Products liability in the European Union

The new regime: Fool’s gold

(Editor’s note: British spelling and punctuation are used within this article because the author is based in the UK.)

Product liability is the civil liability of the manufacturers, and on occasions the suppliers, of consumer products which have failed to meet the appropriate safety standards and which cause them to be dangerous or in some other way defective.

The current EU product-liability law is dominated by the Product Liability Directive (85/374/EEC) (“PLD”) from 1995. The theoretical advantage of the PLD is that broadly speaking, it provides strict liability and avoids the necessity of proving fault with its related concerns of foreseeability and knowledge. This has rarely worked.

The EU itself describes the PLD: “Since 1985, product liability rules aim to maintain a fair balance between the interests of consumers and producers. (https://single-market-economy.ec.europa.eu/single-market/goods/free-movement-sectors/liability-defective-products_en)

To establish liability under the Product Liability Directive, the injured person must prove the defect, the damage and the causal link between the two.

The producer is liable for damages caused by a defect in their product. For these purposes, a product is defined as “all movables even if incorporated into another movable or into an immovable”, and this definition includes electricity. (Art 2.)

The preamble to the PLD cites Article 100 (subsequently renumbered to Art. 115) of the Treaty of Rome and the aim to achieve a single market:

“... approximation of the laws of the Member States concerning the liability of the producer for damage caused by the defectiveness of his products is necessary because the existing divergences may distort competition and affect the movement of goods within the common market and entail a differing degree of protection of the consumer against damage caused by a defective product to his health or property; ... liability without fault on the part of the producer is the sole means of adequately solving the problem, peculiar to our age of increasing technicality, of a fair apportionment of the risks inherent in modern technological production;”

The overriding principle of liability without fault is said to be justified as necessary for the fair apportionment of risk between the producer and the consumer, and that exceptions are only permitted to this principle where that apportionment implies that the producer should, by proof of ‘exonerating circumstances’, be able to escape liability.

In simple terms, the purpose of the Directive was that a producer of a defective product would be strictly liable for any damage caused by its product. Those considered to be producers are:

(1) the actual producers of the product,

(2) those who ‘own-brand’ products produced by others, and

(3) importers into the EU of products from outside the EU.

The key is, what is defective?

Article 6

1. A product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including:

(a) the presentation of the product;

(b) the use to which it could reasonably be expected that the product would be put;

(c) the time when the product was put into circulation.

2. A product shall not be considered defective for the sole reason that a better product is subsequently put into circulation.

Secondary defendants under Article 3 ‘suppliers’ will only be liable where the person who suffered damage requests that the supplier identify the primary defendant (the producer), where that request is made in reasonable time and the supplier fails to do so within a reasonable time.

1. ‘Producer’ means the manufacturer of a finished product, the producer of any raw material or the manufacturer of a component part and any person who, by putting his name, trade mark or other distinguishing feature on the product presents himself as its producer.

2. Without prejudice to the liability of the producer, any person who imports into the Community a product for sale, hire, leasing or any form of distribution in the course of his business shall be deemed to be a producer within the meaning of this Directive and shall be responsible as a producer.

3. Where the producer of the product cannot be identified, each supplier of the product shall be treated as its producer unless he informs the injured person, within a reasonable time, of the identity of the producer or of the person who supplied him with the product. The same shall apply, in the case of an imported product, if this product does not indicate the identity of the importer referred to in paragraph 2, even if the name of the producer is indicated.

The PLD is binding upon all member states; the other European Economic Area (EEA) members (Iceland, Liechtenstein and Norway) and should be implemented into national law to be entirely consistent with the Directive.

This PLD applies to any product marketed in the EU and (EEA). Compensation for material damage is limited to goods for private use or consumption with a lower threshold of €500. It sets out a time limit of three years for the recovery of damages and forbids clauses limiting or excluding the liability of the producer. It is the injured party’s responsibility to prove the damage, the defect and the causal relationship between defect and damage for the purpose of compensation.

There is a limited defence. The longstop limitation of 10 years from date of supply, like the Montreal Convention, extinguishes the right to bring a claim. However, the main one, although rarely tested in the European courts, Article 15(1)(b), gives member states the option of adopting the development risks defence: “1. Each Member State may:

...

(b) by way of derogation ... maintain ... or provide in [its] legislation that the producer shall be liable even if he proves that the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of a defect to be discovered.”

The producer is the principal defendant but the liability may be joint and several and it is for the victim to choose whom they sue where there may be more than one potential defendant. However, the identity of the producer can only ever be known by the producer itself. This leads quite often to a lengthy interrogation of a potential party and in some cases an attempt to dictate who should be held liable. In the case of organisations made up of several different entities, that can be problematic. Suing the wrong party may be fatal to the case if the longstop limitation period expires before this is appreciated and the right to claim lost forever. Also, there have been situations in which the company proffered as the appropriate defendant is in fact one with little or no assets to meet a claim; a particular problem in cross-border cases.

A similar practical challenge arises in identifying the longstop limitation date. The date the product is supplied can only ever be known by the producer and it is by no means infrequent that a request for confirmation of the date of supply is responded to as unknown by the producer even with appropriate batch codes and product identification.

It has been the view of many lawyers representing consumers and indeed consumer organisations themselves that the Directive was not working in the way that it was intended. Particular problems highlighted relate to:

the definition of a defective product;the difficulties establishing causation, and in particular, the extent to which that is used to re-insert a requirement to prove fault, which is absent from the Directive;the need to prove causation – specifically for injuries for which a medical device or pharmaceutical product may have been recalled;the issue of whether or not regulatory approval provides a complete defence or is such a significant circumstance as to defeat an argument that a product is defective;an inability to recover from a supplier where the producer is known but no longer able to satisfy claims;the long stop limitation period and its unfair prejudice to those under the age of majority (usually 18); patients and victims of pharmaceutical medical devices where the defect is often latent and does not appear until either shortly before the end of the long stop period or afterwards.

The EC has periodically assessed the effectiveness of the PLD; most recently in 2018. To the surprise of consumers and those who represent them, the EC decided the PLD was working well, as did the manufacturers, their insurers and those who represented them!

It opened its report with:

The Directive was one of the first pieces of EU legislation that explicitly aimed to protect consumers. It introduced the concept of strict liability, where producers are responsible for defective products, regardless of whether the defect is their fault. The Directive also aims to contribute to economic growth by providing a stable and legal environment of equal competition that allows companies to place innovative products on the market.

The Directive complements EU product safety legislation and what is known as the ‘New Approach’ to product safety. Introduced at the same time as the Directive, the ‘New Approach’ aims to prevent accidents by setting common safety rules 2 that allow the single market for goods to function smoothly and to reduce administrative burden. The Directive is the safety net for instances when accidents nevertheless occur….

The evaluation has shown that even though products are much more complex today than in 1985, the Product Liability Directive continues to be an adequate tool.

However, we need to clarify the legal understanding of certain concepts (such as product, producer, defect, damage and the burden of proof) and look closely at certain products such as pharmaceuticals, which may pose a challenge to the performance of the Directive.

In addition, on emerging digital technologies, a preliminary analysis on how these affect the functioning of the Directive, has raised a number of open questions. In light of these findings, the Commission will consult broadly to reach a common understanding with all stakeholders. The aim is to draw up comprehensive guidance on how to apply the Directive today. In addition, it will assess to what extent emerging digital technologies can be adequately addressed by the current Directive. This guidance and the assessment will help us to pave the way forward for a product liability framework fit for the digital industrial revolution.

Our goal is to ensure that: (i) the EU continues to have a product liability regime that fosters innovation; (ii) products placed on the EU market are safe; and (iii) people who suffer injury because of defective products are able to claim compensation when accidents occur. We have a responsibility both to businesses and to people who suffer injury. This is our compass. We need to navigate the coming technological changes carefully and sensibly so as to respect either objective.”

As part of the evaluation, the EC launched a public consultation collecting stakeholders’ feedback on the application and performance of the directive, including how this relates to challenges raised by new technological developments.

From this it set up an expert group on liability and new technologies of which the author, was a member. The group has two formations. The ‘product liability formation’ to assist the EC in drawing up guidance on the directive and the ‘new technologies formation’ was to assess the implications of emerging digital technologies for the wider liability frameworks at EU and national level.

In 2020, the Commission published a report on the broader implications for, potential gaps in, and orientations for, the liability and safety frameworks for artificial intelligence, the Internet of Things and robotics.

The work of the expert groups and following its 2022 report, the European Commission (EC) adopted two proposals to revise the PLD. It announced that the revisions would modernise the PLD to come up to date with the digital age, the circular economy and the impact of global value chains.

The headlines of the new regime

As well as the updating to reflect new technology and particularly artificial intelligence (AI), the EC intends the revisions to modernise the existing rules on the so-called strict liability of manufacturers for defective products (from smart technology to pharmaceuticals) but also including expanding the definition of a product to include software. It says that victims will get fair compensation when defective products, which now include digital and refurbished products, cause harm.

Secondly, the Commission proposes for the first time a targeted harmonisation of national liability rules for AI, making it easier for victims of AI-related damage to get compensation. In line with the objectives of the AI White Paper and with the Commission’s 2021 AI Act proposal, setting out a framework for excellence and trust in AI: the new rules, the Commission says it will ensure that victims benefit from the same standards of protection when harmed by AI products or services, as they would if harm was caused under any other circumstances.

“The Directive simplifies the legal process for victims when it comes to proving that someone’s fault led to damage, by introducing two main features: first, in circumstances where a relevant fault has been established and a causal link to the AI performance seems reasonably likely, the so called ‘presumption of causality’ will address the difficulties experienced by victims in having to explain in detail how harm was caused by a specific fault or omission, which can be particularly hard when trying to understand and navigate complex AI systems….”

The existing PLD makes importers liable for defective products manufactured outside the Union. The new directive intends to allow consumers to seek compensation from the non-EU manufacturer’s representative. This reflects modern consumer behaviour where the EU victim purchases from the online marketplace and there is no importer. The existing PLD makes importers liable for defective products manufactured outside the Union. Through a combination of the Market Surveillance Regulation and the upcoming revision of the General Product Safety Regulation, this will mean that, there will be an EU-based liable person from whom to seek compensation.

Defectiveness is now defined as follows:

“Article 9

Burden of proof

1. Member States shall ensure that a claimant is required to prove the defectiveness of the product, the damage suffered and the causal link between the defectiveness and the damage.

2. The defectiveness of the product shall be presumed, where any of the following conditions are met:

(a) the defendant has failed to comply with an obligation to disclose relevant evidence at its disposal pursuant to Article 8(1);

(b) the claimant establishes that the product does not comply with mandatory safety requirements laid down in Union law or national law that are intended to protect against the risk of the damage that has occurred; or

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

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

4. Where a national court judges that the claimant faces excessive difficulties, due to technical or scientific complexity, to prove the defectiveness of the product or the causal link between its defectiveness and the damage, or both, the defectiveness of the product or causal link between its defectiveness and the damage, or both, shall be presumed where the claimant has demonstrated, on the basis of sufficiently relevant evidence, that:

(a) the product contributed to the damage; and

(b) it is likely that the product was defective or that its defectiveness is a likely cause of the damage, or both.

The defendant shall have the right to contest the existence of excessive difficulties or the likelihood referred to in the first subparagraph.

5. The defendant shall have the right to rebut any of the presumptions referred to in paragraphs 2, 3 and 4”

Other changes include distributors (offline and online sellers) also becoming liable if they fail to give the name of the EU-based liable person to the injured person on request. This applies to online marketplaces too, but only if they present themselves to the consumer as a distributor. The new directive will also require companies to disclose evidence that a claimant would need to prove their case in court. The EC reports that this is to address the asymmetry of information between the manufacturer and consumer:

“The new PLD will now require companies to disclose evidence that a claimant would need to prove their case in court. This is to address the asymmetry of information between the manufacturer and consumer: manufacturers know much more than consumers about how the product in question was produced and brought to market.”

Long stop limitation will remain at 10 years from placing the product into circulation save where there is latent personal injury damage when it will be 15 years.

The Recital in the draft directive says:

 “However, the Directive also had several shortcomings:

it was legally unclear how to apply the PLD’s decades-old definitions and concepts to products in the modern digital economy and circular economy (e.g. software and products that need software or digital services to function, such as smart devices and autonomous vehicles);the burden of proof (i.e. the need, in order to obtain compensation, to prove the product was defective and that this caused the damage suffered) was challenging for injured persons in complex cases (e.g. those involving pharmaceuticals, smart Products or AI-enabled products);the rules excessively limited the possibility of making compensation claims (e.g. property damage worth less than EUR 500 is simply not recoverable under the PLD).”

Other headline reforms include expanding damages to include data loss and removing the minimum threshold of €500 for damage to property.

Artificial intelligence

In recognising the need to update its product liability regime, the EC has also turned its eyes towards artificial intelligence (AI). First with the publication in 2023 of an EU Roadmap for AI. The stated position of it is that it wanted to “regulate AI to ensure better conditions for the development and use of this innovative technology.” (EU AI Act: first regulation on artificial intelligence 8 June 2023.) In particular, AI systems should be overseen by people, rather than by automation, to prevent harmful outcomes.

In July 2024 what the EC claims to be the world’s first rules on AI were published: the Artificial Intelligence Act (Regulation (EU) 2024/1689 of the European Parliament and of the Council of 13 June 2024 laying down harmonised rules on artificial intelligence and amending Regulations (EC) No 300/2008, (EU) No 167/2013, (EU) No 168/2013, (EU) 2018/858, (EU) 2018/1139 and (EU) 2019/2144 and Directives 2014/90/EU, (EU) 2016/797 and (EU) 2020/1828 (Artificial Intelligence Act) (Text with EEA relevance)), which came into force on the 1 August 2024 will be fully applicable on 2 August 2026 although some parts will be applicable sooner; notably the prohibition which applied from 2 February 2025. (Article 113 (a).)

“The new act offers a classification for AI systems with different requirements and obligations tailored to a ‘risk-based approach’. Some AI systems presenting ‘unacceptable’ risks are prohibited. A wide range of ‘high-risk’ AI systems that can have a detrimental impact on people’s health, safety or on their fundamental rights are authorised, but subject to a set of requirements and obligations to gain access to the EU market. AI systems posing limited risks because of their lack of transparency will be subject to information and transparency requirements, while AI systems presenting only minimal risk for people will not be subject to further obligations. The regulation also lays down specific rules for general purpose AI (GPAI) models and lays down more stringent requirements for GPAI models with ‘high-impact capabilities’ that could pose a systemic risk and have a significant impact on the internal market.” (EU Legislation in Progress 12 July 2024.)

The AI act enshrines in EU law a definition of AI systems aligned with the revised definition agreed by the OECD:

An AI system is a machine-based system designed to operate with varying levels of autonomy and that may exhibit adaptiveness after deployment and that, for explicit or implicit objectives, infers, from the input it receives, how to generate outputs such as predictions, content, recommendations, or decisions that can influence physical or virtual environments.

The AI act applies primarily to providers and deployers putting AI systems and GPAI models into service or placing them on the EU market and who have their place of establishment in or who are located in the EU, as well as to deployers or providers of AI systems that are established in a third country, when the output produced by their systems is used in the EU.

It will ban the following harmful AI practices that are considered a clear threat to people’s safety, livelihoods and rights owing to the ‘unacceptable risk’ they create:

¬ AI systems that deploy harmful manipulative ‘subliminal techniques’;

¬ AI systems that exploit specific vulnerable groups (physical or mental disability);

¬ AI systems used by public authorities, or on their behalf, for social scoring purposes;

¬ ‘Real-time’ remote biometric identification systems in publicly accessible spaces for law enforcement purposes, except in a limited number of cases.

The act will regulate high-risk AI systems that create adverse impact on people’s safety or their fundamental rights.

It was originally intended to publish an AA Liability Directive to complement the act by creating harmonised rules across the member States on liability in cases where harm is caused by AI systems. It originally included mechanisms such as a rebuttable presumption of causality in some circumstances and powerful courts to require disclosure of evidence about high-risk systems. However, owing to there being “no foreseeable agreement” among the Member States and Parliament, it was withdrawn. The EU’s position now being that the Member States’ own regimes (including negligence strict liability in product liability for example) will suffice.

Next stage

The new PLD entered into force (in the sense of EU law) on 8 December 2024 (or 9 December depending on translation) – the date of formal entry into force. However, it only becomes active in each member state when they transpose it into their national laws; and they have to do that by 9 December 2026.

But the liability regime under the new PLD applies to products placed on the market or put into service on or after 9 December 2026. Products before that date are governed by the old regime.

Early comment from those representing producers stress that they consider the revision will extend the scope of claims that can be brought, the range of damages that can be recovered and generally make it easier for consumers to prove their case. This of course reflects the intention of the EC whilst at the same time giving producers legal certainty and predictability about the liability risks they face when doing business.

At first glance, in terms of making it easier for victims to bring claims, it may be said that all that glitters is not gold. As but one example, a product is presumed to be defective if it can be shown that it does not comply with mandatory safety requirements under either EU or national laws. However, the most obvious suggestion of a product being defective, a product recall, does not create a presumption of defectiveness according to the recitals in the revised directive.

It is unclear how Article 9(b) – non-compliance with safety requirements – will avoid the same arguments victims currently face in court. Article 9 (2) (c) is a new definition for a defect, that there is an obvious malfunction, but again experience has shown these types of cases have rarely been the problem. The problem arises in the so-called standard product (one which is in the form intended by the supplier – such as pharmaceuticals) where it is argued it is nevertheless defective.

Article 9(4) “excessive difficulty” presumption, another new one is also imprecisely worded. The additional wording: “The defendant shall have the right to contest the existence of excessive difficulties or the likelihood referred to in the first subparagraph” means it is likely to result in a trial within a trial and is unlikely to result in a quicker or cheaper resolution.

This being said, Article 9 (3) may be the only real benefit to come: “The causal link between the defectiveness of the product and the damage shall be presumed, where it has been established that the product is defective and the damage caused is of a kind typically consistent with the defect in question”

Causation in jurisdictions which favour the arithmetical approach (more than a doubling of the risk) have struggled in medical cases. This may offer a route to success where evidence to cement the link between the damage and the product is problematic.

Sadly, the longstop still applies from the date of supply: “placing on the market” now, rather than putting in circulation. This remains a date that a victim cannot know and is exclusively in the knowledge of the producer. This has been a barrier to bringing a claim swiftly in the past and is likely to remain so.

As a consumer lawyer, I fear a very significant missed opportunity to rebalance the rights of the EU victim against the profit-making producers and their agents. Sadly, those most likely to be celebrating these developments will be the lawyers who represent the producers and their insurers. And the UK? A positive haven for pharmaceutical and medical device manufacturers.