EU updates product liability regime to include software, Artificial Intelligence

EU policymakers reached a political agreement on Thursday (14 December) on legislation to bring the bloc’s product liability regime in line with technological developments, notably covering digital products like software, which includes Artificial Intelligence.

The Product Liability Directive (PLD) provides people who have suffered material damage from a defective product with the legal basis to sue the relevant economic operators and seek compensation.

The product manufacturers will be liable for defectiveness resulting from a component under its control, which might be tangible, intangible, or a related service, like the traffic data of a navigation system.

Defectiveness

A product is deemed defective when it does not provide the safety a person is entitled to expect based on the reasonable foreseeable use, legal requirements, and the specific needs of the group of users for whom the product is intended.

One of the elements considered when assessing defectiveness is the capacity of the product to continue to learn and acquire new features or knowledge; wording meant to cover Artificial Intelligence technology based on machine learning techniques.

Damages

Under the PLD, material damage includes death, personal injury, psychological harm, and destruction of property. At the same time, national liability regimes might still regulate compensation for non-material damages, such as those resulting from discrimination.

The concept of damage also includes the loss or corruption of data that is not used exclusively for professional purposes. The European Parliament suggested introducing a threshold for the value of the data to qualify as a material loss, but this idea was rejected in the talks with the Council.

Disclosure of evidence

The PLD introduces the possibility for claimants who have presented sufficient evidence to request that a national court mandates the defendant disclose the evidence at its disposal as long as necessary and proportionate.

Conversely, the Parliament proposed allowing the defendant to ask for the disclosure of evidence at the disposal of the claimant under the same conditions.

The disclosing party might request the national court to take the necessary measures to protect the confidentiality of disclosed information including trade secrets.

Burden of proof

Claimants must prove the product’s defectiveness, the damage suffered, and the causal link between the two. However, under certain conditions, the defectiveness of the product will be assumed, and it will be on the defendant to disprove it.

The conditions include cases where the defendant fails to disclose relevant evidence, the claimant demonstrates that the product does not comply with mandatory product safety requirements, or an obvious malfunction causes the damage.

The defectiveness is also presumed in cases where the claimant faces excessive difficulties due to technical or scientific complexity to prove the defectiveness of the product or the causal link, or the claimant proves that it is likely that the product is defective or that there is a causal link.

Open source software

The Directive will not apply to free and open-source software developed or supplied outside a commercial activity. The liability rules apply when the software is supplied in exchange for a price or personal data used for anything other than improving the software’s security or compatibility.

Compensation fund

The European Parliament included the possibility of EU countries using existing or new national sectorial compensation schemes for victims of defective products who fail to obtain compensation because the economic operator is insolvent or no longer exists.

The text specifies that the member states should preferably avoid funding the schemes with public money.

Liability exemption

The Parliament pushed a liability exemption for manufacturers of software components to a defective product that were micro or small enterprises when they placed that software in the market, provided that another economic operator is liable.

However, this measure was left for contractual arrangements between the small company and the other party.

Right of recourse

Parliamentarians included the principle that whenever more than one economic operator is deemed liable for the same damage and is ordered to pay compensation, each one will have the right of recourse against the others.

Risk development

The Council added the possibility for EU countries to maintain existing measures in their legal systems that make economic operators liable even if they can prove that they could not know the product’s defectiveness based on the state of scientific and technical knowledge.

Limitation periods

Claimants will have three years to initiate proceedings following the damage. The right for an injured person to seek compensation under this directive expires after ten years, except for latent injuries that are slow to manifest, for which the timeframe is 25 years.

Timeline

The PLD will apply to all products placed on the EU market 24 months after it enters into force. EU countries will have until then to transpose the directive into national law.

[Edited by Zoran Radosavljevic]

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