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New product liability regime on the way

The European Commission published a draft proposal for a revised Product Liability Directive (the “PLD Proposal”) on 28 September 2022, which aims to bring the European Union’s product liability regime ‘up to speed’ with the digital age, circular economy business models and global value chains. This blog focuses on the main changes the PLD Proposal brings and its impact on life science companies.

Why does the Product Liability Directive need an update?

The current Product Liability Directive (Directive 85/375/EEC) dates from 1985 and so no longer aligns with the new reality of connected devices, software, artificial intelligence and the circular economy. Therefore, the European Commission published the PLD Proposal.

How does the PLD Proposal update the product liability regime?

We have listed below a number of noteworthy changes in the PLD Proposal:

1. The definition of “product” is expanded to digital manufacturing files, software, and digital services that effect how products work (such as navigation services).

This means that companies that develop, for instance, health-tracking apps designed to treat or diagnose specific diseases will fall within the PLD Proposal’s scope.

2. The scope of “damage” is no longer limited to damages caused by death, personal injuries or damage to property items, but also includes corruption of data (such as content deleted from a hard drive), the cost of recovering and restoring the data (irrespective of damages due under other EU instruments, such as the GDPR) and medically recognised damage to psychological health (a term that the PLD Proposal does not define).

3. Moreover, the 500 EUR minimum threshold for property damage is removed and the 10-year liability period is extended to 15 years for latent health injuries, such as injuries resulting from the exposure to certain chemicals or toxic substances (for example, asbestosis). In its revised draft of 9 June 2023, the European Council has suggested extending the 15-year period to 20 years.

4. There is a rebuttable presumption of defectiveness that can arise in situations where it would be excessively difficult for the claimant, in light of the case’s technical or scientific complexity, to prove a product’s defectiveness or the causal link, or both.

The PLD Proposal’s preambles point out that technical or scientific complexity should be determined by national courts on a case-by-case basis, taking into account various factors, which should include the product’s nature, and so would include an “innovative medical device”. This exception will likely have a significant impact on medical device companies and companies that produce pharmaceuticals, as product liability claims in this sector frequently fail on the grounds of causation.

5. The circumstances to be taken into account to determine whether a product is defective are specified and expanded and now also include the following factors:

• the effect on the product of any ability to continue to learn after deployment;

• the specific expectations of the end-users for whom the product is intended. In this respect, the PLD Proposal’s preamble emphasizes that some products, such as life-sustaining medical devices, entail an especially high risk of damage to people and therefore give rise to particularly high safety expectations;

• the effect on the product of other products that can reasonably be expected to be used together with the product;

• product safety requirements, including safety-relevant cybersecurity requirements.

6. Manufacturers are obliged to disclose necessary information in court when the injured person has presented facts and evidence sufficient to support the “plausibility of the claim for compensation”. This obligation is subject to the protection of trade secrets and confidentiality.

Health tech companies should keep in mind that failing to disclose the required technical information can lead to a presumption of defectiveness.

7. There is a rebuttable presumption of the existence of a causal link where it has been established that the product is defective and the damage caused is of a kind typically consistent with the defect in question.

8. The defences provided in the existing current Product Liability Directive are mostly retained in the Proposed PLD. However, the development risk defence would no longer be subject to Member State derogations under the Proposed PLD. It is uncertain whether this provision will remain in place, as the European Council has suggested, in its revised draft of 9 June 2023, reintroducing the option for Member States to derogate from the development risk defence.

Additionally, exemptions from liability would not apply in the case of product defects within the manufacturer’s control, linked to (i) a related service, (ii) software including software updates or upgrades, or (iii) a lack of updates or upgrades necessary to maintain safety (i.e. the failure to address cybersecurity vulnerabilities). In other words, in certain circumstances, liability would continue to apply when a defect came into being after a product has already been placed on the market or put into service, as opposed to the currently applicable product liability regime that exempts the manufacturer from liability when “it is probable that the defect which caused the damage did not exist at the time when the product was put into circulation by him or that this defect came into being afterwards”. This is important to keep in mind as it means that developers will continue to be responsible for emerging technologies that learn independently and for running (software) updates or their absence.

When does the PLD Proposal enter into force?

On 5 April 2023, the European Parliament Committee on Internal Market and Consumer Protection and the Committee on Legal Affairs released a joint draft report that has proposed a number of changes to the draft text. For instance, the removal of “loss or corruption of data” from its scope. It was also pointed out that “medically recognised harm to psychological health” should be confirmed “by a court-ordered medical expert”.

On 9 June 2023, the European Council published a compromise text of the Proposed PLD. It is noteworthy that the European Council has suggested delaying the timing for Member States’ implementation of the new rules from 12 months to 30 months.

It seems possible that a final text will be adopted before the end of 2023. Once a final text is adopted, the Proposed PLD will need to be transposed into national law. Following the European Council’s proposed text, within 30 months after its entry into force.

Conclusion

The EU life science industry needs to prepare for a potential higher litigation risk following the Proposed PLD. Once these new rules enter into force, the life science industry can prepare itself by (i) revising existing contracts and building-in the necessary safeguards, (ii) reviewing/updating insurance policies where necessary, and (iii) conducting impact assessments of the new rules on the company’s activities and implementing (additional) safeguards where necessary.