New Liability Rules Foreseen for Damage Caused by Refurbished or Digitised Products and ‘AI’

Plans have been launched for a future EU directive on liability for damage caused by new and refurbished products. The future directive – which will have to be transposed in all Member States once adopted – will also address challenges brought about by artificial intelligence (‘AI’). A public consultation period, during which time Hong Kong traders and other interested parties can submit their feedback. The period ends on 10 January 2022.

The reasons behind the plans for the future law include the transformation taking place towards a digital economy and AI which bring, along with the benefits, the likelihood of new risks. Equally, the transition to a circular economy, in which it will become increasingly possible to extend the life of materials, and upgrade and repair products and components, while benefiting the environment, will also raise questions about liability for any subsequent damage.

The existing liability framework consists of the EU’s Product Liability Directive 85/374/EEC and national liability rules. The Product Liability Directive covers claims against the producer for damage caused to a consumer due to the defectiveness of a product. The producer is strictly liable for damage caused by a defect in their product, provided that the injured party proves the damage, the defect and the causal link between the two. That Directive, which dates from 1985, lays down one set of rules for a vast range of products, from raw materials to complex AI-driven devices.

The new plans by the European Commission, launched on 18 October, aim to both address shortcomings in the now rather old EU Product Liability Directive, and develop trust for AI. It is understood that novelties associated with digital technologies and AI, such as the intangibility of digital products and AI’s continuous adaptation, may make it difficult for consumers and other injured parties to obtain compensation for damage caused by products and services that use these technologies. Digital content, software and data play a crucial role in the safe functioning of many products but it is not clear to what extent such intangible elements can be classified as products under the existing Product Liability Directive. It is therefore unclear whether injured parties can always be compensated for damage caused by software, including software updates, and who will be liable for such damage. Furthermore, the complexity of advanced digital technologies could make it very challenging for injured parties to identify the producer responsible.

Additionally, Hong Kong sellers will appreciate that under the EU’s current product-related regime, importers are treated as producers for product liability purposes. However, the digital age has brought changes to value chains as well. The rise of online marketplaces has enabled consumers to buy products from outside the EU without there being an importer, leaving consumers with no liable person from whom to seek compensation under the EU rules in the event of damage.

Other problems with the EU product liability regime are also acknowledged. Circular business models, in which products are repaired, recycled, refurbished or upgraded, are becoming increasingly common and central to the EU’s efforts to achieve sustainability and waste-reduction goals. However, under current rules, the defectiveness of a product at the moment it is put into circulation is viewed as decisive. There is now a lack of clarity over who should be liable for defects resulting from changes that are made to products after they are put into circulation. Products can also cause environmental damage; however, damage to the environment cannot be compensated under the Product Liability Directive at present.

According to the European Commission, victims of harm caused by certain product types are experiencing difficulties getting compensation today and victims of harm caused by digital technologies, including AI, are likely to also experience unreasonable difficulties in the future. These victims would therefore have less protection compared to those who suffer damage caused by traditional products. This, in turn, could undermine societal trust in and uptake of emerging technologies.

A number of proposed legal options are laid down to combat these challenges, including the following:

• Revise the current Product Liability Directive to extend strict liability rules to cover intangible products (e.g. digital content/software) that cause physical/material damage, and to address defects resulting from changes to products after they have been put into circulation (e.g. software updates or circular economy activities like product refurbishments).
• In addition, extend strict liability to online marketplaces where they fail to identify the producer.
• Extend the range of damage for which compensation can be claimed, to non-material damage (e.g. data loss, privacy infringements or environmental damage).
• Reverse the burden of proof. In the event of damage, the producer would have to prove the product was not defective.

The European Commission will take decisions on the best way forward after assessing the impacts of the proposed policy options, also taking into account various studies and consultations. It plans to adopt a proposal for the future directive during next year. Hong Kong sellers wishing to submit their feedback on the Commission’s plans may do so by 10 January 2022 which is the end of the current public consultation period. Please click on the following link for more information and how to provide feedback.