EU: Coreper Approves Final Compromise Text on Product Liability Rules

This blog was originally posted on 21st February, 2024. Further regulatory developments may have occurred after publication. To keep up-to-date with the latest compliance news, sign up to our newsletter.

AUTHORED BY JOYCE COSTELLO, SENIOR REGULATORY COMPLIANCE SPECIALIST, COMPLIANCE & RISKS

Introduction

On 24 January 2024, the Permanent Representatives Committee (Coreper) of the Council of the EU approved the final compromise text on new Union-wide product liability rules. Following Coreper’s approval, should the European Parliament vote favorably on this text, it will be formally adopted by the Council.

In this blog, we look at the EU’s Liability for Defective Products Draft Directive, and outline the main points of the text published by Coreper.

EU: Liability for Defective Products, Draft Directive, September 2022

The text published by the Council contains some notable deviations from the text proposed by the EU Commission on 28 September 2022. Some salient points of the Council’s proposal are highlighted below.

Substantial Modifications to Products

The Council’s text expands on the Commission position that enlarges the scope of the EU’s product liability regime to explicitly include businesses that make substantial modifications to products.

Original manufacturers making substantial modifications to products will be liable for any harm arising from defects in those products, and cannot attempt to evade liability by resorting to arguments that the defect came into being after it originally placed the product on the market or put it into service.

If however it can be shown that the modification was not within the control of the original manufacturer, then it may be possible to hold the person that made the substantial modification liable as a manufacturer of the modified product, where the defect relates to a part of the product affected by the modification.

Manufacturers of smart products should know that the same principles of substantial modification apply to products allowing for modifications through changes to software, including upgrades. Where a substantial modification is made through a software update or upgrade, or due to the continuous learning of an AI system, the substantially modified product should be considered to be made available on the market or put into service at the time the modification is actually made.

Such software updates and upgrades, should be considered to be within the manufacturer’s control where they are integrated, inter-connected or supplied by the manufacturer itself or where the manufacturer authorizes or consents to their supply by a third party. Thus, the manufacturer remains responsible for the defect.

New Article 5a: Damage

The right to compensation established under Article 5 would apply only to damage as described in Article 5a. Of note here is the newly-inserted reference to ‘including medically recognized damage to psychological health’. Understanding of damage therefore is evolving in parallel with products now developed, and will ensure that new kinds of harms in particular occasioned by AI-enabled, digital products can be compensated and captured by the liability net.

Disclosure of Evidence

The Council is advocating for more exacting requirements as regards evidentiary access to facilitate claimants bringing legal proceedings.

The proposal initially tabled by the Commission would have empowered national courts to order the defendant to disclose relevant evidence at its disposal. The Council, taking into consideration the complexity of certain types of evidence, for example evidence relating to digital products, would also include documents that have to be created ex novo by the defendant by compiling or classifying the available evidence, and make it possible for national courts to require such evidence to be presented in an easily accessible and easily understandable manner, subject to conditions.

New Article 12a: Right of Recourse

Where two or more economic operators are held jointly and severally liable, the economic operator that has compensated the injured person will be entitled to pursue remedies against the other economic operators in accordance with national law.

Liability Expiry Period

Manufacturers may face extended liability periods in circumstances where personal injury symptoms are slow to emerge. The Council in this regard is recommending a substantial 25-year period in respect of latency of a personal injury to ensure that consumers are not barred from seeking compensation in such complex cases. 

New Defence: ‘Derogation from Development Risk’

Manufacturers could see a watering-down of one of the available defences, and diverging approaches in Member States. The Council would permit Member States, by way of derogation from Article 10(1), point (e), to maintain in their legal systems existing measures to the effect that economic operators are to be liable even if they prove that the state of scientific and technical knowledge at the time when the product was placed on the market, put into service or in the period in which the product was within the manufacturer’s control was not such that the defectiveness could be discovered. 

Transitional Period: 24 v. 12 months

The Council is recommending an additional 12 months by way of transition, such that economic operators would avail of 2 years to ensure they are adequately prepared for the new measure.

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