Review intended to ensure strict liability regime works effectively in light of technological change.

On 12 September 2016, the European Commission (Commission) published an Evaluation and Fitness Check Roadmap for the Product Liability Directive (85/374/EEC as modified by Directive 1999/34/EC, PL Directive) (Roadmap) in light of technological advancements regarding software, the cloud, Internet of Things (IoT) based products, advanced robots and automated systems.

Product Liability regime

The PL Directive is implemented by national laws in each European Union (EU) member state (e.g. the Consumer Protection Act 1987 in the UK) and imposes strict liability on producers of defective products which cause death or personal injury to, or damage to property of, consumers. It created a strict (or “no fault”) liability regime, whereby producers are liable to pay financial compensation to consumers for damage even in the absence of the producer’s negligence, breach of contract or failure to comply with other relevant legislation.

A product will be deemed to be defective when it does not provide the safety which a person is entitled to expect, and the scope of the PL Directive extends to all movable products, even when incorporated into other movable or immovable property.

Periodic Review

Article 21 of the PL Directive requires the Commission to present a report on its application to the Council every five years. The last report was adopted on 8 September 2011, in which the Commission noted that the PL Directive maintained the balance between the interests of producers and consumers, and that there was insufficient evidence to justify a formal review.

The current evaluation is the first “fully fledged” systematic examination of the impact and effects of the PL Directive in a world which, from a technology perspective, has moved on immeasurably since the PL Directive was adopted in 1985.

The evaluation will assess:

• whether and to what extent the PL Directive meets its objectives of guaranteeing at EU level the strict liability of the producer for damage caused by a defective product while also ensuring the free movement of goods; and
• the coherence of the Directive with other EU actions and national legislation, and the extent of the added value resulting from the EU-level regime.

New technological developments

Liability issues relating to technological developments have been raised in the framework of the Digital Single Market Strategy through various Commission Communications, Staff Working Documents, European Parliament reports and other studies and workshops both at EU level and by academic legal experts.

For example, the Commission Staff Working Document on advancing the IoT highlighted the need for clarification on liability aspects in relation to IoT technologies. The IoT ecosystem involves a variety of actors ranging from product manufacturers, sensor manufacturers, software producers, and infrastructure providers to data analytics companies and other suppliers of different services and end users. As the ecosystem becomes more complex, the products and services become more interdependent, and it will be more difficult to identify the root cause of product failure and to allocate liability between the different actors.

The Commission also highlighted that, under existing EU laws, products and services are treated in a different manner: providing data through an IoT system is considered a service, which falls outside the product liability and safety regime. Therefore, if damages are caused by supply of false data or by failure to supply data, liability and the ability to claim may be less clear. In addition, legal uncertainty may arise from machine-to-machine contracting when smart objects enter into contracts with each other on the basis of autonomous decisions.

The European Parliament’s draft report on civil law rules on robotics called for clarification of responsibility for damages caused by autonomous robots and recommends new requirements in future such as registration of smart robots and compulsory insurance schemes or compensation funds.

In the context of the digitization of industry in the EU, the Commission also confirmed that it plans to adopt future-proof legislation that will support the free flow of data, clarify ownership of data generated by sensors and smart devices, and review the rules on safety and liability of autonomous systems (for details, see the Commission press release here)

In light of the above, the evaluation is necessary to assess whether the PL Directive covers cases of malfunctioning apps and non-embedded software, whether an unintended, autonomous behaviour of an advanced robot could be considered a “defect” and how strict liability for damages should be allocated between the different actors in the case of the IoT chain or, in more general terms, in the case of connected objects or sensors relying on each other that are not necessarily under the control of a single producer.

Next Steps

The evaluation will focus on the effectiveness, efficiency, coherence, relevance and EU added value of the PL Directive to provide an evidence-based assessment for each member state.

As part of the evaluation, the Commission will carry out:

• an online, 12-week public consultation;
• an online targeted survey addressed to public authorities, industry and consumer associations, academia, law firms, insurers and federations of insurers;
• face-to-face interviews with key stakeholders, including businesses and industrial and consumer associations; and
• an external study.

The evaluation is due to complete in July 2017.

WAB Comment

The PL Directive has not been revised since 1999 and, as announced by the Commission with its plans to adopt “future-proof” legislation, it will not be surprising if the PL Directive will be revised following this evaluation process.

The Commission will face challenges in balancing the developments of technology and allocating strict liability for damages, including imposing liability on service providers which are currently outside the PL Directive. In addition, the PL Directive does not provide any common procedural framework across the EU and all European product liability claims are governed by the national procedural rules of the fora in which they are brought. As technology becomes increasingly borderless, it will be interesting to see how the PL Directive will impact cross-border claims in its revised form.

The Commission will be analysing various existing contractual arrangements between end users and service providers during the course of the evaluation to identify whether a liability regime that covers IoT based products and automated systems, including any sector-specific legislation, is needed and how it should be designed. Technology developers and producers should follow the evaluation to understand their obligations and legal exposure going forwards and consider how to manage strict liability risks amongst themselves.

As for the impact of Brexit, although it was recently announced that any applicable EU law pre-Brexit will be transposed into UK law, it is still uncertain whether a new product liability regime will be introduced following withdrawal. However, the product liability regime will remain relevant for developers and producers who sell into the EU market.