2 EU Laws Could Supercharge Product Liability Class Actions

April 5, 2023

Editor’s note: Authored by Edward Turtle and Harriet Jones, this article was originally published in Law360.

The EU is planning to radically reform its product liability laws. The European Commission has proposed to amend the existing Product Liability Directive (85/374/EEC) to expand the scope of claims that can be brought and the range of damages that can be recovered, and to make it easier for consumers to prove their case.

While final implementation dates are not yet confirmed, the new provisions of the PLD could become effective in 2024 or 2025.

At the same time, the EU's new class action regime under the Representative Actions Directive (EU) 2020/1828 is set to apply starting in June. The RAD represents a major overhaul of the European litigation landscape.

Inspired by a concern that globalization, e-commerce and new technologies have increased the risk of large groups of consumers suffering harm, the RAD introduces class action mechanisms in every one of the EU's 27 member states, as well as a new cross-border mechanism.

Taken together, these changes represent a fundamental change to the product liability landscape in Europe — which we expect to supercharge the already growing trend for European class action litigation.

This article takes a look at the combined effect of these developments, comparing the position in the EU to the U.S., to consider whether Europe has adopted U.S.-style product liability class actions.

Reforms to the Product Liability Framework

For over 30 years, the EU has had a strict liability regime established for product liability claims under the PLD where producers are responsible for defective products, regardless of whether the defect is their fault. Claimants just need to show that a product was defective, they suffered damage, and there was a causal link between the defect in the product and the damage they suffered.

It is also possible to bring product liability claims under national fault-based regimes — e.g., contract and tort. But the strict liability regime is generally preferred, because, since claimants do not have to establish fault, it is easier to bring a claim.

The EU has decided that reform of the PLD is needed to protect consumers better against risks including those created by connected products, artificial intelligence, the circular economy and e-commerce. While the proposed reforms focus on addressing new technologies, they will affect all product sectors with key reforms, including the following.

Expanding the Definition of "Product" Into the Digital Realm

The reforms expand the definition of "product" to include software and certain related digital services, and introduce strict liability for defects resulting from cybersecurity risks and software updates — or lack of updates — including where they cause loss or corruption of data.

At the same time, the commission proposes removing the existing threshold of €500 for personal property claims. The impact of these changes, when combined with new class actions mechanisms under the RAD, is likely to be a significant risk of mass claims for trivial data loss or corruption claims following, for example, cybersecurity incidents or bugs in software updates.

Broadening Recoverable Damages to Cover Psychological Harm

The reforms broaden the scope of recoverable damages from personal injury, death and damage to personal property, to include medically recognized harm to psychological health.

There is no definition of this included in the proposal, and it is currently very unclear what would be in scope. As drafted, there is a risk that claims for stress and anxiety would be recoverable.

Requiring Defendants to Disclose Technical Information

The reforms introduce a new disclosure or discovery obligation that requires defendants to disclose technical information if the claimant establishes a plausible case.

As this is quite a low bar, there is a risk that these powers could be used by claimants in so-called fishing expeditions — i.e., spuriously, in the hope that it might turn up something that could help put together a claim. If this materializes, it is likely to place a significant burden on companies doing business in the EU.

Creating New Presumptions of Defect

The reforms create new presumptions of defect — including where there was noncompliance with EU product safety rules, or where defendants failed to provide documentation under disclosure powers.

In addition, the burden of proof could be eased for scientifically or technically complex cases — the commission gives the examples of cases involving pharmaceuticals or artificial intelligence — or where a product has an obvious malfunction.

In our view, this easing of the burden of proof is problematic as currently drafted, because most malfunctions will be obvious after the event.

New Liability for Online Marketplaces

The reforms add new liability for online marketplaces, including imposing strict liability on a fulfillment service provider where there is no manufacturer, importer or authorized representative established in the EU.

An online marketplace may be held strictly liable in certain cases where it fails to identify who supplied it with the product within one month of a request.

These reforms go much further than expected, and would represent a complete overhaul of existing EU product liability laws, creating a much more claimant-friendly regime. Moreover, it is no longer just the traditional players in the consumer product manufacturing industry that will need to reevaluate their exposure as a result of these new rules.

Rather, a whole range of companies doing business in the EU will need to reconsider their liability risks — including manufacturers and importers, software developers, online marketplaces and other intermediaries, among many others.

New EU Class Action Regime

The EU is introducing new class action mechanisms under the RAD which will enable qualified entities to bring representative actions in the collective interests of consumers.

This is a major change — introducing class actions for all 450 million EU consumers across the EU's 27 member states, where previously, only three had these procedures.

The RAD creates two types of class actions: those brought in one EU member state, and cross-border actions across multiple member states. The cross-border mechanism would allow organizations in, for example, Germany, France and Italy to work together to bring consumer claims in the courts of one of these jurisdictions.

Qualified entities can seek a range of remedies, including injunctions and damages for breach of over 66 EU laws covering consumer rights, product safety, medical devices and medicinal products, data protection, financial services, energy and telecommunications.

Importantly, it will also cover the EU's product liability regime, including the PLD and the proposed reforms to it outlined above.

Product Liability Class Actions: Comparing the EU and U.S. Models

The EU was reluctant to adopt an approach comparable to the class action system in the U.S. The RAD intends to create a different system: protecting consumers on the one hand, while not creating a culture the EU perceives as unnecessarily litigious.

There are certainly some clear points of distinction. In particular, recovery is limited to actual loss, and there are no punitive damages. Moreover, class actions can only be brought by eligible nonprofit consumer organizations, not law firms.

So the EU system sounds unlike the U.S. system. On closer inspection, however, the new EU class action mechanisms are not as different from the U.S. model as they might seem, and are likely to boost the already growing trend for European product liability class actions.

First, while class actions can only be brought by nonprofit organizations, there is nothing to stop these organizations instructing plaintiff law firms to run their claims. Moreover, litigation funding is permitted under the RAD, provided it is not detrimental to the collective interests of consumers and is fully disclosed as part of transparency measures.

Taken together, it is no accident that Europe has already seen a huge influx of U.S. plaintiffs firms in the last two years.

Secondly, there will be a low threshold to initiate proceedings under the RAD. It will be sufficient to describe the group affected by the alleged infringement and set out at a high level the issues of fact and law to be resolved.

As a result, we are likely to see class actions brought quickly in the EU off the back of media coverage of issues including data breaches, recalls or noncompliance with EU laws.

Thirdly, the EU regime is designed to incentivize settlement, with courts being given powers to instruct parties to enter settlement discussions, as well as to review and approve settlements.

While there are no punitive damages or jury awards comparable to U.S. proceedings, the huge pool of 450 million potentially affected EU consumers means that, in practice, even small per-claimant product liability claims will aggregate to significant group damage amounts. Experienced consumer organizations, and the plaintiffs firms that they instruct, will be able to leverage this to obtain major settlements.

Fourthly, claimants will have the upper hand when it comes to costs. Under the RAD, the losing party will be required to reimburse the winning party's costs — including legal fees — which is designed to act as a deterrent to abusive claims.

However, in practice, it increases businesses' risk of exposure if defeated, with little offset in terms of their potential to recover costs, even if successful. In particular, potential for recovery from consumer organizations is likely to be limited, and individual consumers will not be ordered to pay costs, except in the unlikely scenario they are found to have deliberately or negligently increased costs.

Finally, claimants can use final decisions in one member state as evidence in proceedings in other member states. This could result in forum shopping, with claimants pursuing initial actions in nember states with the most favorable regime, then bringing follow-on proceedings in others.

In summary, even though the EU has taken a different approach from the U.S., the mechanisms it has introduced will undoubtedly create a much more claimant-friendly environment for class actions.

As a result, bringing large collections of product liability claims will become a much more viable prospect for consumers — and a much more threatening one for businesses.

Conclusion: Evaluating the Likely Impact

It is extremely likely that the EU's RAD and reforms of the PLD will encourage the growth of product liability class actions against companies doing business in the EU. The question is: On what scale?

In our view, this is a game changer — a fundamental shift in the European risk landscape that will supercharge product liability class actions in the EU. While it remains to be seen how quickly this will come to pass, we expect to see a rapid growth in product liability class actions, even in the short term.

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