On December 14, 2023, the European Union made a significant stride on updating the Product Liability Directive (PLD) to align with the digital age. This pivotal political agreement between the Council and thr Parliament paves the way for a regime that adeptly encompasses the complexities of digital products, particularly software. In this article, we delve into this upcoming legislation, offers a brief analysis of the legislation poised to transform the digital landscape for a diverse range of stakeholders.

This article was written by Cem Adiyaman ([email protected]) and Sefa Gecikli ([email protected]), who both have a strong focus on law & technology within RSM Netherlands Business Consulting Services

 

Decoding the Revised Product Liability Directive

Revisiting the PLD: A Journey from 1985 to the Digital Era

The PLD, established in 1985, was a revolutionary step towards harmonizing legal protections against damages caused by defective products. It introduced a no-fault liability system for producers across the EU. However, with the evolution of digital technologies and the complexities of AI, the existing framework faced challenges in applicability, sparking debates and legal uncertainties, especially regarding the classification of software under the PLD.

The newly proposed directive aims to modernize the EU’s approach to product liability. It significantly broadens the definition of 'product' to include software, digital manufacturing files, and digital services essential for the operation of interconnected products.

Who's Liable? Expanding the Circle of Responsibility

The revised directive delineates a wider range of 'economic operators' subject to liability. This includes manufacturers, service providers, authorized representatives, importers (when a manufacturer is established outside the EU), fulfilment service providers (offering at least two of: warehousing, packaging, addressing and dispatching of a product, without having ownership of the product) and distributors (when the distributor fails to identify any of the above operators). Notably, it introduces a novel concept: any operator significantly altering a product becomes liable for defects, akin to a manufacturer.

Product defects 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. This entails:

  • software updates under the manufacturer's control,
  • failure to address cybersecurity vulnerabilities,
  • and machine learning.

Redefining 'Damage': A Broader Spectrum

This update also broadens the concept of damage. Beyond physical harm and property damage, it now includes psychological health impacts and data loss or corruption, reflecting the changing nature of damage in our increasingly digital world..

Future Prospects: What Lies Ahead

With the political agreement in place, formal approval by the European Parliament and the Council is imminent. Post-adoption, EU countries will have 24 months to incorporate the directive into national legislation.

How RSM Can Assist You

As digitalization reshapes the regulatory landscape, RSM emerges as a leading guide, adept at navigating businesses through the intricacies of this evolution. Our team, armed with deep-seated expertise in digital law compliance and risk management, stands uniquely qualified to offer exceptional support in this dynamic domain. We cater specifically to medium-sized enterprises and family businesses, recognizing the unique needs and regulatory landscapes of each client, both domestically and internationally.