On the 24th of January, PubAffairs Bruxelles organised an afternoon discussion on the obligations and responsibilities of business entities in terms of consumer safety stemming from the General Product Safety Regulation (GPSR) and the Product Liability Directive (PLD) with Mr Omar Ennaji, Legal and Policy Officer, Digital Transformation of the Industry, DG GROW, European Commission; Ms Laetitia Kister Head of Compliance, EMEA, Amazon; Mr Fabian Ladda, Head of Policy for Local Commerce, Wolt.
The debate was moderated by Matthew Newman, Chief Correspondent for MLex Market Insight.
Matthew Newman welcomed the online and onsite attendees to the event and gave a brief synopsis of the rationales behind the two legislative initiatives, namely the General Product Safety Regulation (GPSR) and the revised Product Liability Directive (PLD). With special regard to the proposed revision of the PLD he explained that the first version of this piece of legislation dates back to 1985, a time before the smart devices or digital technologies which are now inherent to our daily lives. Therein, he explained, stems the need for updated product liability rules that better align with today’s reality, as well as with circular economy business models.
Matthew Newman proceeded to identify some aspects of the proposed new version of the PLD, such as defective software updates or digital services. Moreover, he highlighted how the forthcoming rules include some norms for products imported from outside the EU. Within this context, he specified, the European Commission proposed new product liability rules at the end of September 2022, which extend non contractual civil liability to digital products and services, along with the proposed AI Liability Directive, in order to harmoniously widen the scope of current norms to fully encompass the digital realm.
The moderator proceeded to give an overview of the mechanisms these two pieces of legislation will use to accomplish their aim of harmonising liability rules. As regards the new PLD, the moderator specified that it shall allow for compensation of damages in situations such as when robots or smart devices are made unsafe by software updates, when cybersecurity vulnerabilities have failed to address or when AI systems cause physical harm, property damage, or data loss. At the same time, he added, the new proposal aims to level the playing field between EU and non-EU manufacturers by deepening the role of EU authorised representatives of non-EU economic operators and to place new liability rules onto importers or distributors (both online and offline) to better protect consumers and facilitate possible compensations.
Subsequently, Matthew Newman introduced the panellists and inquired whether the revised version of the Product Liability Directive (PLD) brings the EU’s liability regime up to speed with the digital age, as well as about the main drivers which led to these legislative initiatives.
Omar Ennaji answered the first question with an assured affirmative. He reiterated the moderator’s point that in 1985, when the initial PLD was adopted, there was no such thing as a smart device or, indeed, artificial intelligence. The speaker also gave the example of the 1990 inclusion of agricultural products following the outbreak of ‘mad cow’ disease, as, prior to the outbreak, legislators did not foresee what damages could be caused by agri-food production. He continued by deepening the framework which the initial PLD provided and attested that a need for clarity has emerged. For instance, he referred to Matthew Newman’s example of software and highlighted that there has been a persistent questioning of whether software constitutes a product or not. He noted how the answer, under the current system, still differs across EU member states. As cases arose in the European Court of Justice, the need for regulatory action became even more evident, he recounted. Bringing about more legal certainty on such questions and deciding which aspects European legislation should cover or clarify was the principal driver which led the European Commission to propose both the GSPR and the PLD, he remarked.
Indeed, he cautioned, the adoption of the new safety and liability regime has been more complex than merely deciding that software in general is covered. He clarified that the European Commission assessed the implications of putting forward new legislation by adopting a comprehensive and future-proof approach to allow the norms to be coherent and adaptable for every product, particularly in the domain of new technologies. The speaker took the example of digital products to better explain this approach: if software is covered by the legislation, he elucidated, so too is AI and AI systems are notably constantly evolving. He further stated that if software is covered, but not the related services which allow them to function, the PLD would be less steadfast. He rounded up his answer by explaining that, on the one hand, the European Commission was willing to adapt the scope of the PLD for the digital age, but, on the other hand, it was also willing to provide enough flexibility in order to put forward future-proof norms. This balance was the essence of the regulatory endeavour, he concluded.
The moderator then launched into his second question by asking Laetitia Kister about the efforts marketplaces and ecommerce retailers have displayed so far in order to improve the detection of unsafe products.
Laetitia Kister attested that product safety has always been at the core of Amazon’s mission. For over a decade now, there have been specific controls in place to achieve this aim, she explained, and, currently, Amazon is implementing proactive controls by which signals received (be them from customers, regulators, or vendors) are examined and the safety of products is assessed. In fact, she continued, from a proactive standpoint, whenever Amazon detects there is a potentially unsafe product or a problematic seller, Amazon investigates, and the item can be immediately removed from the website. She also highlighted that Amazon’s priority is both to ensure that products are safe and to protect customers from any potential harm.
From a reactive standpoint, she continued, there are also several legal obligations which the company must follow and exemplified this aspect by mentioning the recalls of unsafe products and Amazon’s constant monitoring of several sources, including RAPEX (European Rapid Alert system for dangerous non-food products). Laetitia Kister progressed and explained Amazon’s reactive strategy and how this is complemented by customer feedback monitoring. The company, she authenticated, also continually monitors what customers tell them about the products they have purchased and investigates claims. Should the product be proven unsafe, it is swiftly removed, she reiterated.
These are the kind of internal, legally required measures Amazon has implemented to ensure safety of their products, some of which, such as recalls, have been in place for years. Laetitia Kister concluded by stating Amazon’s commitment to improvement and highlighted that Amazon’s internal policy in a nutshell is to value both the alerts and the feedback received in order to react promptly.
The moderator moved along to the other piece of legislation, the General Product Safety Regulation (GPSR), which he noted contains provisions to enhance the safety of products. He subsequently asked Omar Ennaji where the GPSR was in its legislative journey and inquired about how it complements the PLD.
Although Omar Ennaji clarified that he has not been directly responsible for the GPSR file, he acknowledged that the regulation is, indeed, a part of the EU’s family of safety legislation which is approaching the finishing line. He highlighted that the PLD is often thought of as the other face of the coin of several other EU safety-related pieces of legislation, including the GPSR, but also the AI Act and the new Machinery Regulation proposal (amongst others). The speaker explained that this is due to the fact that the PLD does not place specific safety obligations on manufacturers or economic operators, but rather provides an ex-post type of regulation. The PLD, he continued, comes into play when liability is at stake.
While acknowledging that economic operators consistently try their best to avoid the marketing of unsafe products, he remarked that accidents still happen and products may still cause damage. Hence, the EU institutions needed to update the PLD, as clear rules within a harmonised European legal framework are needed when such accidents occur for consumers and for economic operators alike.
Indeed, he reiterated that the PLD somewhat reflects the obligations of all EU safety-related legislation. However, arguably, one could assume that a product is defective if it does not comply with EU safety standards, he added. Yet, he specified that merely complying with EU safety standards does not automatically imply that a product could not be found defective in court. Omar Ennaji concluded by saying that safety regulations bring a framework whereby liability lies, but accidents or defects can similarly arise from other circumstances, while specifying that it will be the courts that will apply the regime.
Matthew Newman subsequently inquired with the representative of the European Commission about the liability regime itself and how it was designed differently for manufacturers, importers, authorised representatives and distributors, both online and offline.
Under the current regime, Omar Ennaji delineated, liability is primarily placed on manufacturers and importers. However, he continued, it is widely acknowledged that there are more types of economic operators at play, hence the need to include them all in EU legislation. Nevertheless, he added, merely being listed in the legislation does not automatically imply being liable per se and clarified that this is simply an aspect of the approach to the legislation adopted in the PLD. He illustrated this statement by saying that EU law currently allocates the liability primarily to manufacturers or, in case of non-EU manufacturers, to importers or to the manufacturers’ EU authorised representative. However, the proposed PLD foresees that if there is no authorised representative, distributors can also be held liable. Omar Ennaji proceeded to elaborate on the above-explained concept, which he defined as the “liability cascade”, in order to better clarify the rationale behind the proposed PLD. He also stressed the fact that distributors are considered the last resort and that they have the opportunity to equivocate their liability if they can indicate an EU-based liable entity.
He also reminded that the role of a given operator (manufacturer, importer, distributor etc..) is defined by legislation, by its activities in the given circumstances. He took Amazon as an example to this effect by saying that, although Amazon is primarily an online marketplace, some products are sold with its trademark, making the company, in those cases, a manufacturer as authenticated by the European Court of Justice, he added. In turn, he stated that an online marketplace, remains the last available actor to whom a potential victim could turn to, in accordance with the Digital Services Act.
Matthew Newman moved the discussion along and forwarded his next question to Fabian Ladda, asking him to explain more about Wolt’s operations and Wolt’s perspective on the PLD.
Fabian Ladda introduced Wolt as a Helsinki based technology company who operates a restaurant, grocery, and retail intermediation platform, operating in 23 countries (16 of which are EU member states), with thousands of courier partners and 20 million registered users. Fabian Ladda described Wolt’s attitude toward the status of GPSR and the proposal of revision of the PLD as satisfactory. Wolt, he explained, operates in a hyper local marketplace which connects customers with nearby merchants and, as a result, in the event of damages or defective products there is always a brick-and-mortar business in the vicinity from which a customer can seek redress. Thus, he determined, under the current revision of liability rules, Wolt considers itself as a very low-risk entity.
Matthew Newman proceeded and raised the question of the possible unintended consequences of the PLD revision with particular reference to innovation processes. He also inquired about the possible consequences for SMEs and start-ups.
Omar Ennaji began by tackling the question of SMEs and pointed out that this policy file is DG GROW’s primary responsibility. Subsequently, he explained that, from a legal point of view, there would be no justification for a discrepancy of liability based on the size of the entity, while clarifying that the PLD is a strict liability, namely a liability which does not require fault (non-fault liability). The speaker also explained that in the EU, this was not always the case. In 1985, he recalled, almost every member state’s liability regime was based on the principle of fault liability, whereby if wrongdoing or negligence that resulted in damage occurred, the damage must be repaired.
However, he proceeded, there were cases in which it was too difficult or complex to prove that the action which led to damage was either negligent or intentional. He used the pre-1985 example of the thalidomide case in which it was impossible to prove wrongdoing on the part of the manufacturer. In this connection, he stated this aspect needed to be corrected in order to give victims fair access to claims. He added that this has been one of the PLD’s main aims. The PLD establishes the liability rules but it is then to court to ultimately decide whether a claimant has proved that a defective product has caused the damage suffered.
Omar Ennaji subsequently engaged with the idea of innovation. He explained how this matter had been substantially considered with regard to the PLD and acknowledged how even the slightest alteration to the rules could potentially create unexpected or unintended impacts on innovation. However, he also assured that this was not the aim of the European Commission and pointed out that, in his opinion, clear rules bring better awareness regarding risk and liability exposure. Although there will be some adaptations needed regarding insurance policies, the speaker argued that the PLD will be eventually beneficial for innovation processes for SMEs and start-ups, as well.
In fact, he continued, insurance providers tend to only cover what is known. Thus, he maintained, legal certainty shall promote better insurance coverage, as well as better understanding of the playing field in which a (new, small and/or large) business is operating. The speaker bolstered this argument by stating that countless court cases from both member state national courts and the European Court of Justice over the last thirty years demonstrate the current state of ambiguity.
The moderator homed in on Omar Ennaji’s mention of software, as the inclusion of this domain software products is a substantial component to modernising the PLD. However, he similarly signalled the public debate which surrounds this subject and asked whether the PLD proposal includes failures to provide software updates.
Omar Ennaji expressed satisfaction with the question which addresses the perspectives of many critics he has come across so far and stated that the clarification of software products is a substantial component to modernising the PLD. He then answered that one cannot go against a manufacturer under the PLD in the case of interruption of software updates, if this occurrence does not cause harm. He further clarified that in order to hold the manufacturer liable you must prove that the defective product caused one of the head of damages covered by the PLD. However, what the PLD would cover, he explained, are cases in which, for example, there is a failure to provide a known cybersecurity update which then causes a damage, such as data loss. The speaker confirmed that there are situations akin to this one and supported this statement using the instance of an over charging phone burning its users. In this case, he explained, if the damage may not have occurred had the software update been provided, one could consider the software defective under the new PLD.
Omar Ennaji also pointed out that, under the current PLD, the important moment in time is when a product is placed on the market because, if a defect exists, the law assumes that the defect already existed. Conversely, he explained, as a software is constantly updating, this type of product would become defective after being marketed. Hence, if current rules were maintained, the manufacturer would not be held liable for the defect which was introduced by the update, he specified. Although the revised PLD retains the above-explained exemption of market introduction, it also adds exclusions, such as for software updates.
The moderator asked the other panellists if they would like to add anything to the debate around software.
Fabian Ladda accepted and explained that, in the instance of Wolt, the company often does not see or touch the product sold, therefore it can be hard to judge whether a product is defective or not and expressed the opinion that the additional element of software adds further complexity to this question. However, he also reiterated his previous point that Wolt would redirect the customer to the retailer for compensation.
Matthew Newman continued the discussion around software by introducing the questions of psychological (immaterial) harm.
Omar Ennaji began his answer by clarifying that the damages covered under the proposal are meant for all products, not just software. Additionally, he highlighted that there is a distinction to be made between material and immaterial damage because often consumers deem psychological damage as immaterial. He elaborated on this matter by saying that physical injuries or property damage are indeed material, while immaterial damage usually concerns discrimination, fundamental rights violations, harassment or emotional harm, all of which are not covered by the PLD.
In fact, psychological harm has already been considered by national courts as a personal injury. To reinforce his statement, the speaker added that the European Court of Justice has determined that bodily injuries include psychological harm. For instance, he elucidated, post-traumatic experience due to the explosion of a vehicle is considered psychological harm and can be compensated for under the PLD. Indeed, he proceeded, this type of psychological harm must also be medically recognised, as plaintiffs must prove the harm in the form of a medical certification or otherwise before courts.
Matthew Newman moved forward to his next questions regarding the role of an EU representative for non-EU manufacturers. However, he noted that the determining of this EU representative may prove difficult for some companies, particularly those of a smaller size.
Laetitia Kister attested that Amazon does not view the introduction of the EU representative as a problem per se. In fact, she highlighted, the company welcomes this new criterion. She stated that, previously, there was a gap in the legislation and the EU representative constitutes a solution which will fill this gap. On the same note, she stated there is continuity between both pieces of legislation (the PLD and the GPSR), although, she pointed out, from an analysis of the Market Surveillance Regulation and the Digital Services Act, the EU representative is not yet proven to be as effective as it should be and this could become problematic in the future.
Laetitia Kister continued by explaining that Amazon customers do not have an issue when buying a product from Amazon as a distributor or manufacturer because there are clear and defined paths for contact and compensation. In turn, when customers buy from a seller through an online marketplace and there is no responsible person within the EU, consumers’ rights may be difficult to enforce. In this connection, she asserted that the introduction and deepening of the role of the EU authorised representative is of help, but it should be a meaningful and professional entity.
In addition, Laetitia Kister mentioned an EU-wide e-labelling system as a possible solution to the question of the EU authorised representative and acknowledged that this is a matter which has been under discussion for a while. In this regard, she explained that another advantage of e-labelling could be when there is a change of product, a process which often happens in products’ life cycle. She subsequently stated that, if this occurs and the responsible entity changes, e-labelling allows this to be done without changing the entire packaging of a product, for example. From her company’s perspective, this is just one of the advantages which e-labelling could bring about along with, for instance, inclusivity in terms of the language the label is written in. For these reasons, she explained, Amazon has advocated for the use of e-labelling in order to foster flexibility, avoid additional costs, and provide legal certainty.
After this round of discussion, the moderator noted that there is a significant amount of new legislation coming forward for marketplaces, such as the Digital Markets Act, the Digital Services Act as well as these new liability rules. In this connection, he asked the speakers whether they were experiencing or foresaw potential problems of overlapping, coherence or simultaneous implementation.
Laetitia Kister concurred that the EU legislative initiatives have been pretty intense recently. With different legislations at different stages of their implementation, it is indeed challenging for any marketplace to align their operations with it all. Nevertheless, she encouraged a step back when assessing the state of play in order to understand the overarching goal at European level. She further said that Amazon acknowledged the fact that there has been a need to adapt EU legislation to today’s reality.
However, the speaker also pointed out that the question of overlap is of importance, while adding that, although overlaps are acceptable, it is imperative to avoid inconsistencies or contradictions. On the same note, she cautioned, the question of product-specific legislation, such as REACH or the CLP, should not affect the overall stipulations of the Digital Services Act, the GPSR or, later, the PLD. She exemplified this possible scenario taking the example of cosmetic or detergent products, while expressing Amazon’s understanding of the EU institutions’ wider mandate and their consideration for the positive benefit in terms of consumer protection. While acknowledging that there will always be defects with products on the market, regardless of how or where they are sold, the speaker highlighted Amazon’s endeavours to reduce the frequency of these occurrences and appreciation that the upcoming set of safety and liability-related legislation is going in the right direction.
Fabian Ladda began his reply firstly by referring back to the moderator’s question regarding innovation and SMEs. He spoke about his dialogue on the proposed legislation with other businesses, experts, and trade associations and maintained that it has become apparent that smaller economic operators often do not have sufficient resources to keep up with new legislation and highlighted that it may be hard for them to understand whether and how they may fall within the remit of the PLD. Although he agreed that the revision provides clarity, he suggested both should take further into consideration how the forthcoming set of legislation would impact smaller business and provide the means for them to better cope with current regulatory evolutions.
With respect to the current definition of online marketplace, Fabian Ladda noted a tendency towards a monolithic approach to online marketplaces, an aspect which he argued can be detrimental to small economic operators and the local sellers that rely on them, while restating the point that Wolf’s hyperlocal market attributes to them a distinct risk profile. He subsequently built upon his argument by saying that he believed there should be a specific set of regulations for small-sized enterprises. He suggested that 2023 would be a good time to reassess the e-commerce sector, revisit the definition of marketplace, and re-evaluate the necessities of the EU economy as whole, given the role and the difficulties that small-sized enterprises are undergoing in the present moment.
Fabian Ladda then broached another aspect that is often overlooked in his opinion, namely the fact that much e-commerce has also migrated to social media. He rounded off his answer by solidifying that there are indeed some overlaps within the EU legislation and by reiterating that it is harder for smaller businesses and local marketplaces to navigate the new regulatory environment.
The moderator asked Omar Ennaji whether he wanted to comment on this question.
Omar Ennaji asserted that the current legislation does not exempt social media, if they act as distributors. Indeed, if the PLD was based on how an operator labelled itself, no economic operator would fall within the remit of the PLD, he argued. Therefore, regardless of how economic operators label themselves, they will be regarded as manufactures (if they are selling products with a trademark) or distributors, if they fall under the definition of the different economic operators.
The speaker also acknowledged the worries surrounding this area and confirmed that social media are not excluded from EU legislation, as long as their activities fall within the scope of the PLD.
The Q&A session covered the following issues: The matter of hand-made goods and antiques as per the new Product Liability Directive, the inclusion of standalone software in the GSPR and the PLD, robots and Internet of Things (IoT) liability, how phone applications can be held liable, how the insurance sector will measure risk, how to future-proof legislation in the digital sector, the concept of technological neutrality in the PLD, the non-definition of software in the revised version of the PLD, the interrelation between the PLD and the AI Liability Directive, the possibility of reduced market offers of products due to increased distributors’ liability, small business PLD compliance, the comparison with strict liability already for the automotive sector, e-labelling and the Ecodesign for Sustainable Products Regulation (ESPR), how the circular economy fits in with the PLD, the inclusion of data in the scope of damage and the obligation of consumers regarding data storage, fulfilment service providers liability compared to the EU authorised representative’s one, interconnected cars liability, the question of possible damages in the metaverse.
Do you wish to know more about the issues discussed in this debate? Then check out the selected sources provided below!
Adapting liability rules to the digital age, the circular economy and global value chains, Consultation, European Commission
Proposal for a Directive of the European Parliament and of the Council on general product safety (GSPR), European Commission
General Product Safety Regulation, Legislative Train, European Parliament
Proposal for a Directive of the European Parliament and of the Council on liability for defective products (PLD), European Commission
Civil liability regime for artificial intelligence, European Parliament Research Service (EPRS)
New liability rules on products and AI to protect consumers and foster innovation, European Commission
Questions & Answers: AI Liability Directive, European Commission
Updating liability rules for defective products, European Parliament Research Service (EPRS)
New Product Liability Directive, European Parliament Research Service (EPRS)
Guiding Principles for Updating the Product Liability Directive for the Digital Age, European Law Institute
The Commission’s proposals for adapting liability rules to the digital age. Part 2: The revised Product Liability Directive, KU Leuven Blog
Proposal for a new directive on liability for defective products in the EU, Lexicology
EU Commission clarifies digital implications of new product liability framework, Euractiv
European Rapid Alert system for dangerous non-food products, European Commission