In our previous article of the 29th of November 2024, titled “GENERAL PRODUCT SAFETY REGULATION”, we reported on several key amendments to EU product safety legislation – specifically, on the impact of the publication of Regulation (EU) 2023/988. Now, in this article, we will report on another key piece of legislation in this field, officially adopted by the European Commission (the “Commission”) on the 18th of November 2024: EU Directive 2024/2853 (the “Directive”).
The liability of manufacturers for defective products has long been enshrined in Union law: until the publication of the Directive this year, this area was regulated by a Council Directive dating back to 1985 (85/374/EEC; the “1985 Directive”). However, a rising tide of consumer complaints examined under a Commission-led public consultation and impact assessment, inevitably led to the announcement on 28 September 2022 of a proposed overhaul of the 1985 Directive. It is indeed surprising that the Commission had not done so sooner, given what EU lawmakers themselves identified as “increasingly complex” digital products “like software and artificial intelligence systems” in the Commission’s daily news bulletin of the 14th of December 2023.
Though arguably overdue, the legislative changes brought about by the Directive are in no way minor. The following is an attempt to summarise these key changes in six overarching categories:
I. The Consumer
Whereas the 1985 Directive made no attempt at defining exactly who constitutes an “injured person”, the new Directive has done so in the broadest possible terms: “any natural person who suffers damage caused by a defective product” (Art. 5(1)). In other words, individuals, and not just consumers, have the right to bring claims on the basis of no-fault liability under this Directive. This change, although subtle, significantly widens the scope of potential claimants, and enhances the likelihood of class action lawsuits for product liability.
II. The Producer
Under Article 3 of the 1985 Directive, a ‘producer’ was primarily defined as the manufacturer, but also included the supplier, in the case that the former could not be identified within a reasonable time. Now, under Article 8 of the new framework, all of the following ‘economic operators’ may potentially be held liable for damage caused by a defective product:
(i) The manufacturer of the defective product;
(ii) The manufacturer of a defective component, where that component was integrated into, or inter-connected with, a product within the manufacturer’s control, and caused that product to be defective.
Should the manufacturer be established outside the European Union, then the following operators may also be held liable:
(i) The importer of the defective product;
(ii) The authorised representative of the manufacturer;
(iii) If neither of the above, then the fulfilment service provider.
Crucially, the following three entities are now also potentially liable:
(i) Any natural or legal person that substantially modifies a product outside the manufacturer’s control and, thereafter, makes it available on the market or puts it into service.
(ii) Each distributor of the defective product, where, upon the request of the injured person, the economic operators listed above cannot be identified within 1 month of said request;
(iii) Any provider of an online platform that allows consumers to conclude distance contracts with traders, and that is not an economic operator.
Just as the scope of potential claimants has been increased, so has the scope of potential defendants. The impact of this will be felt most heavily by offerors of product liability insurance, whose clients will now be at risk from claims made by and against a far wider range of potential claimants and defendants.
III. The Product
Perhaps the most interesting change to have come out of the new product liability Directive is its extension of the definition of a “product” to explicitly include “electricity, digital manufacturing files, raw materials and software” (Art. 4). Traditionally, the 1985 Directive excluded software in the definition of a product, as it was considered intangible. Now it is considered a product in its own right. Similarly, software updates shall be considered within the manufacturer’s control, either where the manufacturer authorises or consents to their integration, inter-connection or supply, or where the manufacturer has the ability to supply the updates themselves or via a third party. For example, where the manufacturer of a smart home appliance consents to the provision by a third party of software updates for the appliance (Recital 18).
IV. Damages
The definition of damages under Article 9 of the 1985 Directive has also been broadened to include “medically recognised damage to psychological health”, as well as the “destruction or corruption of data that are not used for professional purposes” (Art. 6).
V. Defects
Finally, there have been two major changes in what relates to the definition and assessment of a product defect.
Firstly, under Article 7 of the Directive, there are now significantly more factors to consider when determining whether a product is considered defective, as compared to Article 6 of the 1985 Directive, including “safety-relevant cybersecurity requirements”. Also, the consideration of “the time when the product was put into circulation” has been nuanced by the new Directive, and now reads as the moment in time when the product was placed on the market, put into service, or indeed when the product left the control of the manufacturer.
Secondly, and likely the most radical change under the entire Directive, Article 10 now introduces a presumption of product defectiveness in the following six circumstances:
(i) The defendant fails to disclose relevant evidence.
(ii) The claimant demonstrates that the product does not comply with mandatory product safety requirements laid down in Union or national law.
(iii) The claimant demonstrates that the damage was caused by an obvious malfunction of the product during reasonably foreseeable use or under ordinary circumstances.
(iv)Where it is established that the product is defective and that the damage caused is of a kind typically consistent with the defect in question.
(v) Where 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.
(vi) The claimant demonstrates that it is likely that the product is defective or that there is a causal link between the defectiveness of the product and the damage.
The impact of this particular change will be immediately felt by manufacturers, who must now prepare for a significantly lower burden of proof to prove defectiveness.
VI. Defences
Finally, it is worth noting that member states may now derogate from Article 11(1)(e) of the Directive: if so, manufacturers may still be held liable even if they can prove that the objective state of scientific and technical knowledge at the time the product was placed on the market or put into service, or during the period in which the product was within the manufacturer’s control, was not such that the defectiveness could be discovered.
Furthermore, by virtue of Article 11(2) of the Directive, software manufacturers will remain liable for defects arising after their product was placed on the market or put into service.
Overall, the extent and magnitude of the impact of this legislative overhaul remains to be seen for another two years at least; the provisions of the Directive will not apply to any products placed on the market or put into service until the 9th of December 2026. Nevertheless, the fundamental uncertainty regarding this piece of legislation is already obvious: is the Directive too claimant friendly? The range of potential claimants and defendants is now wider; the definition of a product and the potential damages that may arise from its defectiveness has also been extended; manufacturers must now deal with a strong presumption of defectiveness in a number of scenarios; a key defence available to manufacturers may be ignored at the discretion of member states; and, above all, the expiry period of 10 years for product defect claims may now be extended to 25 years in the event of the “latency of a personal injury” (Art. 17) of the claimant. What is certain is that the balance has been tipped in the favour of the individual claimant; what remains to be seen, is whether things have been tipped too far.
Sebastian Ricks
Vilá Abogados
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9th of December 2024
