event that the plaintiff proves "that the product does not comply with mandatory product safety requirements laid down in Union law or national law (...)" (letter b). This therefore refers to the underlying product safety law. In addition, there is a specific presumption of causality between the defect and the damage in para. 3. A national court should then assume the defectiveness or the causality between the defect and the damage or both if it is excessively difficult for the plaintiff to provide the corresponding proof due to the technical or scientific complexity in particular (para. 4). In this case, fault, causality or both can be assumed under certain further conditions. However, the defendant may rebut any presumption (para. 5).
 

H. Duty to disclose evidence

Despite all the criticism levelled at the introduction of the disclosure of evidence/documents planned from the outset, this provision remained in Art. 8 of the Product Liability Directive until the legislative process was completed. Specifically, the EU Member States are to ensure that the defendant, at the request of an injured party who claims compensation for the damage caused by a defective product in proceedings before a state court and has submitted facts and evidence that sufficiently support the plausibility of their claim for compensation, must disclose relevant evidence under its control under the conditions specified in Art. 8 of the Product Liability Directive, Art. 8 para. 1 of the Product Liability Directive. The subject of this "investigation" can be, for example, technical files including a risk assessment. The (civil) courts called upon to decide will have to comment on the plausibility requirements.

With this genuinely procedural regulation, the EU is breaking new ground outside the common law regime with its disclosure and discovery procedures, especially as it has so far limited itself to substantive law in terms of product liability. In German civil procedure law, this brings back memories of Section 142 of the German Code of Civil Procedure (ZPO), which, however, is limited solely to documents and can also oblige the plaintiff to surrender them. The protection of confidential information and trade secrets is to be expressly taken into account in the context of the examination of necessity and proportionality, Art. 8 (2) and (3) of the Product Liability Directive.

The reason for including the disclosure of evidence is said to lie in the asymmetry of information, which lies in the fact that the injured party often does not know how a product was manufactured and how it works. This asymmetry can have a negative effect to the detriment of the injured party, especially in technically or scientifically complex cases. The disclosure in question is therefore intended to balance out precisely this imbalance.

It is important that the defendant is aware of the provision in Article 9(2)(a) of the Product Liability Directive, as this states that the product is presumed to be defective if it has "has failed to disclose relevant evidence (...)". In this respect, the new disclosure obligations are thus combined with the new facilitation of evidence.

I. Conclusion

The new EU Product Liability Directive brings with it considerable innovations that will have a particular impact on civil proceedings. In this respect, the introduction of evidence facilitation and the regulation on the disclosure of evidence should be mentioned. In conjunction with the Directive on representative actions (Directive 2020/1828), there will undoubtedly be an upturn in product liability law once the new European product liability law comes into force. Nevertheless, the basic framework of the regulatory concept will remain untouched. This applies in particular to the reference to strict strict liability on the one hand and to the relevant categories of defects and the dogmatics developed in this respect, e.g. on the relevance of the state of the art in science and technology in the area of design on the other. It then applies to the important exclusion period of ten years, which is retained in principle. Art. 14a of the Product Liability Directive only provides for a limitation period of 25 years if an injured person was unable to initiate proceedings within ten years due to the latency period of a personal injury. And it also applies to the limitation period of three years from knowledge or negligent ignorance (Art. 14 of the Product Liability Directive). However, this should not obscure the fact that the extension of liability addressees heralds a paradigm shift in product liability law. The long-standing aim of the final EU Product Liability Directive is reflected more clearly than before in the fact that any injured party should be able to claim damages from a responsible EU actor on the basis of product liability.
 

Further information

Interested readers can read the compromise text of the future directive on the EU Commission pages.