Key Features of the New EU Product Liability Directive: Increased Potential for Litigation in the Technology, Pharmaceutical and Medical Device Sectors

The New PLD therefore pursues two main policy objectives: (i) adapting the PLD to the digital age and the circular economy and (ii) reducing obstacles to making claims and to getting compensation.

These objectives made clear the need to amend the EU legislative framework in connection with product liability. Key features under the New PLD Directive include:

Extension of the Definition of ‘Product’ to Include Standalone Software, Including AI

Under Article 2 of the PLD, the term ‘product’ meant “all movables, with the exception of primary agricultural products and game, even though incorporated into another movable or into an immovable”.

The New PLD now includes “digital manufacturing files, raw materials and software”, in light of the fact that “software, such as operating systems, firmware, computer programs, applications or AI systems (…) plays an increasingly important role for product safety”, and “it is capable of causing damage through its execution”.

However, the concept of software under Article 4 does not include:

• “free and open-source software developed or supplied outside the course of a commercial activity”
• digital files (except for digital manufacturing files, which contain the functional information necessary to produce a tangible item by enabling the automated control of machinery or tools, such as drills, lathes, mills and 3D printers).

Expansion of Liable Entities

Under Article 3 of the PLD, product liability only applied to the manufacturer, the importer of the product into the European Union, and – under certain conditions – the supplier of the product.

The New PLD has included under the product liability regime almost all the players involved in both the production and distribution cycle.

Distributors can be held liable if no other liable party established within the European Union can be identified, and provided that:

• “(a) the injured person requests that distributor to identify an economic operator among those referred to in paragraph 1 [e.g. the manufacturer of the product or the component] and established in the Union, or its own distributor that supplied it with that product; and
• (b)that distributor fails to identify an economic operator or its own distributor, within one month of receiving the request referred to in point (a)”.

Moreover, service providers and online platforms are subject to liability as well.

In particular, service providers can be found liable to the extent that no importer (or authorised representative) is established in the European Union. As to online platforms, they can be considered liable where it is found that:

• they perform the role of manufacturer, importer, authorised representative, fulfilment service provider or distributor in respect of a defective product;
• they present the product or otherwise enable the specific transaction in question in a way that would lead 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.

New Rules Providing for Disclosure of Evidence

This is one of the most important features introduced by the New PLD. Article 9 provides that, upon the request of a person (i) who is claiming compensation in proceedings before a national court for damage caused by a defective product, and (ii) who has presented facts and evidence sufficient to support the plausibility of the claim, the defendant is required to disclose the available evidence provided that such disclosure is necessary and proportionate.

In parallel, at the request of a defendant that has presented facts and evidence sufficient to demonstrate the defendant’s need for evidence for the purposes of countering a claim for compensation, the claimant is required, in accordance with national law, to disclose relevant evidence that is at the claimant’s disposal.

The court is therefore given the power to order the disclosure of evidence to overcome any information asymmetries between the parties, to therefore facilitate proof of the defect and the causal link between that defect and the damage.

Where a defendant is required to disclose information that is a trade secret or an alleged trade secret, national courts are empowered, upon a duly reasoned request of a party or ex officio, to take the specific measures necessary to preserve the confidentiality of that information when it is used or referred to in the course of (or after) legal proceedings.

Where a party is required to disclose evidence, 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 will be relevant especially in connection with technology and AI tools.

In this context, the role of the judge will be clearly crucial to address the issue. The judge will have to first identify the legitimate interests of all parties concerned, including third parties, and will have to carefully evaluate the relevant document or information that should be disclosed to the counterparty.

Burden of Proof and Rebuttable Presumptions to Facilitate Claimants

Another significant change introduced by the New PLD concerns the burden of proof.

Under the PLD, the injured party has to provide evidence of both (i) the defectiveness of the product in question (ii) the damage caused and (iii) the causal link between the defect and the damage. However, due to the increasing technical and scientific complexity of products, it is often difficult for the consumer to adequately prove both the existence of defects in technological devices and the causal link between the defect and the damage.

To ease the burden of proof for the injured party Article 10 of the New Directive has introduced two rebuttable presumptions.

A rebuttable presumption of defectiveness shall be applicable where:

• the defendant fails to comply with the disclosure order under Article 9 of the New PLD Directive (see § 3) above)
• the claimant proves that the product does not comply with mandatory product safety requirements laid down in the European Union or in national law that are intended to protect against the risk of the damage suffered by the injured person (this should be read, among other things, in connection with the requirements now set under the AI Act, as far as AI products are concerned); or
• the claimant proves that the damage was caused by an obvious malfunction of the product during reasonably foreseeable use or under ordinary circumstances.

As to the casual link, this is presumed where two conditions are met, jointly:

• the product is defective; and
• the nature of the damage caused by the defect is consistent with the defect.

In addition, the national court shall presume the defectiveness of the product and/or the causal link between the defect and the damage where the following are jointly met:

• where, notwithstanding the disclosure of evidence and taking into account all relevant circumstances of the case, the claimant faces “excessive difficulties” (e.g. due to technical or scientific complexity), in being able to prove the defect of the product or the causal link between the defect and the damage, or both; and
• the claimant proves 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.

Exemptions from Liability and State of the Art Defence

The New PLD revised the cases where liability shall be excluded, which had included where (a) the manufacturer or importer did not place the product on the market or put it into service; (b) the distributor did not make the product available on the market; (c) it is probable that the defectiveness did not exist at the time the product was placed on the market, put into service or, in the case of a distributor, made available on the market, or that that defectiveness came into being after that moment; (d) the defectiveness is due to compliance of the product with legal requirements; (e) 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; (f) in the case of a manufacturer of a defective component, as referred to in Article 8(1), first subparagraph, point (b), the defectiveness of the product in which that component has been integrated is attributable to the design of that product or to the instructions given by the manufacturer of that product to the manufacturer of that component; (g) in the case of a person that modifies a product as referred to in Article 8(2), that the defectiveness is related to a part of the product not affected by the modification.

This defence under letter (e) immediately above is particularly relevant, but it does not apply in certain cases, such as when the defect is caused by a lack of software updates or upgrades necessary to maintain the product’s safety, or in case of substantial modification of the product.

The New PLD also allows Member States to exclude this defence. If so, manufacturers may be held liable even if they can prove that the defectiveness could not be discovered due to the state of art at the time.

Limitation Period and (Extended) Expiry Period

The New PLD confirms the 3-year limitation period, which starts from the day on which the injured person became aware, or should reasonably have become aware, of: (a) the damage; and (b) the defectiveness; and (c) the identity of the relevant economic operator that could be held liable for that damage.

However, significant changes have been made to the 10-year expiry period, especially in connection to modified products. In fact, an injured person is no longer entitled to compensation pursuant to the New PLD upon the expiry of a period of 10 years, unless it has, in the meantime, initiated proceedings against an economic operator, and the starting date of the expiry period is:

(a) the date on which the defective product which caused the damage was placed on the market or put into service; or
(b) in the case of a substantially modified product, the date on which that product was made available on the market or put into service following its substantial modification.

Moreover, the expiry period is extended to 25 years where an injured person has not been able to initiate proceedings within the above-mentioned standard 10-year term, due to the latency of a personal injury.

Conclusion and Key Takeaways

The New PLD will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union and must be implemented by EU Member States within two years.

The combination of the new presumptions (on product defects and causation link) and the extensive disclosure obligations, together with the inclusion of new subjects potentially liable would likely increase litigation risk for companies. This is especially true in the pharmaceutical and medical device sector (also in light of the extended expiry period, in case of latent damages) as well as in the technology sector.

The data collected from previous experience with the PLD, reveals that:

1. Four product categories are more frequently subject to product liability claims: raw materials (21,2%), pharmaceutical products (16,1%), vehicles (15.2%), and machineries and mechanical appliances (12.4%); and the analysis of case law show that 67% of CJEU decisions on product liability concern pharmaceutical products and medical devices;
2. The most frequent reason for rejecting a claim for a defective product concerns the burden of proof, and specifically the proof of the defect and of the link between defect and damage (these two instances together account for 53% of the rejected cases);
3. The burden of proof is particularly difficult in the medical/pharmaceutical sector (including in terms of costs for collecting sufficient and valuable evidence).

One of the key features of the New PLD are mechanisms which render it easier for plaintiffs to collect evidence in areas of great complexity from a scientific and technological standpoint.

Companies – especially those operating in the above-mentioned sectors – will thus need to face this increased litigation risk and set appropriate countermeasures, including:

• Monitoring the implementation of the New PLD at Member States level
• Assessing whether they fall into one of the (expanded) categories of potentially liable subjects
• Analyzing their liability risks and preparing for the legislative changes
• Setting a strategy to counter requests for disclosures, which pose significant risk in terms of confidential information
• Revising contracts with suppliers and distributors to ensure that the risks are appropriately allocated.

*Trainee Arcangela Gerbino also contributed to this article