Product Liability Directive: Can We Preserve the EU’s Ability To Innovate?
Main takeaways
- Negotiators are finalising a new set of comprehensive EU rules governing the liability of defective products
- These rules will have far-reaching consequences for innovation, including AI
- Four key fixes are needed to ensure the product liability regime remains balanced
European institutions are increasingly developing a habit of publicly championing innovation, while simultaneously creating regulations that directly do the exact opposite. This “do as I say, not as I do” reflex is jeopardising the revision of the EU’s Product Liability Directive (PLD).
This staple of European law was created over 30 years ago and provides rules on how consumers can be compensated for defective products, as a last resort. In other words, it applies when contractual and fault-based regimes have failed to help consumers. What was meant to be a simple revision to adapt those rules for the digital age now risks harming innovation.
Final negotiations on the PLD’s revision were started by Members of the European Parliament and national governments a month ago. Despite the technical nature of this file, any poorly drafted outcomes will have very concrete consequences for all Europeans.
In their current shape, the new rules increase companies’ liability insurance premiums by 25% on average, which would discourage innovation and further increase Europe’s innovation gap. And don’t forget that innovation includes anything from the latest AI models and autonomous cars, to cool apps that help you to live a healthier life.
There is still time left to change course, although we need to move now, in the coming week. We hope that European legislators will make the following four key improvements to ensure a balanced revision of the PLD. None of them should be controversial, and each improves the PLD immensely for Europeans.
1. Don’t harm software development
The processes to create software and tangible products are very different. To maintain the PLD’s neutrality, additional software-specific adjustments are much needed. Without those changes, software developers will soon face excessive legal and insurance costs.
Indeed, important caveats are needed in this respect, such as assessing the liability of software based on how ‘essential’ it is to the product it’s embedded in or connected to. Given that the lifecycle of different types of software differs significantly – we tend to use gaming apps for a much shorter time than a computer’s operating system for example – liability should be limited to the intended lifecycle. Likewise, software updates or upgrades should only be provided for a reasonable product lifetime and they shouldn’t reset the liability period. Moreover, users should have installed relevant software updates before the software developer’s liability can be invoked.
2. Make sure new types of harm are measurable
EU legislators are set to add “psychological health” and “loss or corruption of data” to the list of harms eligible for compensation under the revised PLD. Making damages quantifiable is essential to prevent companies and courts from being overwhelmed with excessive legal proceedings, but that’s extremely tricky for these two new types.
Data loss and corruption should therefore be limited to irreversible damages exceeding €1,000. This limit would protect businesses from frivolous lawsuits, while consumers would still have the option to seek compensation under other liability regimes or the EU General Data Protection Regulation. Psychological harm should be restricted to medically recognised damage that is certified by experts, demonstrably causing serious adverse effects on the claimant’s psychological well-being. Hence, making medical expert certification mandatory for these types of harm under the PLD is crucial to avoid costly and lengthy litigation.
3. Prevent any abuse of evidence disclosure
The obligations for defendants to disclose evidence should be made more stringent in order to protect trade secrets, reduce excessive litigation, and safeguard commercially sensitive data.
Measures to achieve this higher disclosure threshold include giving both parties the reciprocal right to request relevant information, but only when this information is actually available. What’s more, the relevance of the requested evidence should be carefully assessed. The potential unintended consequences of disclosure should be considered to ensure the request is both necessary and proportionate. This assessment should prioritise trade secret protection and prevent non-specific searches for information. If trade secrets have to be disclosed, for instance, courts should also order specific confidentiality measures.
4. Protect the burden of proof
The burden of proof is an essential legal aspect of the PLD framework, requiring claimants to prove the damage, the defect, and their causal relationship for a claim to be valid. Easing the burden of proof, which is what the revised PLD rules would do, should never amount to a de facto reversal of it.
That is why alleviations of this burden should be strictly limited in order to avoid excessive litigation and potentially unfounded claims. The burden of proof should not solely hinge on a product’s complexity, as this would effectively shift the burden of proof for technological products and AI to the producer. Safeguards for the presumption of defectiveness must also be included. Think, for example, of the need to demonstrate excessive technical or scientific complexity and a significant probability of defectiveness. What is at stake here, is the fact that the legal text currently being negotiated would incentivise litigation and increase costs for companies without addressing a clear consumer need.
What’s next?
Many different sectors and industries, including key tech associations, have expressed their grave concerns about the impact of the PLD revision on the ability of companies to innovate in Europe. It is crucial for this landmark text from 1985 to remain synonymous with real harmonisation and innovation.
Negotiators should not agree to a revision of EU product liability rules that would put a break on digital innovation, especially without properly considering the myriad negative consequences for both companies’ costs – and consequently the affordability of products – and consumer choice at large.
The European Parliament and Council should be vigilant to find a balanced revision before signing off on anything.
