On November 18, 2024, the European Union published the new Product Liability Directive, updating the nearly 40-year-old EU-wide regime for consumer compensation claims due to product-related damages. Member States are required to implement these fundamental changes by December 2026.

Key takeaways

The new Product Liability Directive introduces several significant changes that will impact companies, including those companies purchasing software to present to their users:

• Software is now also considered a product under the new directive;
• Harm to psychological health and the loss or corruption of data are now recognized as compensable damages;
• Producers of software, including AI applications and interconnected devices, can now be held liable if the software they produce causes harm to consumers;
• Presumption of defectiveness and causation makes it easier for consumers to pursue legal action.

In the previous blog post Artificial intelligence and (product) liability – EY Law Belgium, we explored two new directives from the European Commission: the Product Liability Directive (“PLD”) and the AI Liability Directive (“AILD”). While the AILD is still pending adaptation, the new PLD was published in the Official Journal of the EU on 18 November 2024 and is set to come into force on December 8, 2024. The new PLD will replace the PLD from 1985. It represents a significant update to the existing European no-fault liability regime governing claims by consumers for compensation when a product causes them harm. In this blogpost, we will discuss the impact of the new PLD on companies.

Is your company ready? How the new EU’s Product Liability Directive impacts your business

The new PLD will have profound implications for all companies involved in the supply chain for products placed on the EU market across all product categories. Certain companies, particularly those producing or relying on digital products, are expected to feel the impact most acutely.

Extension of the scope to digital products and AI

The regime now explicitly includes software within the definition of “products”. This includes all software, whether embedded in hardware or distributed independently, as well as software updates, upgrades and AI.

Producers of software, including AI applications, can now be held liable under the EU’s no-fault liability regime if the software they produce causes harm to consumers.

Extension of possible liable parties

The new PLD uses the term “economic operator” to describe those who can be liable. The regime maintains a hierarchy of potential defendants, with primary liability focused on the manufacturer of products or components (including the software developer). If the manufacturer is based outside the EU, liability falls on the importer into the EU or the manufacturer’s authorized representative (“AR”). If there is no such importer or AR, a fulfilment service provider (warehousing, packaging, addressing and dispatching services) may be liable. Distributors and online platforms may also be held liable in certain circumstances.

New types of compensable damage

The new PLD extends the scope of damage by including the destruction or corruption of data and medically recognized damage to psychological health.

No minimum or maximum financial limitations for claims

The new PLD does not provide minimum and maximum financial thresholds for claims, exposing companies to unlimited financial liability in cases of widespread product defects, and potentially increasing smaller value claims brought collectively.

Defences

Similar defences are available under the new PLD as they were under the old regime, but software and AI are subject to specific restrictions on exemptions.

Liability may still apply if a defect is due to a related service, lack of updates necessary to maintain safety or a substantial modification of the product.

Burden of proof

The new legislation introduces rebuttable presumptions to make it easier for claimants to prove defect and/or causation in certain circumstances. The new PLD mandates also new disclosure obligations, allowing courts to order defendants to disclose necessary and proportionate evidence when claimants present a plausible case.

This shift could result in a de facto reversal of the burden of proof in complex cases.

Transfer of claims to third parties and collective actions

The new PLD explicitly allows claims to be transferred and assigned to third parties (including consumer associations and non-governmental organizations), which may lead to an increase in collective actions based on product liability.

Implementation timeline

The new PLD was published recently in the Official Journal of the European Union and all member states are required to transpose it into national law by 9 December 2026.

Conclusion

The new PLD is a game changer for manufacturers, importers, distributers and other service providers, including software developers. The inclusion of digital products, such as software, AI, and connected services, under the scope of product liability, as well as the inclusion of data in the definition of damage, signal a broader, more sophisticated approach to consumer protection in the digital age.

In case you have any questions, relating to the aforementioned or other topics, do not hesitate to reach out to us.

Stay tuned for our update on the AILD!

Action points

• Review and possibly expand your liability insurance coverage to account for the broader scope of the new PLD, including software and AI-related risks;
• Stay informed about the national implementation of the new PLD in the countries where you operate;
• Monitor any additional regulations or guidelines that may be issued to support the directive’s implementation;
• Develop clear communication strategies to inform consumers about product safety features and updates and provide transparent information on how to report defects and seek remedies.

By addressing these action points, companies can better mitigate potential risks associated with the new PLD.