EU Reaches Legislative Deal on Proposed ‘Digital Age’ Updates to Product Liability Directive

At a Glance

• EU institutions announced this week a political agreement on planned updates to the 1980s Product Liability Directive, likely paving the way for formal adoption of the new directive next year.
• Based on the policy rationale of updating EU product liability law for the digital era and modern economy, the proposal expands the definition of a “product” to encompass software (including updates and AI), digital manufacturing files, and digital services, among other things.
• The proposal also includes a new burden-of-proof framework, which would shift the burden to defendants by imposing under certain conditions a presumption of defectiveness and causation.
• Due to the broadened scope of liability and increased risk posed by these changes, companies manufacturing and selling products in the EU (including companies that produce software and other digital products and services) should keep a close eye on the continued legislative process because they may face liability risk in new and unexpected ways.

This week, the European Union made a significant breakthrough towards its goal of overhauling the 40-year-old Product Liability Directive for the demands of the “digital” age and modern economy. To amend the directive, the elected European Parliament and the European Council (comprised of government representatives of the 28 member states) must agree on final language and separately pass the draft legislation through their respective bodies. After extensive legislative efforts and negotiations, the European Council (currently led by the Government of Spain) and the European Parliament issued press releases yesterday announcing that they have reached a political agreement regarding the proposed updates to the directive.

The driving force behind the new directive is to bring product liability law into the digital era by expanding the definition of a “product” to encompass: (1) software, including software updates and artificial intelligence; (2) digital manufacturing files; and (3) digital services. In addition to this significantly expanded definition of a “product,” the directive includes various other changes. Of particular significance, the proposal includes a new burden-of-proof framework, which would shift the burden to defendants through a presumption of defectiveness and causation under certain conditions. A product would be deemed presumptively defective if:

• the manufacturer fails to comply with the obligation to disclose information;
• the product does not comply with mandatory safety requirements; or
• damage is caused by an obvious product malfunction.

Causation would be presumed if:

• the damage is typically consistent with the defect in question; or
• technical or scientific complexity causes excessive difficulty in proving liability.

The new directive also seeks to expand the scope of liability to defects that come into being after a product is already on the market. Thus, liability could arise for alleged defects pertaining to: (i) software updates under the manufacturer’s control, (ii) failures to address cybersecurity vulnerabilities, and (iii) artificial intelligence including machine learning. Moreover, the new directive would extend the liability period for latent injuries from 10 to 15 years and would impose a new definition of damages, which includes psychological harm as well as the loss or corruption of data.

While the new directive still must be endorsed by member states’ representatives within the European Council and be enacted by both the Council and the European Parliament, this agreement suggests that there is enough political support for the new Product Liability Directive to pass through the remaining legislative hoops and be enacted in the near term. If formally adopted, all EU countries will be mandated to transpose the new directive into national law within 24 months.

By its terms, the new Product Liability Directive is likely to increase litigation risk for manufacturers and companies in Europe in several significant ways, from widening the definition of what constitutes a “product” for potential liability, to making it more difficult to defend claims through burden-shifting and the relaxed causation standard, to potentially increased and expanded damages. For all these reasons, companies manufacturing and selling products (including software and other digital products that fall under the new proposed definition) should keep a close eye on the continued legislative process.

We will continue to monitor process and review for any potential changes to the core terms of the proposal as further political negotiations and legislative amendments take place.