Germany: Fresh Liability Rules for New Products?

The new EU Product Liability Directive is about to be formally adopted. It will replace the existing Product Liability Directive 85/374/EEC from nearly 40 years ago. Since 1985, the manufacture and sale of products has changed considerably. The updated directive aims to adapt the European Union's product liability regime to the digital age and global value chains. It introduces new liability rules for products based on new technologies, such as software and artificial intelligence. Below we provide an overview of the main changes that the new directive will bring.

What’s New?

Software as a "product" within the scope of the directive

The new directive explicitly includes software and digital manufacturing files (e.g. for 3D printers) as “products" under the directive. This applies both to software that is integrated into another product (e.g. navigation service in an autonomous vehicle) and to stand-alone software (e.g. smartphone app for medical devices) that can cause damage itself. An exception is made for free or open-source software that is supplied outside the course of a commercial activity.

Liability of online marketplaces

Under the new Product Liability Directive, authorized representatives of the manufacturer, fulfilment service providers (i.e. storage, packaging and shipping service providers) and - under strict conditions - even distributors and online marketplaces operators can also be strictly liable for defective products (regardless of fault). The final draft significantly expands the group of potential defendants, which previously already included manufacturers, so-called quasi-manufacturers and EEA importers. The aim is that someone should be responsible even if the defective product was purchased directly from a non-EU country and there is no (quasi) manufacturer or importer based in the EU. In addition, companies that "substantially modify" a product can also be strictly liable (regardless of fault) as manufacturers in the future.

Specification of the term “defectiveness”

The final draft states that a product is defective if it does not meet the legitimate safety expectations of "a person" ("the safety that a person is entitled to expect"). This wording is ambiguous, as it previously depended on the safety expectations of the general public. However, we assume that this is merely a linguistic adjustment. The recitals of the final draft state clarify that it depends on an objective analysis of the safety that the public at large is entitled to expect and not the safety that any individual person is entitled to expect.

The definition of “defectiveness” in the new directive takes the requirements of product safety law into even greater account. For example, under the final draft, a product could be defective if it lacks the necessary software updates to address cybersecurity vulnerabilities. In addition, an intervention by a regulatory authority due to product safety, such as a product recall, would also indicate a product defect. Another new aspect is that, in the case of a product whose very purpose is to prevent damage, any failure of the product to fulfil this purpose should be taken into account when assessing whether there is a product defect. The EU legislator is thinking in particular of smoke alarms. This could however also be relevant for medical implants such as pacemakers, which are already subject to particularly high requirements following the 2015 ECJ ruling on a "potential defect".

Alleviation of the plaintiff’s burden of proof

Until now, the plaintiff has to prove the product defect, the damage and the causal link between the two. The final draft keeps to this principle, but eases the burden of proof for the plaintiff by establishing a presumption of defectiveness and a causal link under certain conditions. Notwithstanding the defendant’s disclosure of information and taking into account all the circumstances of the individual case, an alleviation is possible if:

• the plaintiff faces “excessive difficulties” in providing evidence due to technical or scientific complexity, such as the complexity of the product (e.g., innovative medical device), the complexity of the technology (e.g., AI system or machine learning), or the complexity of the causal link (e.g., between the use of a medicinal product and health damage), and
• the plaintiff “demonstrates” that it is “likely” that the product was defective or that the defect caused the damage.

This wording raises many questions and still leaves open the question of when the burden of proof will be "excessively difficult" and what requirements must be met to prove a "likely" product defect or causal link.

Obligation to disclose evidence

Under the final draft, the defendant will have to disclose the relevant evidence under its control ("disclosure of evidence") at the request of the plaintiff in future court proceedings before a national court. This aims to address potential disadvantages of the injured party regarding access to information on the manufacture and functioning of the product, which the manufacturer will typically have.

The new rule is unusual, as the EU legislator has so far largely stayed out of the procedural law of the Member States in the area of product liability. Disclosure of evidence is also unusual outside of common law countries. The wording of the final draft goes far beyond the possibilities currently available under German procedural law (Section 142 of the German Code of Civil Procedure). In its current form, the disclosure of evidence would probably not be limited to documents. However, the final draft now also provides for a corresponding disclosure of evidence by the plaintiff if the defendant so requests.

Importantly, the courts must take measures to protect the defendant's business secrets. In order for the duty of disclosure to apply, the plaintiff must also have presented sufficient facts and evidence sufficient to support the plausibility of the claim for compensation. Furthermore, the disclosure of evidence should be limited to what is necessary and proportionate. The aim is to avoid excessive and very costly investigation or "discovery" as we know it from Anglo-American civil procedure. Whether this will succeed remains to be seen. The requirements and scope of the new provision on disclosure of evidence still seem vague.

Extending the scope of compensable damage

If a product is defective, compensation will also have to be paid for the loss and falsification of data that is not used exclusively for professional purposes. The final draft also removes the current deductibles and maximum liability limits.

Limitation of existing exemptions from liability

The final draft further limits some of the existing exemptions from liability. In principle, a manufacturer is not liable if the product was probably not defective at the time it was placed on the market. However, this will no longer apply to product defects that occur later and are caused by software or related services under the manufacturer's control. For example, if the manufacturer fails to provide necessary software updates after the product has been placed on the market. Product liability for software is therefore extended into the post-marketing area.

In addition, as under the current rules, product liability claims generally expire 10 years after the product is placed on the market. However, in the case of latent personal injury, the final draft extends this period to 25 years.

Next Steps

The directive has yet to be formally adopted by the Council, which is expected shortly. The New EU Product Liability Directive will then be published in the Official Journal of the European Union. The directive will enter into force on the twentieth day following its publication. Member States will then have 24 months to transpose the Directive into national law.

The new rules are therefore expected to apply from 2026. The old Product Liability Directive 85/237/EEC will continue to apply to products already on the market.

Conclusion

The new EU Product Liability Directive strengthens the product liability regime in Europe for consumers, but reduces legal certainty for businesses. Economic operators who were not previously exposed to product liability risks will have to deal with product liability issues more intensively in the future. For product liability litigation practice, it remains to be seen how the rather vague alleviation of the plaintiff's burden of proof "in complex cases" and the defendant's obligation to disclose "relevant evidence" will be implemented by the Member States. A positive development is that the final draft now also allows for the defendant to request disclosure of evidence from the plaintiff and that the disclosure obligation does not only apply unilaterally to the defendant.