Statement Bundesrat: Product Liability Directive Proposal

New Product Definition and Extended Scope of Application

The Bundesrat appreciates that the Product Liability Directive will be updated to current requirements, in particular the digital transformation in the economy and society. The extended definition of product in the proposed directive will in future also include movables that are integrated into another movable or immovable, as well as electricity, digital manufacturing files and software.

Extension of the group of persons entitled to compensation

The group of persons entitled to compensation is also extended so that the following persons are entitled to claim compensation:

(i) a person that succeeded, or was subrogated, to the right of the injured person by virtue of law or contract; or

(ii) a person acting on behalf of one or more injured persons in accordance with Union or national law.

The Bundesrat has criticised that the chosen wording (“on behalf of one or more injured persons”) may lead to a contradiction with the German principle of procedural law, according to which a foreign right has to be asserted in one’s own name if the requirements of a so-called “Prozessstandschaft” are met. The Council therefore asks the Federal German Government (hereinafter: “Bundesregierung”) to work for a wording that allows organisations (Verbände) to assert third-party rights in their own name.

Extension of the group of potentially liable parties

The group of potentially liable parties also extends further than in the past. In addition to the manufacturer and quasi-manufacturer, the importer of the defective product (hereinafter: “Importer”), the authorised representative of the manufacturer (hereinafter: “Authorised Representative”) and fulfilment service providers can also be held liable for product defects in the same way as a manufacturer. Liability of the Importer and the Authorised Representative can only arise if the manufacturer of the defective product is established outside the European Union. For fulfilment service providers, this only applies if, in parallel to the manufacturer, both the Importer and Authorised Representatives are also established outside the European Union. Any natural or legal person that modifies a product that has already been placed on the market or put into service will in future be regarded as a manufacturer if the modification of the product is considered “substantial” and is undertaken outside the original manufacturer’s control. Under certain requirements, the distributor and the provider of an online platform can also be held liable. Overall, the Bundesrat approves of this extension of the group of economic operators.

Exemptions from liability especially for software updates limited

Generally, Art. 10 of the Directive-Proposal stipulates exemptions from liability for economic operators, which in part are more extensive than those of Art. 7 of the current Product Liability Directive. One relevant provision is Art. 10 (1) (c) of the Directive-Proposal, according to which an economic operator shall not be liable for damage caused by a defective product if that economic operator proves that it is probable that the defectiveness that caused the damage did not exist when the product was placed on the market, put into service or, in respect of a distributor, made available on the market, or that this defectiveness came into being after that moment. However, according to Art. 10 (2) of the Directive-Proposal, this exemption from liability does not apply if the defectiveness of the product is due to specific, exhaustively listed causes and these causes are under the control of the manufacturer. These causes are: a related service, software, including software updates or upgrades or the lack of software updates or upgrades necessary to maintain safety.

The Bundesrat is concerned that the current wording “probable that the defectiveness that caused the damage did not exist” in Art. 10 (1) (c) of the Directive-Proposal (to which Art. 10 (2) of the Directive-Proposal refers) will reduce the standard for the exemption of the economic operator from liability to the disadvantage of the claimant compared to the existing provision in the Product Liability Directive. The Bundesrat is in favour of aligning the wording accordingly, without submitting a concrete wording proposal.

Burden of proof in favour of the claimant and duty of defendants to disclose evidence

Art. 9 of the Directive-Proposal contains a reversal of the burden of proof for the defectiveness of the product in favour of the claimant. The defectiveness of the product is presumed when certain conditions are met. This reversal of the burden of proof is designed as a rebuttable presumption (widerlegliche Vermutung). The Bundesrat has criticised the fact that the provision on the reversal of the burden of proof in Art. 9 (4) of the proposed directive contains an unspecific legal term (“excessive difficulties, due to technical or scientific complexity”) and therefore suggests that this unspecific legal term should be specified in more detail in the further proceedings in order to avoid legal uncertainties in interpretation or to resort to use product-related provisions instead of a general clause. Art. 8 of the Directive-Proposal provides for an obligation to disclose evidence by the defendant under certain conditions, taking into account the interests of all parties involved with regard to the protection of confidential information and trade secrets. The Bundesrat generally appreciates the changes to the burden of proof and the changes to the disclosure of evidence and considers this, as well as the upcoming implementation of the Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers, to be a further improvement in the ability of claimants to enforce their claims for damages.

No exclusion of claims from tortious producer liability

Furthermore, the Bundesrat points out that with regard to the national law, it has to be ensured that claims from tortious producer liability should continue to stand parallel to claims from product liability. In this context, the Bundesrat would like to prevent producer liability from being displaced by claims arising from product liability and asks the Bundesregierung to work for an appropriate wording.

Clarification of requirements for the security standard of software and specific provisions on free and open-source software

The Bundesrat is in favour of a concrete and clear definition of the necessary requirements for the security standard of software as a reference for determining defectiveness. The Bundesrat also considers that it is necessary to define the exemption for free or open-source software directly in the directive itself and not only in the consideration of the Directive-Proposal (no. 13). Under this, free and open-source software that is developed or supplied outside the course of a commercial activity shall be excluded from product liability.

Parallel developments in the area of product safety law

In parallel to product liability, further changes in the area of product safety are planned with the proposal for a regulation on machinery products (COM(2021) 202 final) and the proposal for a regulation on general product safety (COM(2021) 346 final), which revise the existing Machinery Products Directive and the General Product Safety Directive.

Conclusion

The Bundesrat is in favour of a further - beyond the already pending - stricter proposal of the Directive to the detriment of the affected economic operators, both in terms of substantive law (in particular: extended group of persons entitled to compensation and group of potentially liable parties) and in terms of procedural law (in particular: reversal of the burden of proof, collective legal protection). The further developments are to be awaited. However, it can already now be predicted that the changes resulting from the new product liability directive will add further risks for the companies affected by it and that their own internal processes will have to be updated with regard to product monitoring and documentation obligations as well as in the minimising and, if necessary, prevention of risks of possible product liability cases.

_{Published: January 2023}