Product liability: the quiet before a European storm?

There is rarely a dull moment in global product liability litigation.  The US continues to dominate any discussion of mass tort, with products ranging from pharmaceuticals to automotives to chemicals continuing to generate class actions.  The other side of the Pacific has also seen a growth in litigiousness, however, with the Australian courts in particular having dealt with an increasing number of substantial product liability related class actions in recent years.  Closer to home, the UK and certain European jurisdictions have also seen an increase in product liability class action or group claims brought in respect of medical devices and pharmaceutical products, driven in part by the rise of litigation funders who see the promise of large returns. 

In the UK, recent years have seen high-profile group litigation including Colin Gee v DePuy International Ltd [2018] and the UK Supreme Court decision in Hastings v Finsbury Orthopaedics Ltd & Stryker (UK) Ltd [2022].  These cases considered the assessment of defect under the Consumer Protection Act 1987 (CPA) and culminated in landmark rulings which have clarified and shaped the law on product liability, generally in ways that have reassured producers/manufacturers.  These cases may for now at least have tempered the enthusiasm of funders for pursuing product liability claims before the UK courts. 

By comparison, the outlook for product liability in the EU is starting to look potentially more tumultuous.  Consumer focused agendas and initiatives over the last decade have prompted proposals for legal and regulatory reform across the product safety and product liability spheres, as well as proposals for a regulatory and liability framework to govern the risks posed by artificial intelligence (AI).  These proposals, coupled with the imminent EU-wide implementation of legislation designed to facilitate cross-border collective actions, as well as the increased availability of litigation funding, have the potential to transform the product liability landscape across Europe.   

The EU Consumer Agendas: a catalyst for change 

The European Commission (EC) has in the last ten years launched two Consumer Agendas seeking to build a strategic framework for EU consumer focused policy and regulation: 

  1. The Consumer Agenda was published in May 2012 and outlined key goals including the reinforcement of consumer knowledge, the stepping up of enforcement and the securing of redress.  This paved the way for the “New Deal for Consumers”, announced in April 2018, the stated aim of which was to strengthen enforcement of EU consumer law against a growing risk of EU-wide infringements of consumer rights and to modernise EU consumer protection rules in view of market developments including globalisation, increased cross-border trading data-collection and e-commerce.  These factors, in conjunction with the rise of high-profile mass tort litigation in parts of the EU, ultimately prompted the Directive on Representative Actions for the Protection of the Collective Interests of Consumers (EU) 2020/1828, known as the Representative Actions Directive (“RAD”), which aims to ensure that consumers are able to protect their collective interests in the EU via representative actions. 
  2. The New Consumer Agenda published in 2020 (“2020 Agenda”) sets out a vision for EU consumer policy from 2020 to 2025, building upon the 2012 Agenda (which expired in 2020) and the New Deal for Consumers.  It aims to empower consumers to enable them to drive a smart, sustainable and inclusive economy as well playing an active role in green and digital transitions.  The 2020 Agenda’s priority areas include the digital and green transitions, enforcement of consumer rights, the protection of vulnerable consumer groups and international co-operation.  

A raft of legal and regulatory proposals flowed from the initiatives above including those aimed at modernising consumer protection rules, particularly around the safety of digital technologies.  The EC’s proposal for a General Product Safety Regulation (GPSR) was agreed between the EU institutions on 29 November 2022 and aims to modernise the mainstay product safety regime provided for by the General Product Safety Directive.  The GPSR proposal highlighted a number of areas for improvement, including market surveillance, product recalls, cybersecurity, online marketplaces and modern technologies such as connected devices and AI.  Many of these areas are additionally subject to separate legislation and draft regulatory proposals being considered in parallel to the GPSR.   

The EU has an enthusiasm therefore for amplifying the legal framework for consumer protection  and is willing to impose a greater regulatory burden on producers.  While this might have product liability risk implications on its own, together with the RAD, it has the potential to facilitate extensive cross border product liability collective actions.  The Member States of the EU may in coming years see an increase in both the volume and value of product liability claims brought on behalf of groups or classes.    

An EU-wide collective redress regime 

The RAD was due to be implemented by December 2022 although some Member States are behind schedule.  Once implemented, it is due to take effect in June 2023.  The RAD introduces an  EU wide legal framework by which EU consumers, who are affected by the same alleged infringements of EU law, can bring a representative actions for redress and/or injunctive relief.   Annex I to the RAD currently lists 66 EU laws and regulations in respect of which a collective action can be brought, including those relating to product safety and product liability. 

The RAD may have the most significant impact in member states where there are currently no collective redress mechanisms available such as Ireland.   It provides important discretion to individual Member States about how the key provisions are implemented into national laws, including whether to provide for an opt-in or opt-out system.   This is likely to contribute to forum shopping across Europe, with litigants seeking to bring actions in those jurisdictions that pose the lowest barriers to starting claims or which are likely to give the most favourable outcomes.  This is something borne by the experience of the Netherlands, which has established collective action mechanisms and which, in recent years, has become a hub for international class action litigation in Europe, in part because there are few restrictions on the types of actions that can be brought.  The Act on Redress of Mass Damages in Collective Action (WAMCA) –  which has similarities with RAD – entered into force on 1 January 2020 and made it possible for the first time for claimants to bring collective actions for monetary damages.  In 2021, the first product liability claim was brought pursuant to the WAMCA regime on behalf of thousands of Dutch claimants involving allegedly defective breast implants.   

As the regulatory framework with respect to product safety and new technologies continues to evolve, the list of EU laws and regulations listed in Annex I to the RAD is expected to grow, and give rise, in tandem, to an increased risk of product liability related collective actions across Europe.  

A growing third party litigation funding market  

There has been an increase of third party litigation funders in the EU, often acting in conjunction with experienced US class action law firms, particularly in the Netherlands (see above). The implementation of the RAD is likely to encourage funders to continue setting up shop in the EU, who will in future potentially be regulated (and, in some places, for the first time permitted) under the proposed EU regulation of third party litigation funding (TPLF).  TPLF is currently largely unregulated within the EU, with the involvement of funders not always being disclosed to the defendants and the court.  Funders can often take a large share of damages awards, leaving claimants with significantly reduced compensation.   

A draft EU Directive on the regulation of TPLF was published in June 2021 and in September 2022, the EU Parliament voted in favour of TPLF regulation, proposing a “Resolution with recommendations to the Commission on Responsible private funding of litigation”.  The recommendations provide for greater oversight of funders as well as a cap on their profits.   It is now up to the EC to decide whether to adopt the proposed Directive.  Whilst this is seen by many to be a significant development in supporting access to justice, one of the key drivers behind the introduction of the RAD, some industries and organisations are concerned that the recommendations are too restrictive.  It has been reported that stringent regulation of TPLF could not only hinder funder activity in the EU but also benefit the increasingly growing TPLF market in the UK. 

A legal framework for the digital age 

i. Proposal to reform the EU Product Liability Directive 

The risks and challenges posed by new technologies, modern supply chains such as online platforms and an increasing focus on sustainability and the circular economy culminated in the EC publishing a proposal to reform the EU Product Liability Directive 85/374/EEC (PLD) (“the PLD Proposal”).   

The PLD has been in force for 38 years and covers a wide range of products, from medical devices to white goods.  An evaluation conducted by the EC in 2018 concluded that PLD was generally an effective instrument and broadly fit for purpose but also identified several limitations, including in its application to complex, emerging digital technologies such as software applications and AI, and to products in the circular economy (i.e. those subject to modification or repair after they are put to market).  The evaluation also considered that the burden of proof could be challenging for claimants in scientifically complex cases, such as those concerning medical device and pharmaceutical products. 

Following a series of reports, periodic expert reviews and a public consultation, the PLD Proposal was published on 28 September 2022.  Whilst the PLD Proposal retains the substance of the current PLD, it contains a number of new and potentially far reaching provisions that could significantly increase the litigation risk profile for certain types of products, particularly digital and AI enabled technologies.  The provisions include: 

  • An expanded definition of “product”, bringing digital manufacturing files, software, AI and AI-enabled goods within scope of the ‘no-fault’ regime.  The new regime is therefore expected to apply to products such as autonomous vehicles and AI-enabled smart assistants.   
  • Expansion of the potential defendants who might be liable under the PLD.   Providers of software and digital services, as well as online marketplaces and fulfilment service providers (e.g. warehouses) will potentially be liable for defective products, in addition to manufacturers of hardware.  This provision sits against a backdrop of developing regulation in the EU around the provision of digital services and software and the operation of online marketplaces.
  • An expanded definition of “damage” to include “loss or corruption of data that is not used exclusively for professional purposes”, which complements the wider definition of “product” to account for emerging technologies.   As products become more complex with functionality that is increasingly interconnected, software and cybersecurity vulnerabilities are likely to become an increasing product liability risk for manufacturers, suppliers and other actors across the supply chain. Interconnected devices which may be vulnerable to unauthorised access which, in turn, may give rise to an increased liability risk under the PLD Proposal.
  • The alleviation of the burden of proof in technical or scientifically complex products.  In recent years, claimants have, in particular, voiced concern that the burden of proof is too high in claims involving medical devices and pharmaceutical products.
  • A rebuttable presumption of defect where: (i) a defendant fails to comply with an obligation to disclose relevant evidence; (ii) the claimant establishes that the product does not comply with mandatory safety requirements; and (iii) the claimant establishes that the damage was caused by an obvious malfunction of the product during normal use. 
  • A rebuttable presumption of causation where the product is defective and the damage is of a kind typically consistent with the defect in question.
  • Where a national court considers that the claimant faces excessive difficulties in proving defect or causation owing to the technical or scientific complexity of a claim, there shall be a presumption of defect and/or causation where the claimant demonstrates, on the basis of sufficiently relevant evidence, that the product contributed to the damage and it is likely that the product was defective, or its defectiveness is a likely cause of the damage, or both.     

If adopted in its current form, the PLD Proposal would seek to remove some of the hurdles encountered by claimants when bringing product liability claims, creating an easier pathway to bringing complex actions.   Pharmaceutical and medical device manufacturers have been at the forefront of product liability litigation in Europe and as those industries increasingly develop products containing digital and AI-enabled technologies, they may well be amongst the first to face major test cases and collective actions brought under the new regime. 

ii. Proposed legal framework for AI  

Sitting alongside the PLD proposal is the first ever comprehensive legal framework to govern the risks posed by AI and AI-enabled products.  The framework is two-fold:  

  1. a proposal for a regulation laying down harmonised rules on AI, referred to as the ‘Artificial Intelligence Act’ (“the AI Act”), which was published in April 2021; and  
  2. a proposal for a civil liability regime for AI, known as the AI Liability Directive, which was published in tandem with the PLD Proposal on 28 September 2022.   

The AI Act adopts a risk based approach and imposes strict controls and substantial risk management for the riskiest forms of AI systems, including medical devices, vehicles and toys.  Such controls include undergoing conformity assessments, the implementation of quality management systems, and affixing of CE-markings to indicate conformity with the proposed regulation before products are released to market.  Exceptionally high risk AI-systems, such as those which are considered to pose a clear threat to the safety, livelihoods and rights of people, are prohibited.  Infringements are costly, with fines of up to EUR 30m (or 6% of annual turnover) imposed for those in violation of the prohibited forms of AI systems.   The AI Act has wide-ranging applicability and will affect AI providers and users inside and outside of the EU.   

Complementing the AI Act is the AI Liability Directive (AILD) which aims to provide a mechanism for claims for compensation to be brought by end users of all types AI systems (such as smart home products, AI-powered software applications or AI-enabled medical devices) who have suffered harm as a result.   The AILD has been introduced owing to the EC’s view that current national liability rules are not suitable or appropriate for responding to liability claims for damage caused by AI based products and services owing to their inability to account for the complex and autonomous features of AI, which can make it difficult for users to determine potentially liable parties.   Against this, the AILD provides for a ‘fault-based’ liability regime for AI systems that includes: 

  1. a rebuttable presumption of causality to prove fault, making it easier for claimants to demonstrate a causal link between an AI system failure and the harm caused.  Crucially, a presumption may arise where the provider of the AI system has not complied with the AI Act.  The risk of non-compliance is increased where obligations under the AI Act may conflict or overlap with existing obligations under other regulations that address the risks of new technologies, such as those set out in the EU Medical Device Regulations and the General Data Protection Regulation.   
  2. A right of access to evidence from companies and suppliers of high-risk AI systems, giving claimants the right to ask the court to order disclosure of relevant evidence. 

With the EU having introduced other pieces of regulation, such as the Digital Services Act, to keep big tech companies in check, there is a greater focus on holding producers and developers of AI systems accountable for harm.  The appetite for AI related litigation has already manifested in the US, with Big Tech companies in the firing line for collective actions brought in respect of harms allegedly caused by the AI algorithms built in social media platforms.    

The AILD applies to claims brought by any natural or legal person against any person for fault that influenced the AI system which caused the damage.  It covers any type of damage involving AI systems, including that resulting from discrimination or privacy.  By comparison, the PLD Proposal applies to claims brought by private individuals against manufacturers in respect of damage to health, property and data loss caused by defective products.  Together, they form a legislative package that will arm consumers with the means to seek redress, individually and collectively, in respect of harm caused by AI. 

ESG and sustainability  

With ESG and sustainability remaining high on corporate agendas, there has been increased focus in recent years on the environmental impact of products.  Whilst ESG-type obligations are already weaved into existing product safety regulations, the EU is now seeking to incorporate them into mainstay product safety laws and regulations, as well as separate subject-matter pieces of legislation, such as the proposed Directive on Corporate Sustainability Due Diligence, which seeks to address the human rights and environmental impacts of global value chains by placing onerous obligations on EU and non-EU companies and improving access to remedies for those impacted as a result of corporate behaviour.    

Products containing synthetic chemicals, such as perfluoroalkyl and polyfluoroalkyl substances (PFAS), which are found in a variety of products used by consumers and industry such as medical devices, cosmetics and cookware, are under the scrutiny of regulators, culminating in a series of international noteworthy legal and regulatory developments across the globe, because of their alleged impact on health.  On 7 February 2023, EU national authorities from Germany, the Netherlands, Norway and Sweden submitted a regulatory dossier to the European Chemicals Agency proposing to ban the production and use of PFAS .  The proposed ban will impact products across many industries, resulting in companies having to source alternative chemicals/substances for their products and production processes.  The ban will also extend to EU imports of products containing PFAS.   

PFAs related litigation in the United States and Europe is already impacting chemical producers, albeit mostly in relation to water and soil contamination. However, as regulatory scrutiny continues, it is conceivable that product liability claims, including those brought by collective actions, may emerge in this area in due course. 

Conclusion  

For the reasons set out above, the EU may soon be entering into an era where product liability related mass tort litigation is seen on a wider scale.   

Whilst the EU legal and regulatory proposals discussed in this article will not apply in the UK post Brexit, the UK government is setting out its own legal framework for the regulation of digital technologies, including AI.  The extent to which this may impact on product liability remains to be seen. 

In 2021, the Law Commission, the statutory independent body responsible for keeping the law of England and Wales under review, had proposed including “emerging technology” as a possible theme for the 14th Programme of Law Reform.  Similar to the EU’s rationale behind the PLD Proposal, it anticipates that there will be a growing need in the future for law which not only reflects technological developments such as AI but also one which considers the need for proper consumer protection as well as the commercial and economic implications. However, the 14th Programme has been put on hold indefinitely due to the Law Commission continuing to work on the previous 13th Programme.   Accordingly, the CPA will remain in its current form for the foreseeable future.   

Whilst product liability claims are usually pursued in the UK via the use of an ‘opt-in’ mechanism provided by Group Litigation Orders, it may be that the UK sees innovation, however, in the legal routes under which mass claims for collective redress are brought, particularly in the nascent area of representative actions which are seldom used owing to the court’s strict interpretation of the ‘same interest’ requirement under the regime provided by Civil Procedure Rule 19.6. The limited scope of this regime was affirmed by the UK Supreme Court in Lloyd v Google [2021] having refused to allow a data privacy claim to proceed as a representative action owing, in part, to the requirement for an individual assessment of damage.  

However, the English High Court’s ruling in Commission Recovery Limited v Marks & Clerk LLP & another [2023] in which it allowed a claim for secret commission to proceed as an ‘opt-out’ representative action, notwithstanding that there were some differences in the individual claims as well as the remedies sought, indicates that the court may be willing to take a more flexible approach to the ‘same interest’ requirement.  The decision could even start to pave the way for certain product liability claims to be brought as opt-out representative actions in the future.