New Product Liability Directive extends liability for EU firms and importers

The planned new EU Product Liability Directive (PLD) is badly needed because the current version is seriously out of date and consumers need better protection, according to Budapest-based Dóra Petrányi, partner, CEE managing director and global co-head of the technology, media and communications group at international law firm CMS. “Current product liability rules, based on the 85/374/EGK Product Liability Directive (PLD), are nearly 40 years old and no longer suitable for the modern digital age. Among other things, the PLD is uncertain about how to determine liability for defective software updates, machine-learning algorithms or digital services, and how to address liability for substantially modified products,” explains Petrányi in a recent note. “The new rules set forth in the proposed directive will ensure that product liability rules are adapted to new types of products and circular economy business models for the benefit of both businesses and consumers,” she adds. The proposed new PLD makes clear that product definitions include electricity, digital manufacturing files and software, confirming that AI systems and AI-enabled goods fall within its scope. The proposal also paves the way for compensation when products such as robots, drones or smart-home systems are rendered unsafe through software updates, and when manufacturers fail to address cybersecurity vulnerabilities, says Petrányi. “The connection between the new AI Act and the proposed directive is that the proposal makes clear that all the mandatory safety requirements set out in the AI Act will be taken into account when a court assesses whether a product is defective,” she says. Liability is also extended down the technology chain under the proposed directive, explains Petrányi. “According to the proposed directive, not only hardware manufacturers can be held liable. Liability will also apply to software providers and providers of digital services that affect the functioning of the product. Manufacturers can also be held liable for changes they make to products that are already placed on the market, including when changes have been triggered by software updates or machine learning,” says the lawyer. “The proposed directive also seeks to encourage the circular economy business models by creating clear and necessary provisions whereby an entity that substantially modifies a product placed on the market by the original manufacturer may also be held liable for damages caused by the modified defective product,” she adds. To put people claiming compensation on an “equal footing” with manufacturers, national courts will be empowered to order manufacturers to disclose relevant evidence at their disposal. “Courts should consider the legitimate interests of all parties, including concerned third parties, particularly in relation to the protection of confidential information and trade secrets. However, if the defendant fails to comply with the obligation to disclose relevant evidence at its disposal, the defectiveness of the product will be presumed,” says Petrányi. And, importantly, under the new rules compensation can be claimed from non-EU manufacturers' representatives. “Today's global value chains allow consumers to buy products directly from manufacturers or distributors not established in the EU. With this in mind, the commission’s proposal enables consumers to seek compensation not only from the importer of the products, but also from the non-EU manufacturer's EU representative,” says Petrányi. Compensation would also be unlimited and cover loss and corruption of data under the new PLD. The new rules would remove current thresholds preventing consumers from being fully compensated for damage they suffer. As a result, the enforcement of damage claims by consumers will be significantly easier, says Petrányi. “Also, the minimum damage threshold will be erased, meaning that consumers will be able to claim damages of less than €500, the current minimum threshold. A significant change is that the proposed directive now clarifies that compensation may be claimed for loss or corruption of data. To further relax compensation rules for consumers, compensation can be claimed if the damaged property was used both for professional and private purposes, such as home office equipment,” she concludes. The EC’s proposed new PLD was open for feedback until December 2022. Feedback received during this process will be presented to the European Council and European Parliament to consider. After the feedback period, the proposal will be discussed during the legislative process involving the council and parliament. Based on its current drafting, member states will have 12 months to transpose it into national law once the new PLD is adopted.

New Product Liability Directive extends liability for EU firms and importers

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