Product Liability Reform

Almost 40 years after the adoption of the Product Liability Directive 85/374/EEC, on 10 October 2024, the Council of the EU adopted the new Directive on liability for defective products

The reform of the EU Product Liability Directive 85/374/EEC (the current "PLD") was long overdue to keep pace with the technological progress and to clarify liability for new types of products and the different economic operators.

The reform will notably increase the liability exposure of manufacturers as well as other economic operators involved in the production and distribution of products in the EU market.

Product manufacturers and other operators thus need to (re-)assess their risk exposure (including insurance protection), carefully review their contracts, and consider the necessary adaptations for upcoming new or renegotiated contracts. Roles and responsibilities of each stakeholder along the manufacturing, supply and distribution chain should be clearly defined and differentiated to ensure appropriate risk and responsibility allocation and safeguard potential recourse options in the event of external product liability claims.

The new PLD will enter into force twenty days after the publication in the Official Journal of the European Union. The Member States have then 24 months to transpose the updated PLD into national law.

The main changes at a glance

The new PLD in particular (1) introduces new liability subjects, (2) eliminates existing liability caps, (3) potentially strengthens the disclosure rules, (4) facilitates the bringing of evidence for claimants, (5) extends the expiry period in certain cases and (6) introduces/clarifies the definitions for "product", "defect" and "damage".

New liability subjects

In addition to the well-known existing liability subjects (i.e. the (quasi) manufacturers of the end product or component part; importers; distributors), the new PLD introduces three new liability subjects who may also be held liable for defective products in addition to the manufacturer:

(1) Authorised Representative of the manufacturer

Where a manufacturer is established outside the European Union and such manufacturer has appointed an authorised representative within the European Union, such authorised representative can be held liable for defective products.

The appointment of an authorised representative may be voluntary or mandatory. It is important to note in that context that the new PLD does not introduce new (general) obligations to appoint an authorised representative for certain product types. The requirement for such appointments derives – in respect of certain product types - from the relevant product safety and market surveillance legislation.

So far, manufactures of medical devices, for example, are required to designate an authorised representative, if the manufacturer of the medical device is not established in a Member State, but intends to place its products in the EU market. ¹

(2) Fulfilment Service Provider

Where a manufacturer, importer, or authorised representative is not established within the European Union, the so-called fulfilment service provider may be secondarily liable.

A Fulfilment Service Provider means any natural or legal person offering, in the course of a commercial activity, at least two of the following services: warehousing, packaging, addressing and dispatching of a product, without having ownership of that product, excluding sole postal services, parcel delivery services or freight transport services.

(3) Provider of an Online Platform

Operators of online platforms who allow consumers to conclude distance contracts with traders and who are not otherwise subject to product liability as an economic operator might attract secondary product liability. That is the case where:

(i) an economic operator established in the European Union cannot be identified in relation to a defective product sold via the platform, and

(ii) the affected person can reasonably expect to rely on the platform operator instead.

The latter requirement is satisfied where an online platform leads an average consumer to believe that the product is provided either by the online platform itself or by a trader acting under its authority or control, and where the online platform fails to identify within one month upon the affected consumer's request an economic operator established in the European Union.

Elimination of liability caps

The new PLD no longer contains any liability limits.

Under the current PLD, Member States could provide that a producer`s total liability for damages resulting from death or personal injury and caused by identical products with the same defect shall be limited to an amount not be less than EUR 70 million. The overall liability cap under German law, for example, currently is EUR 85 million.

Damage to property other than the defective product itself may be recoverable if the property is not used exclusively for professional purposes. However, under the current PLD, only property damages exceeding the amount of EUR 500 are recoverable, meaning that affected consumers currently bear EUR 500 of his property damage themselves.

Disclosure obligation

The new PLD requires the Member States to ensure that, at the request of a claimant who presents facts and evidence sufficient to support the plausibility of the product liability claim, the defendant is required to disclose relevant evidence that is at the defendant’s disposal. The defendant can demand disclosure from the claimant under basically the same prerequisites.

Disclosure of evidence under certain prerequisites is not a new concept in most jurisdictions. However, the Member States might need to adapt their existing rules to lower the existing requirements for a disclosure and to give sufficient effect to the PLD.

Further, the new PLD requires that Member States shall ensure that, national courts are empowered, upon a duly reasoned request of the opposing party or where the national court concerned deems it appropriate and in accordance with national law, to require such evidence to be presented in an easily accessible and easily understandable manner, if such presentation is deemed proportionate by the national court in terms of costs and effort for the required party.

This could be particularly relevant in the case of software code and the AI 'black box', where information can typically be complex.

Facilitation of evidence for claimants

The new PLD significantly facilitates a claimant's burden to provide evidence by establishing (rebuttable) presumptions in respect of a product's defectiveness as well as the causation of damage by such defect - or both:

The defectiveness of the product is presumed in either of the following cases: (1) the defendant does not comply with his disclosure obligation regarding relevant evidence; (2) the claimant demonstrates that the product does not comply with mandatory product safety requirements that are intended to protect against the risk of the damage suffered; or (3) the claimant demonstrates that the damage was caused by an obvious malfunction of the product during reasonably foreseeable use or under ordinary circumstances.

The causal link between the defectiveness of the product and the damage is presumed where it has been established that the product is defective and that the damage caused is of a kind typically consistent with the defect in question.

The defectiveness of the product or the causal link between its defectiveness and the damage, or both, are presumed, where, despite the disclosure of evidence and taking into account all the relevant circumstances of the case:

(1) 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, or both; and

(2) 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, or both.

Extension of expiry period

The new PLD sticks to the 3-year (knowledge-based) limitation period and the 10-year overall expiry period with one exception:

The new PLD extends the expiry period to 25 years in cases where an injured person has not been able to initiate proceedings within 10 years due to the latency of a personal injury.

Considering that the plaintiff usually has significant issues proving causality in the case of injuries that only become apparent after more than 10 years, the extended expiry period might become a game changer in combination with the very far-reaching facilitation of evidence rules, including the (rebuttable) presumption for the causal link (see above).

This will be particularly relevant in cases where the symptoms of a personal injury are, according to medical evidence, slow to emerge.

The much shorter limitation period of 3 years will not prevent the claimant from bringing such claim if he can argue that no damage, or at least no propagated damage, has realized up to that point in time, or that he was at least not aware of any such damage.

As with the current PLD, the limitation period shall run only from the day on which the injured person became aware, or ought to have become aware of (1) the damage (2) the defectiveness, and (3) the identity of the relevant economic operator that can be held liable.

New "product" definition

The new PLD sticks in principle to the old definition: all movables, even though incorporated into another movable or into an immovable item, and extends it to the interconnection with another movable or an immovable item.

The new definition clarifies that raw material (e.g. gas and water) itself is also considered a product within the meaning of the new PLD.

The most important change is that the new PLD picks up the new product types in the digital age as well as the transition from linear to circular economy:

Software and digital manufacturing files are added to the product definition, emphasizing that information as such (e.g. digital files, e-books, source code of software) is not considered a product.

Digital manufacturing files, however, are considered a product, as they contain the functional information ultimately necessary to produce a tangible item at the end by enabling the automated control of machinery or tools, such as drills, lathes, mills and 3D printers. The manufactured tangible item could cause harm if the digital manufacturing file was defective.

According to the new PLD, the strict product liability regime does not apply to free and open-source software developed or supplied outside the course of commercial activity (and therefore by definition not "placed on the market") in order not to hamper innovation or research.

However, the new PLD makes an important exception to this rule: Where software is supplied in exchange for a price, or personal data are used other than exclusively for improving the security, compatibility, or interoperability of the software it is considered to be supplied in the course of a commercial activity, and the strict product liability applies.

When a product is substantially modified and is thereafter made available on the market or put into service, it is considered to be a new product.

In relation to e.g. remanufacturing, refurbishment, and repair, it will be relevant whether the modification was substantial and whether the modification was made outside the control of the original manufacturer. For example - without prejudice to the criteria set out in the respective product safety legislation - modifications that change the original intended functions, or the risk profile of the product should be considered to be substantial modifications.

New "defect" definition

The definition of a "defect" also maintains the existing principle under the PLD according to which a product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account. Exemplary circumstances listed in the current 1985 PLD are the (1) presentation of the product; (2) the use to which the product could reasonably be expected to be put; (3) the time when the product was put into circulation.

The aforementioned circumstances are specified in more detail in the new PLD and exemplary circumstances are listed which are often already taken into account (unwritten) in the different jurisdictions (e.g. reasonably foreseeable effect on (interconnected) third party products).

The novel aspect regarding the defect definition in the new PLD is the EU legislator's taking account of new developments driven by digitalisation. In determining the existence of a defect the new PLD emphasizes for example expressly that account must be taken of

• self-learning systems; i.e. the effect on a product`s safety of its ability to learn or acquire new features after it is placed on the market or put into service;
• compliance with relevant product safety requirements, including cybersecurity requirements;
• the time when the manufacturer actually loses control of the product in the digital age; i.e., is the defect, for example, caused after placing the product on the market or putting it into service or caused by software or related services still in the manufacturer`s control etc.

The observation in practice is that a lot of product liability claims are triggered by a recall. The new PLD emphasizes the current understanding (at least of German courts) that a recall itself is not a presumption of defectiveness but shall be taken into account when considering the potential defectiveness.

In a side note, the PLD states that it should be possible for a court to find that a product is defective without establishing its actual defectiveness, where it belongs to the same production series as a product already proven to be defective.

New "damage" definition

The new PLD clarifies that damage includes medically recognised and medically certified damage to psychological health that affects the injured person`s general state of health and could require therapy or medical treatment, taking into account, inter alia, the international classification by the WHO.

The destruction and/or corruption of data that are not used for professional purposes can be a damage as well.

^{1 In certain circumstances, the authorised representative of a medical device manufacturer is already liable today (Art. 11 (5) of the Medical Devices Regulation EU 2017/745).}