EUROPEAN COMMISSION Brussels, 7.5.2018 SWD(2018) 157 final COMMISSION STAFF WORKING DOCUMENT Evaluation of Council Directive 85/374/EEC of 25 July 1985 on the approximation of the laws, regulations and administrative provisions of the Member States concerning liability for defective products Accompanying the document Report from the Commission to the European Parliament, the Council and the European Economic and Social Committee on the Application of the Council Directive on the approximation of the laws, regulations, and administrative provisions of the Member States concerning liability for defective products (85/374/EEC) {COM(2018) 246 final}

{SWD(2018) 158 final}



Table of contents 1.Introduction 1.1.Evaluation of Product Liability Directive: Purpose and scope 1.2.Background for the evaluation 2.Background to the intervention 2.1.Baseline and points of comparison 2.1.1.What is the current legal framework? 3.Implementation / state of Play 3.1.Description of the implementation 3.2.Products about which claims are made 3.3.How are injured parties making use of the Directive? 4.Method 4.1.Short description of methodology 4.2.External study for the evaluation 4.2.1.Desk research and literature review 4.2.2.Stakeholders consultation 4.3.Data analysis 4.4.Limitations and robustness of findings

5.Analysis and answers to the evaluation questions 5.1.Effectiveness: Evaluating to what extent the Product Liability Directive achieved its objectives 5.1.1.Effectiveness towards harmonisation of strict liability rules and an effectively operating internal market 5.1.2.Effectiveness towards the right for consumers to claim damages and consumer protection 5.1.3.Effectiveness vis-à-vis new technological developments 5.1.4.Main drivers to the objectives achieved 5.1.5.Conclusion on effectiveness 5.2.Efficiency 5.2.1.Analysis of costs 5.2.2.Analysis of benefits 5.2.3.Balance and distribution between costs and benefits 5.2.4.Conclusion on efficiency 5.3.Coherence 5.3.1.Product safety legislation 5.3.2.Rules on consumer protection in the area of contractual liability 5.3.3.Rules on applicable law and disputes resolution 5.3.4.Conclusion on coherence 5.4.Relevance 5.4.1.Relevance of the Directive to current needs, including needs related to new technological developments 5.4.2.Relevance of specific provisions of the Directive

5.5.EU Added value 5.5.1.Conclusion on EU Added value 6.Conclusions 1.Introduction Evaluation of Product Liability Directive: Purpose and scope Directive 85/374/EEC concerning the liability for defective products (hereinafter 'the Directive) lays down common rules for strict liability (i.e. "liability without fault") of producers for damage caused by defective products at European Union level. It allows parties that have been injured by defective products to claim financial compensation for death, personal injuries or for damage caused to an item of property intended for private use with a threshold of 500 EUR. The Directive provides the injured person with an extra-contractual regime of liability. It does not cover contractual liability, which is imposed on an entity by the terms of a contract. The strict liability regime put in place by the Directive implies that liability is imposed on the producer regardless of any fault on his part (such as negligence or intention). The purpose of this evaluation is to assess the functioning and the performance of the Directive for the period 2000-2016, as it was never evaluated. It covers the EU-28 Member States. According to the Better Regulation principles, this evaluation assesses the effectiveness, efficiency, coherence, relevance and EU added value of the Directive. In fact, the evaluation assesses retrospectively the functioning and performance of the Directive. However, the evaluation also investigates whether the Directive remains fit-for-purpose vis-à-vis emerging digital technologies such as the Internet of Things and autonomous systems. For this purpose, the evaluation examines to what extent it has been used in Member States when it comes to damage caused by advanced robots, autonomous systems, Internet of Things, defective apps or other non-embedded software. In this context, this evaluation also assesses whether the objectives and requirements of the Directive are still fit for purpose in light of these technologies. The results of this evaluation will inform the Commission’s further approach to product liability by clarifying whether the Directive is functioning well, whether guidance on and clarification of certain concepts are necessary, or to see whether certain adaptations of the Directive may be of value to ensure the Directive’s continued value to the EU legal framework. Background for the evaluation The Directive was adopted in 1985 and since then the European Commission has regularly reported to the Council and Parliament on the main issues related to its application pursuant to Article 21 of the Directive. This Article obliges the Commission to report every five years to the European Parliament and to the Council on the application of the Directive and, if necessary, to submit appropriate proposals. This evaluation accompanies the fifth report. In the fourth report (covering the period 2006-2010), the Commission highlighted the contribution of the Directive in maintaining the balance of interests between producers and consumers regarding the liability for defective products. The Commission pinpointed that national experts and stakeholders had underlined the importance of having balanced liability instruments governing the relationship between companies and consumers. However, the parties concerned had expressed differing opinions on the effectiveness of specific provisions, notably about the burden of proof, the defence of regulatory compliance, the development of risk defence and the EUR 500 threshold for property damage. Organisations representing consumers, for instance, claimed to be unfairly disadvantaged by the burden of proof in product liability claims and stressed the difficulties to investigate claims properly or to gain access to essential information especially in case of technical products. Moreover, consumer organisations asked for more protection at a lower cost, which would imply removing the threshold of EUR 500. On the side of the producers and insurers, however, the arguments raised focused on the risk that any relaxation of the rules on the burden of proof or on the threshold for property damages would lead to more claims for minor damages. Facing the challenges of digital transformation and in particular to facilitate the investment into and the development of the digital economy, questions arose concerning the clarity of the legal framework, in particular the scope of the Directive to deal with liability issues for IoT devices and complex autonomous systems. In its Digitising Industry Communication, the Commission indicated that it would examine in greater detail the emerging issues of data ownership, access and re-use as well as the legal conditions of safety and liability related to the specificities of the Internet of Things, robotics and automated systems (such as robots, highly automated cars, distribution intelligence as part of the smart grids). The uptake of the Internet of Things may create challenges with respect to liability for damages of the economic players. In this context, interested parties also raised questions about the allocation of liability in the Internet of Things. This evaluation was launched in June 2016. It takes into account the European Parliament's Resolution with recommendations on Civil Law Rules on Robotics of February 2017. This evaluation builds on a study carried out by an external contractor. The final report of the Study for the evaluation of Directive 85/374/EEC has been approved by the Commission's services in February 2018.

2.Background to the intervention Baseline and points of comparison When the Commission proposed the Directive, it considered that a legal approximation of Member States’ laws was necessary to protect consumers against damages caused to health and property by defective products. Before the Directive, a consumer was protected by damages caused by defective products according to the legal conditions of the individual Member States. These provided different degrees of protection. The Commission further considered that an equal and adequate protection of the consumer could be achieved only through the introduction of liability irrespective of fault on the part of the producer of the defective product that caused the damage. Any other type of liability would have created almost insurmountable difficulties of proof to the injured party or might not have covered the most important causes of damage. By striking a fair balance of risk between consumers and producers, the Directive aims at reconciling consumers' interests with the interests of producers' in line with the Single Market policies, notably for the free circulation of goods and a fair competition. It seeks to ensure that injured persons are compensated for damages suffered due to a defective product. Therefore, the Commission considered that liability on the part of the producer irrespective of fault would ensure an appropriate solution to this problem in an age of increasing technicality. The producer could indeed include the expenditure incurred to cover this liability in production costs when calculating the price of the product. 2.1.1.What is the current legal framework? The Directive was adopted on the basis of Article 100 of the EEC Treaty (today Article 114 TFEU). The Directive is considered to create an exhaustive harmonisation for the matters that it explicitly covers. Several matters are however left to national law, as for instance the ceilings for damages resulting in death or personal injury by identical items (Article 16 (1)), the development risk defence (Article 15.1 (b)) or the rules related to non-material damages (Article 9). The intervention logic of the Directive is summarised in the figure below. Three main needs or drivers led to the definition of three strategic objectives, namely the free movement of goods, the protection of consumer’s health and property, and an undistorted competition among market operators in the single market. These three strategic objectives are translated into two specific objectives (common rules on strict liability for producers and the right for consumers to claim damages), representing the operational orientations of the Directive. These strategic and specific objectives are achieved through a set of rules that were hence expected to produce several key results and eventually trigger a set of impacts. To fully understand how the interaction among the above factors works and delivers the promised changes over time, the intervention logic also considers external factors which may influence the performance of the Directive. Figure 1: Intervention logic of the Directive Source: Study for the evaluation of the Directive Since this is the first comprehensive evaluation of the Directive, this evaluation pays specific attention to the impacts of some relevant provisions of the Directive, for instance the definition of ‘product’ or ‘defectiveness’ or the allocation of the burden of proof on the injured person for obtaining compensation. The objective is to assess whether these definitions and provisions are still fit for purpose, especially in the context of the technological developments (i.e. software, Cloud, Internet of Things, advanced robots, automated and autonomous systems). The fundamental elements of the Directive are the following (more information can be found in Annex 6): • "Strict liability"(Article 1) means that producers are liable for damages caused by a defect in their product independently of whether the defect is due to negligence or ill-intent. Producers are liable without fault on their part. • 'Product' (Article 2) means any movable, even though incorporated into another movable or into an immovable, including electricity.

The Court of Justice indicated that the Directive applies to products used while providing any service (Case C-203/99) but that the liability of a service provider does not fall within the scope of the Directive (Case C-495/10) However, the Directive does not prevent Member States from applying national rules under which a service provider using a defective product is liable for damage thus caused. • A product is 'defective' (Article 6) when it does not provide the safety a person is entitled to expect, taking all circumstances into account, including the presentation of the product, the reasonably expected use and the time when the product was put into circulation. This provision also points out that a product may not be considered defective for the sole reason that a better product is subsequently put into circulation. The main concept of the product liability regime is the defectiveness of the product which is, in turn, related to the expected safety of the product. It is irrelevant whether the product is fit for purpose or fit for use. This question of fitness for use belongs to the rules related to the sale of goods, outside of the scope of the Directive. • 'Producer' (Article 3) means the manufacturer of a finished product, the producer of any raw material or the manufacturer of a component part and any person who, by putting his name, trade mark or other distinguishing feature on the product presents himself as its producer, as well as any person who imports into the European Union a product for sale, hire, leasing or any form of distribution in the course of his business. The producer defined as such shall be liable for damage caused to consumers by a defect in his product. The term "producer" is deliberately broad so that an injured person easily can find a liable person. In case of an anonymous product, the supplier will be held liable unless he discloses the identity of the producer. The Directive foresees that where two or more persons are liable for the same damage, they shall be liable jointly and severally, without prejudice to the provisions of national law concerning the rights of contribution or recourse (Article 5). Pursuant to Article 12, the liability of the producer may not, in relation to the injured person, be limited or excluded by a provision of national law limiting his liability or exempting him from liability. ·Exemptions of liability (Article 7): the Directive establishes a catalogue of defences or circumstances that could exclude liability. In particular, the producer shall not be liable if he proves some circumstances, including: a)that he did not put the product into circulation; or b)that, having regard to circumstances, it is probable that the defect which causes the damage did not exist at the time when the product was put into circulation by him or that this defect came into being afterwards; or c)that the product was neither manufactured by him for sale or any form of distribution for economic purpose nor manufactured or distributed by him in the course of his business; or d)that the defect is due to compliance of the product with mandatory regulations issued by the public authorities; or e)that the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of the defect to be discovered (the so-called Development Risk Clause); or f)in the case of a manufacturer of a component, that the defect is attributable to the design of the product in which the component has been fitted or to the instructions given by the manufacturer of the product. Member States are obliged to include in their transposition laws the circumstances listed in Article 7 releasing a producer from strict liability. However, according to Article 15(1)(b), each Member State may provide that the producer shall be liable even if he proves that the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of a defect to be discovered. In the context of defect due to compliance with mandatory regulations, it should be noted that compliance with voluntary standards would not provide a defence. • 'Burden of proof' (Article 4): the injured person is required to prove the damage, the defect and the causal relationship between defect and damage for the purpose of compensation.

The Court of Justice stated, in Case C-621/15, that this proof could be facilitated by accepting national evidentiary rules according to which certain factual evidence may constitute serious, specific and consistent evidence, even if there is no conclusive scientific evidence to the matter. • 'Damage' (Article 9) for the purpose of the Directive means: a)any damage caused by death or by personal injuries, and b)any damage to, or destruction of, any item of property other than the defective product itself, provided that it was intended and used for private use and consumption with a lower threshold of EUR 500. By subjecting the compensation of damages to property to a minimum threshold of a fixed amount (EUR 500), the Directive aims to avoid litigation in an excessive number of cases. The Directive limits the compensation for damage to property for goods for private use or consumption (as opposed to business property, for instance, damage caused to a company car would be excluded). • Time-limits (Articles 10, 11 and 16) According to Article 10, a limitation period of three years shall apply to proceedings for the recovery of damages and the rights conferred upon the injured person pursuant to this Directive expire after ten years from the date on which the producer put the defective product into circulation (Article 11). These time-limits aim at creating a balance between the interests of producers and those of injured parties. They are there to give legal certainty and reduce financial burdens for producers. Any Member State may provide that a producer's total liability for damage resulting from death or personal injury and caused by identical items with the same defect shall be limited to an amount which may not be less than 70 million EUR (Article 16). ·Other liabilities: The Directive does not affect any rights an injured person may have according to the rules of the law of contractual or non-contractual liability or a special liability system existing at the moment when this Directive was notified (Article 13). While the Court clarified that Member States may not maintain a general system of product liability different from that provided for in the Directive (Case C-52/00), it does not preclude the application of other systems of contractual or non-contractual liability based on other grounds, such as fault or a warranty in respect to latent defects (Case C-183/00 and C-310/13). 3.Implementation / state of Play Description of the implementation According to the analysis carried out by the Commission's services on the national measures transposing the Directive, all Member States transposed the Directive, including the amendments brought by Directive 1999/34/EC. Five Member States (Finland, France, Hungary, Luxembourg and Spain) adopted the derogation for "Development risk clause" under Article 15(1) (b), thus providing that the producer shall be liable even if he proves that the state of scientific and technical knowledge at the time when he put the product into circulation was not such as to enable the existence of a defect to be discovered. However, the derogation has not been transposed uniformly across those Member States. Two Member States having adopted the derogation without limitations, thus applying to all categories of producers and products (Luxembourg and Finland), while the others only exclude some categories of producers and products: in Hungary the derogation does not apply to pharmaceutical products; in Spain it does not apply to medicinal products, foodstuffs or food products intended for human consumption. In France the derogation only applies to products derived from the human body. Some Member States have introduced provisions to elaborate some concepts of the Directive: • Austria, Belgium, Cyprus and Czech Republic have introduced a criterion to determine when a product is “put into circulation”,

• Spain, Hungary, Italy, Poland, Portugal and Sweden have set the “reasonable time” by which the supplier of the product must inform the injured person of the identity of the producer or of the person who supplied him with the product where the producer of the product cannot be identified, so as not to be treated as its producer; • Some Member States have added other complementary provisions. Germany, for instance, specified the nature of damages that can be indemnified, while the Netherlands specified the term for recourse against the producer held liable for a defect. The Commission monitored the transposition of Member States. In this context, infringement proceedings were launched during the reporting period for incorrect transposition of the Directive. One was based on the grounds of a national provision providing that the supplier were liable under the same conditions than the producer (Case C-327/05), other on the fact that the thresholds for material damages was lower than EUR 500 (Case C-52/00). In the majority of Member States, the national provisions implementing the Directive were generally applied alongside other regulations on contractual, non-contractual or other types of liability. The coexistence of different product liability rules, which is permitted under Article 13 of the Directive, makes consumer protection more comprehensive as it will explicitly extend to aspects not covered by the Directive. Products about which claims are made According to the information collected by the Study for the evaluation of the Directive, in the reporting period (2000-2016), the Directive was more frequently applied to raw materials, pharmaceutical products and vehicles. 52% of cases relate to one of these categories. As it appears in the table below, raw materials represent 21% of products at stake, followed by pharmaceutical products (16%), motor vehicles (15%) and machinery (12%). The cases submitted to the CJEU concern pharmaceutical products and medical devices (67%), followed by electrical machinery (17%), food and beverages (8%) and vehicles (8%). Each of the other product categories did not exceed 8% of total cases. Also, due to the heterogeneity of the raw materials and machinery categories, the products in question varied substantially. Concerning new technological developments, the study could only identify one case in Bulgaria invoking the Directive where the claimed damage concerned specifically data but no material damage. The case was about a storage unit, a product in which software and apps from different sources can be installed after purchase. The damage claimed was the loss of stored information, due to defects in the external hard disk. The claimant, who claimed for a compensation of around €800 (1,600 BGN), was not able to prove that the information had been stored on the external disk prior to the occurrence of the defect and also to prove the damages caused to him by the loss of the information. Table 1: Recurrence of product categories subject of claims over 2000-2016 Product categories Total % Raw materials 116 21% Pharmaceutical products 88 16% Vehicles 83 15% Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof 68 12% Miscellaneous manufactured articles 44 8% Chemicals 40 7% Agricultural goods 38 7% Electrical machinery and equipment and others 33 6% Foods & beverages 16 3% Clothing and accessories 11 2% Cosmetics 10 2% Total 547 100% Source: Study for the evaluation of Directive 85/374/EEC According to the available information, no recurrent types of defects have been reported in the mentioned categories of products. How are injured parties making use of the Directive? The Directive does not contain specific provisions in respect of access to the courts for injured parties. Injured parties can settle claims for damages following the procedural rules based on private law in the different legal systems of the Member States, such as litigation in court but also through direct negotiation or other mechanisms as, for instance, arbitration or mediation. The information collected by the Commission for the application reports and for the evaluation shows that, in general, the parties settle product liability related claims through direct negotiation in 46% of cases, whereas 32% are resolved in court and 15% through mechanisms for alternative dispute resolution. Only a small share (7%) of claims under the Directive is decided through other means, such as settlements with the insurer of the responsible entity. According to the desk research performed by the contractor, the majority of claims are settled: ·By direct negotiation between interested parties in Cyprus, Czech Republic, Croatia, Hungary, Italy, Portugal and Sweden, ·Litigation in a national court in Estonia, Finland, France, Poland and Romania,

·Through a dispute resolution mechanism in Bulgaria, Greece and Lithuania. Figure 2: Systems used to settle the claims, EU28, average percentage Source: Study for the evaluation of Directive 85/374/EEC This desk research performed by the contractor is confirmed by data gathered from consumers and producers responding to the open public consultation related to the evaluation of the Directive. All categories of stakeholders indicate how extrajudicial arrangements represent a common way to settle cases, and that most cases are settled out of court. No significant differences appear when firms are broken down by size. Most producers have a general insurance contract covering different risks, including the cost of compensation in case of defective products. Only a small share has a specific insurance contract covering the risks related to the Directive. According to the findings of the Study for the evaluation of the Directive, 798 claims based on product liability rules were brought to national courts in the Member States during the period of 2000 to 2016. The graphic below shows that the number of claims brought to court each year has nearly doubled over the period: while it was equal to 30 in 2000, in 2016 it reached 59. Figure 3: Number of claims per year, adjusted per new Member State entries Source: Study for the evaluation of Directive 85/374/EEC In the majority of cases, the producer sued was the manufacturer of a finished product. A significant role has been played also by suppliers and importers: as shown in the figure below, they have been brought to court almost half as many times as the manufacturers of finished products. Figure 4: Number of times when producers have been brought to court from 2000-2016 Source: Study for the evaluation of Directive 85/374/EEC

According to the Study, claimants quite often invoke the national law implementing the Directive, but tort or contract law is also used to decide on compensations for defective products. The legislation invoked by the injured persons to raise a claim was, on average, contract law in 68% of cases, general tort law in 21% of cases, similar legislation to that implementing the Directive in 7% of cases, specific legislation in 3% of cases, and another legislation in 1% of cases. Around 60% (476 out of 798) of claims for defective products were successful for injured parties from 2000 to 2016. The other cases were decided in favour of producers. It seems that there is no particular difference in the level of success of injured parties if the case is settled in court rather than out of it. 4.Method Short description of methodology The evaluation was carried out according to the Commission’s evaluation techniques and triangulation methods to ensure robustness of the information obtained. As much as possible, conclusions are based on results of the consultation activities, official statistics and studies. The evaluation followed several steps to collect both qualitative and quantitative data from the relevant stakeholders, and national authorities. The following criteria and corresponding questions were identified by the Commission. Effectiveness: ØTo what extent does the Directive meet its objective of guaranteeing at EU level the liability of the producer for damage caused by a defective product and in turn, contributes to an effectively operating internal market for goods and to the protection of the consumer? ØIn this case, which are the main elements that have contributed to meeting these objectives? ØAre there any aspects/provisions/definitions that have rendered certain aspects of the Directive more or less effective than others, and if there are, what lessons can be drawn? ØHow many cases have been brought to courts on the applicability of the Directive? Which was the issue in question and the ruling? ØHas technical and technological progress and, in particular the development of connected objects, affected the effectiveness of the Directive? ØWhat are, if any, the consequences or effects (either positive or negative) that were not originally planned? Efficiency: ØWhat are the regulatory (including administrative) costs for relevant stakeholders stemming from the Directive and how do they compare to the benefits? Are the benefits achieved at reasonable costs (with focus on SMEs)? ØAre the benefits achieved at reasonable cost for consumers? Does the Directive strike the right balance between the strict liability of the producer and the burden of proof placed on consumers? ØWhat factors influenced the efficiency of reaching the achievements which the Directive sets out? Coherence:

ØTo what extent are there complementarities between the Directive and any other Union action, in particular initiatives in the context of DSM? To what extent are they coherent? ØTo what extent is the Directive coherent with wider EU policy, such as the free movement of goods and/or the protection of the consumers, including EU product safety legislation? ØTo what extent is the intervention consistent and coherent with the EU rules on consumer protection in the area of contractual liability (including new Commission initiatives in the digital context )? Relevance: ØTo what extent do the initial objectives correspond to the current needs, including new needs created by innovative products? ØTo what extent is there a need to clarify or modify the concept of product, producer, defective, damage or the category of exemptions in the Directive? ØHow well is the term "defective" in the Directive adapted to new technological or scientific advances such as apps and non-embedded software, advanced robots and autonomous/intelligent systems? ØHow well adapted is the intervention to the changing market environment: often blurred distinction between private and professional use of products and the servitisation of products when products and services are often sold and consumed together? ØHow has the strict liability been allocated in case of damage caused by a product which is interconnected with other products or services in the IoT? Why? ØHow has the strict liability been allocated when the damage comes from the unintended behaviour of an autonomous system or an advanced robot? Why? EU added value: ØWhat is the added value of the Directive for stakeholders (manufacturers, including software developers and economic operators in the DSM, and consumers)? ØTo what extent does the issue of strict liability addressed by the Directive continue to require action at EU level? ØWhat would be the most likely consequences of reducing the scope of the existing EU intervention? The study for the evaluation of Directive 85/374/EEC was carried out by an external consultant. External study for the evaluation An external supportive study on the Directive aimed to assess its functioning and performance and to identify potential shortcomings and whether improvements should be envisaged was launched. It covered the time period of 2000-2016 and the Directive’s application in the 28 Member States. A specific focus lay on its application with regards to new technological developments, such as the Internet of Things and autonomous systems. The assessment was done according to five criteria: effectiveness, efficiency, coherence, relevance and EU added value. During the preparation of the study and the evaluation, the consultant encountered difficulties in obtaining all the relevant data from the national courts and from the economic operators on its implementation. Despite the big effort and the mitigation measures to gather more feedback from stakeholders, the rate of responses remained low for the Open Public Consultation and the online targeted survey. In particular, the conclusions related to the effectiveness and the efficiency parts, are based on qualitative rather than quantitative analysis. This was mitigated by the computer assisted telephone interviews, which were addressed to 457 stakeholders, and the face or telephone interviews which provided an additional feedback from stakeholders. These, together with the desk research including studies or literature, were used to validate the collected data and results.

The most important tools used the for data collection were: 4.2.1.Desk research and literature review Desk research was mainly conducted by the consultant focused on: ·Judgements of the Court of Justice and national case law related to the Directive; ·The national legislation transposing the Directive in the 28 EU Member States; ·European Union legislation most relevant to product liability (in particular, product safety and consumer protection legislation); ·Literature relevant to the Directive, its policy context and the main issues related to its implementation. Mostly, this comprised academic literature. The information gathered in preparation of the reports on the application of the Directive also served to identify and compare recurrent issues in in the application of the Directive since its entry into force. Furthermore, the Lowels report of 2003 on the Directive as well as the reflections provided by the Study on the emerging issues of data ownership, interoperability, re- usability and access to data, and liability were taken into consideration. The latter specifically contemplates matters related to the liability of the Internet of Things, robots and autonomous systems. Based on legal analysis, it highlights possible problems, their causes and effects and possible ways of dealing with liability in the near future. 4.2.2.Stakeholders consultation The stakeholders' consultation followed the consultation strategy adopted for the evaluation. The consultant performed the following actions: ·An Open Public Consultation (10 January 2017 to 26 April 2017) addressed to any interested stakeholders. The consultation ran 12 weeks on the Commission web-site Your-Voice in Europe and consisted of three different questionnaires for producers/insurers; consumers; and national authorities, civil society and academia. All three questionnaires were prepared by the Commission's services and were available in all official languages. The Commission received 113 online replies and 14 position papers that were analysed by the consultant. ·An online targeted survey (3 April 2017 to end May 2017) aimed at collecting stakeholders' specific feedback on the application and performance of the Directive by means of five different questionnaires for producers, suppliers and related industry associations; consumer associations; insurers and related associations; public authorities; civil society and technical experts working in judicial matters. More than 400 stakeholders were consulted but only 26 complete replies were submitted. ·A computer-assisted telephone interviewing (CATI) (29 May to 14 June 2017), consisting of one questionnaire with closed questions targeted to business aimed at collecting feedback on producers’, importers’ and suppliers’ experience with the Directive. 457 stakeholders responded. ·61 telephone or face interviews (3 May to end July 2017) with representatives from Industry and SMEs across all sectors, consumers, insurers, academia, think-tanks, consultants, public national administrations and also EU officials from the European Parliament and from the Commission. For the purpose of collecting data, the consultant set up a network of correspondents in the Member States with the aim to gather information on the Product Liability Directive for each Member State. The Commission organised a Conference on the Evaluation of the Product Liability Directive that took place on 20 October 2017 in Brussels (Belgium). The Conference was addressed to Member States and different categories of interested stakeholders, in particular to those that participated in the public consultation. The purpose of the Conference was to have an exchange of views on the preliminary results of the external Study.

In addition to the data collection tools foreseen in the consultation strategy for the evaluation of the Product Liability Directive, further information was gathered through the activities launched in the context of the Building a European Data Economy Communication. They provided supplementary information from stakeholders and Member States on their views on the adequacy of the Directive for the new technological developments. Among those: ·Liability part of the Open public consultation "Building a European Data Economy" (10 January to 26 April 2016). ·Workshop with the Member States on the emerging issues of the data economy follow-up to the Communication 'Building a European Data Economy', 31 May 2017, Brussels, Belgium. ·Workshop on "Liability in the area of Autonomous Systems and Advanced Robots/Internet of Things-Systems", 13 July 2017, Brussels, Belgium. ·Meeting of the Internal Market Advisory Committee (IMAC), on 23 October 2017, Brussels, Belgium on Data Economy (session Liability). The preliminary results of the evaluation study were discussed with member States at this occasion. In addition, the Commission's services participated in the following events: ·Seminar "Reviewing the Product Liability Directive" organised by the British Institute of International and Comparative Law of the University of London (Product Liability Forum), 14 June 2017, London, United Kingdom. ·OECD Conference on Artificial Intelligence- AI: Intelligent Machines, Smart Policies, 26-27 October, Paris, France. Data analysis To assess the functioning and performance of the Directive and to evaluate whether it achieves its objectives and is able to deal with new technological developments, a number of Evaluation Questions (EQs) addressing those identified by the Commission have been used to guide the analysis of the contractor: • Effectiveness: whether and to what extent the Directive’s objectives in terms of protection of consumers, undistorted competition and free movement of goods have been achieved so far at both national and EU levels (EQs 1-3). • Efficiency: whether the Directive has proportionally delivered its results in terms of resources used, cost and benefits for stakeholders (EQs 4-8). • Coherence: whether the Directive is consistent with other relevant EU legislation and to what extent the divergences (if any) prevent the achievements of its objectives (EQs 9-10). • Relevance: whether the objectives of the Directive still correspond to current problems, needs and challenges. In particular, the study assessed to what extent the scope and mechanisms of the Directive allowed addressing the main issues arising from new technological developments (EQs 11-15). • EU Added value: to what extent the results of the EU action are additional to the value that would have resulted from action at Member State level (EQs 16-20). Limitations and robustness of findings Several limitations were encountered for the evaluation of the Directive. First of all, it was impossible to compare the current situation with the situation before the entry into application of the Directive as the overall economic and legal environment of the EU has fundamentally changed since the 1980s and as no data is available from this time. It was also difficult to obtain comprehensive data on the use of the Directive in court and in out of court settlements in the 28 Member States during the period concerned by the evaluation (2000-2016). In particular, the absence of monitoring at national level and the special features of each Member States (for instance, only some of them have public databases or registers) rendered the research and collection of information at national level very difficult. Therefore, the collected data may be incomplete and not fully reliable. Especially the number of cases resolved in court cited in the study was retrieved from the information found by the network of lawyers collecting data for the purposes of the desk research conducted in the Study. This number therefore needs to be treated with caution, as the information collected depended on specific features of each Member State and of the public databases available. For instance, the French cases were found through the main public legal databases that do not list first instance decisions. Therefore, the analysis for France was limited to the decisions of the courts of appeal and the Supreme Court between 1 January 2000 and 31 December 2016. For other Member States, the cases were retrieved from commercial and public databases that do not necessarily report all cases. The assumption is therefore that this number is not fully representative and underestimates the real dimension of claims based on product liability rules in the European Union.

Out-of-court settlements, including arbitration awards, mediations and direct negotiations were either confidential or not listed in official databases. The evaluation therefore bases itself on the data available for each Member State which is not likely to provide a complete picture of the out-of-court settlements for the reasons mentioned. The consultation strategy originally foresaw a balanced feedback from different categories of stakeholders, including a geographical balance and a broad spectrum of products. However, while this has not been possible to achieve across the board and the data collected should therefore not be regarded as statistically representative, the targeted interviews have mitigated this to the extent possible. To complement the data collected, the Commission also participated e.g. in the Product Liability Seminar organised by the Product Liability Forum and organised the Product Liability Conference to discuss and verify the preliminary results of the external evaluation study. Finally, the poor response on the targeted survey hampered the quantification of the costs and benefits. These costs and benefits were qualitatively evaluated. The Product Liability Directive’s provisions were mapped and discussions developed on whether, compared to the situation previous to its entry into force (i.e. in the absence of it), these provisions entail a cost rather than a benefit for the relevant stakeholders. All elements provided by stakeholders were used for the quantification of costs and benefits, where possible. Moreover, three cases were analysed to provide quantitative examples of the costs placed on producers and consumers due to the Product Liability Directive. However, the limited amount of information provided on this aspect did not allow a proper and reliable quantification of costs and benefits to be made. Despite these shortcomings, a picture of the functioning and performance of the Product Liability Directive emerged. For new technological developments (apps and software, Internet of Things connected objects or autonomous systems) on the other hand, there was limited information available at this stage so that no sufficiently robust conclusions can be drawn and further investigation and analysis are needed. 5.Analysis and answers to the evaluation questions Effectiveness: Evaluating to what extent the Product Liability Directive achieved its objectives EQ. To what extent does the Directive meet its objective of guaranteeing at EU level the liability of the producer for damage caused by a defective product and in turn, contribute to an effectively operating internal market for goods and to the protection of the consumer? EQ. What are, if any, the consequences or effects (either positive or negative) that were not originally planned? The Directive is expected to ensure the right of consumers to claim damages suffered from defective products, and to create a common and harmonised set of rules on strict liability. This should enhance the protection of consumers’ health and property, the free movement of goods, and undistorted competition among market operators in the Single Market, thus producing a harmonised level-playing field across Member States. While the allocation of the burden of proof foreseen by the Directive appears to have rendered claims particularly difficult for consumers, in particular for complex products, no other unintended consequences or effects have been identified. 5.1.1.Effectiveness towards harmonisation of strict liability rules and an effectively operating internal market The analysis of national legislation transposing the Directive carried out by Commission's services shows that the Directive has been uniformly transposed in Member States. Therefore, compensation for damages caused by defective products on the basis of strict liability is uniformly available to injured parties across the EU. According to the reviewed literature in the Study, the harmonisation of the rules and the judgments of the CJEU contributed to a harmonised environment for businesses by preventing distorted competition in the internal market. Stakeholders have shared this view. In the context of the consultation activities for the evaluation, most stakeholders deem the Directive effective in providing a level playing field across the European Union, by defining the same liability rules in all Member States they export to, which is deemed to be a strong advantage. Source: Open public consultation

The majority of stakeholders were aware of injured parties' right to compensation for damage caused by defective products. Source: Open public consultation EQ. How many cases have been brought to courts on the applicability of the Directive? According to the Study, 798 claims based on product liability rules were brought to national courts in the Member States during the period 2000 to 2016. In the very large majority of cases identified, the product at stake had been produced in the same Member State where the claim was brought and the defendant was in most cases the manufacturer of a finished product (on average, 81% of claims for defective products); only 3% the cases on average concerned products originating from another Member State, with 0% involving products from third countries. While the Directive is considered to level the playing field in the EU, the study could only identify 21 cross-border cases (i.e. 3% of the total). No definite reasons were identified for this in the Study. Lack of knowledge of procedural rules as well as difficulties relating to possible language barriers were identified as possible reasons that could discourage consumers from bringing a claim against a defendant in the jurisdiction of another Member State. Role of specific rules in contributing to the effectiveness of the Directive EQ Are there any aspects/provisions/definitions that have rendered certain aspects of the Directive more or less effective than others, and if there are, what lessons can be drawn? The Directive pursues its objectives through its main provisions. These therefore need to be assessed in terms of how and to what extent they affect the effectiveness of the Directive. According to the analysis of the provisions implementing the Directive, the results of the consultation activities in the context of the evaluation, mainly the open public consultation, as well as other desk research carried out for the Study, it appears the following. ·Product The Directive applies to a broad range of heterogeneous products; from agricultural products to highly sophisticated and complex industrial products. This broad notion was considered to render the Directive future proof by the open public consultation’s respondents. As such, the Directive has stood through more than 30 years of technological evolution. The products that could be found in the European market in 1985 where the Directive was adopted may not present the same technical complexity or characteristics as they do today, but they continue to be covered by the notion of product set out in the Directive. However, with the increasing overlap between products and services, it has been highlighted e.g. by the Study on emerging issues that the distinction between products and services for the purpose of the Directive may become difficult in the future. A clarification of the concept “product”, e.g. with regards to software, may therefore contribute to improving effectiveness. This needs further assessment.

Source: Open public consultation ·Damages The Directive applies to damages caused by death or personal injuries and to private property. A threshold of EUR 500 applies. The Directive does not prejudice compensation for pain and suffering and other non-material damages under the benefit of national provisions. The CJEU has stated that a Member State may not restrict the types of material damage for which claims can be brought forward (Case C-203/99) and this does not seem to be under discussion in Member States. Claimants more often seek compensation in court for damages to physical well-being. Even if there is no clear evidence to explain this pattern, one may conclude that damages to physical well-being have a bigger impact on injured persons and such claims are not subject to a financial threshold – and most likely concern larger sums anyhow. With regard to material damages and, in particular to the distinction between private and professional use, evidence gathered by the evaluation suggests that the claims have been brought at the national level irrespectively of the type of use: the number of successful claims even if the item was subject to professional use is higher (150 cases) than the number of claims rejected because the injured party did not use the item of property for his own private use or consumption (23 cases) . Nevertheless, concerning material damages, the effectiveness of the condition on the EUR 500 threshold seems to be questionable: Firstly, there are concerns as regards its national interpretation. Some Member States transposed Article 9 of the Directive interpreting the EUR 500 threshold as a threshold which, when reached, would allow for pursuing compensation for the entirety of the damage suffered, whereas others (e.g. France, Germany, Netherland and Spain) transposed it as a deductible, i.e. as a sum to be deducted from the compensation owed without regard to the scale of the damage. This divergence in the interpretation may create a different degree of protection of the injured party across Member States. Secondly, according to the information obtained, in four out of five cases a compensation is not claimed as the damage is below the threshold. This could explain why this is rarely cited as a reason for rejecting a claim in court and why most cases relate to physical well-being. Therefore, despite the fact that the Directive seems to be effective and particularly for damages to well-being, the EUR 500 threshold represent, according to consumer representatives, an obstacle for the full effectiveness of the Directive to cover claims for compensation in many cases of material damage since claims for lower material damages cannot be introduced. ·Defect and burden of proof Issues related to the burden of proof raise significant concerns mostly among consumers . Claimants find it particularly difficult to prove the defect and the link between defect and damage in court. The burden of proof is the central component of the Directive that triggers the right for compensation. According to the Study for the evaluation, the most frequent reasons to reject claims relate to the proof of the defect and its link with the damage, which together account for 53% of the cases of rejection. Difficulties in applying the definition of defective product and subsequently in proving the link between damage and defect seem to be particularly relevant in cases of complex products, such as pharmaceuticals. For those products, the injured party need to gather expertise to be able to prove the lack of safety of the product and the link to the damage suffered. It is therefore probably not surprising that all the CJEU preliminary rulings concerned these types of products and many dealt with the burden of proof in recent years. According to victims of medicines (Stevens-Johnson Syndrome, Valproate or Distilben) the definition of "defect" is not suitable for pharmaceutical products because the leaflet’s information about the risk of serious adverse effects exonerates the producer for these effects. Therefore, it is extremely difficult for such an injured party to demonstrate the causality and the defect of a medicine in connection with the damage. Either the adverse effect of the medicine is unknown and it is therefore hard to provide sufficient scientific elements to establish the link (causality) and the development risk clause may be invoked, or it is known and was therefore published in the leaflet, which means that the medicine was not defective. Injured persons potentially find themselves in a Catch-22 situation where they have to bear the full cost of damages without access to compensation. In this respect, while the definition of defect, damage and their link seem to be effective for tangible products in general, the distinction between a known risk and an unexpected risk – particularly for pharmaceutical products – may be less clear. Exceptions of the producer According to the Study, most respondents to the public consultation find the exemptions from liability (such as compliance of a product with mandatory rules or the state of scientific and technical knowledge when the product was marketed) too advantageous for the producer. However, their effect in practice appears to be rather limited.

Nonetheless, there are arguments that the development risk clause has played an important role in ensuring the balance between consumer expectations about product safety and fostering innovation in Europe, well beyond its limited use in courts. Furthermore, the development risk clause could represent a factor in determining the relative stability of product liability insurance costs for European industry and keeping litigation at a reasonable level. On the other hand, the evaluation study did not reveal remarkable differences between Member States that derogated from this clause and those who did not. All in all, despite some difficulties expressed by stakeholders, there is no clear evidence on the fact that exceptions represent an obstacle to an effectively internal market, neither to consumer protection. ·Limitation and expiry period During the consultation activities, the three-year period to lodge a claim has been challenged by stakeholders: on average, 41% of the businesses and around a third of the stakeholders declared this limitation should be updated in light of recent technical developments. Moreover, the majority of stakeholders expressed difficulties in observing the three-year period for making a claim to recover damages in case of complex products, such as pharmaceutical products, that need expertise and research to find the defect and the link to the damage. As for the 10-year period, the Study for the evaluation has identified issues mainly related to its relation with the concept of “put into circulation” which has been addressed in three CJEU judgments. Besides the clarifications brought by these judgments, some Member States (Austria, Belgium, Cyprus and Czech Republic) have determined when a product is “put into circulation”. The 10-year period starts from the moment a producer puts the product into circulation. For products that remain in the distribution chain for a long time or deploy their effects over a long time span, the protection of the consumer may be reduced in comparison with his or her possible expectations: this is particularly the case of pharmaceutical products. During the Product Liability Conference of 20 October 2017, representatives of victims of medicines (Stevens-Johnson Syndrome, Valproate or Distilben) raised the issue of the unsuitability of the 3- and 10-year limitation periods. The asymmetry of information between patients and firms regarding adverse effects means that victims may take more than three years after the onset of a serious adverse effect to prove that the product was defective and that it is related to their damage. Moreover, victims of long-term adverse effects (e.g. Distilben affects subsequent generations) cannot be compensated within the 10-year limitation period following the entry of the drug onto the market. However, the number of claims rejected because of the expiry of the limitation period appears to be residual. This suggests that, in general, the limitation periods do not hamper the effectiveness of the Directive, except for certain pharmaceutical products for which some doubts can be raised on the basis of the elements mentioned above as highlighted in the Product Liability Conference of 20 October 2017. ·Most important difficulties to obtain compensation According to the information collected for the previous Commission's reports on the application of the Directive, it appeared that the main difficulty for the injured party to obtain compensation was the burden of proof, that is, to prove the defect in the product and the link between the defect and the damage. The desk research undertaken in the context of the Study showed that the most frequent reasons for rejecting a claim for a defective product are related to the burden of proof, and specifically to: i) prove the defect (32% of cases) and ii) prove the link between the defect and the damage (21% of cases). These two concern 53% of the cases of rejection. The causes of rejection connected to liability exemptions for the producer appear to be the least frequent (overall equal to 10% of cases). Among these, the most recurring liability exemption is the Development Risk Clause of Article 7 (e) (4% of cases). Other reasons for rejection are the expiration of the three-year limitation period (4%), the fact that the injured person did not use the product mainly for private use/consumption, and that the damage was caused also by the fault of the injured person (each equal to 7%). The following figure shows the total number of cases rejected and the related reasons. Figure 5: Reasons for rejection of a claim, EU28 Source: Study for the evaluation of Directive 85/374/EEC This is confirmed by the information collected from the open public consultation, which indicates that the main obstacle for consumers to succeed in their claim is the burden of proof of the defect of the product and the link with the damage. In addition, many consumers find it difficult to observe the three-year period for making a claim to recover damages, to exceed the threshold of EUR 500 for property damages or to distinguish between private and professional use of a product.

The burden of proof appears to be particularly problematic in the pharmaceutical sector as the claimant must use scientific evidence showing that the risk is known and because the producer can dismiss liability by indicating the risk in the product leaflet. Accordingly, the associations of victims of medicines consider that the three-year and ten years expiry period are too short for a patient to collect all the relevant information and documentation to prove the link between product and damage. In addition, the adverse effects of medicines may only become evident a long time after consumption. The Court of Justice has played an important role in minimising these difficulties without a reversal of the burden of proof established by the Directive: Where a product belongs to the same group or forms part of the same production series (such as pacemakers and implantable cardioverter defibrillators) having a potential defect, they may be classified as defective without any need to establish the defect of the individual product. The cost of the operation that is necessary to remove such a potentially defective product is considered damage within the meaning of the Directive (Cases C-503/13 and C-504/13). Similarly, the Court ruled that national rules granting consumers the right to require the manufacturer of a product to provide them with information on the adverse effects of that product can be accepted as they fall outside the scope of the Directive (Case C-310/13). Such rules make it easier for the injured person to establish the liability of the producer. Also, the Court accepted national evidentiary rules whereby certain factual evidence may be considered by the national court to constitute serious, specific and consistent evidence of a defect of a product and the causal link with the damage, even if there is no conclusive scientific evidence to the matter. This method should not nevertheless result in a reversal of the burden of proof (Case C-621/15) but should be recognised as being an essential element, especially with respect to adverse effects of pharmaceutical products, where evidence often is inconclusive, this may facilitate matters for injured persons. A further issue which proved to be difficult to interpret relates to the precise identification of the time when a product is “put into circulation”. This was the subject of three rulings of the Court of Justice and appears to be particularly relevant for the pharmaceutical sector or for medical devices. In this regard, it is relevant to recall that four Member States (i.e. Austria, Belgium, Cyprus and Czech Republic) have introduced provisions to define when a product is put into circulation. The CJEU stated that a medical device is deemed to be “put into circulation” when it is used to provide the relevant medical service, and the damage caused results from that service (Case C-203/99). In a second case concerning vaccines, the CJEU ruled that a product is considered to be put into circulation when it is taken out of the manufacturing process and enters a marketing process through which it is offered to the public to be used and consumed (Case C-127/2004). In a third case, the CJEU clarified that the expiration term of 10 years starts from the moment when the product has been put into circulation by the producer and not by the retailer (Case C-45/13). 5.1.2.Effectiveness towards the right for consumers to claim damages and consumer protection According to the results of the open public consultation, more than 85% of the respondents consider that the Directive is advantageous for consumers and producers because consumers can enjoy the same rights wherever they are in the European Union and the product liability rules covered by the Directive are the same in all the Member States. Source: Open public consultation In addition, 68% of respondents to the open consultation believe that the Directive strikes a fair balance between the interests of producers and those of the consumers. This last view, relating to the fair balance between the interests of producers and those of the consumers, is also expressly stated in most of the position papers. Source: Open public consultation However, when contrasting this information with targeted surveys and interviews, different stakeholders expressed specific views which painted a more differentiated picture. With a view to justify their position, stakeholders refer to different provisions of the Directive to support their views. These views are not new; they have been expressed by the stakeholders in the context of the preparation of the three last Commission's reports on the application of the Directive. Overall, given that the Directive represents a trade-off that balances different interests, one can identify opposing views between consumers and producers when it comes to the effectiveness of certain concepts. For most consumer associations, the Directive is not fully effective, as they consider producer's interests to be better protected than those of consumers. Similarly, consumers believe that the Directive is not always effective in protecting consumers mainly because: ·claimants have to prove the defect, the damage and their link, which can be burdensome in some fields, as for instance pharmaceutical or complex products, (these arguments have also been raised with regards to new technological developments),

·the EUR 500 threshold aims to avoiding litigation for small claims, ·compensation of the damage only if the item of property was intended and used for private purpose and not when the defective product was used for professional purposes; ·the time limit of 3 and 10 years to obtain compensation is too short in cases of complex products that require more expertise; ·the exceptions to liability in favour of the producers are too advantageous (such as the development risk clause). Conversely, producers deem the Directive as effective in protecting consumers because: ·claimants may request compensation without need to prove the fault or negligence of the producer, ·clear identification of the operator(s) to be held liable. These different views also manifest themselves in academic literature. Some suggest that the Directive contributes to consumer protection through the right to claim damages suffered by defective products. Other scholars, on the other hand, consider the Directive’s protection less effective as producers are rarely required to compensate victims -especially in the field of pharmaceuticals. Based on the data available for the Study for the evaluation, it appears that the question related to the burden of proof (defect, damage and their link) as well as the EUR 500 threshold do indeed have an effect in terms of consumer protection, while the impact of other factors is less important. Courts have been accepting claims concerning products that were not intended for private use. The ratio of liability claims per person in those Member States that have derogated from the development risk clause is only marginally higher than in those Member States that have not. Rejections of claims based on the time limitations appear to be residual, even though clarification concerning the notion of “putting into circulation” may prove useful and avoid conflict. In fact, most claims brought to court, appear to be successful for the injured party, while in general claims are rather settled out of court. An interpretation of this is that producers “fear” the Directive and prefer to settle out of court, rather than facing trial. Overall, there appears to be agreement that the Directive is effective to some extent in contributing to consumer protection and a level playing field across the EU. However, certain provisions notably the burden of proof and the EUR 500 threshold may create difficulties to an effective application of the Directive. 5.1.3.Effectiveness vis-à-vis new technological developments EQ. Has the technological progress and, in particular the development of connected objects, affected the effectiveness of the Directive? The acceleration of interconnectedness and autonomy of technology raises questions on whether the Directive will continue to be effective in a scenario where these technologies will become more widespread and advanced. In the open public consultation around 50% of producers and consumers stated that the Directive is adequate to cover their own needs when dealing with innovative technological developments. This opinion was also expressed in the context of the consultation activities launched in the context of the initiative "Building a European Data Economy".

Source: Open public consultation However, 45% of producers, 58% of consumers and 44% of the other respondents (including public authorities and civil society) consider that for some products (e.g. products where software and applications from different sources can be installed after purchase, products performing automated tasks based on algorithms, data analytics, self-learning algorithms or products purchased as a bundle with related services) the application of the Directive might be problematic or uncertain in particular due to their complexity and degree of automation. Source: Open public consultation Source: Open public consultation Feedback from stakeholders shows that a large majority, mostly producers and insurers, believe there is no need to update the Directive vis-à-vis new technological developments. Businesses consider contractual relations to be appropriate to deal with business to business liability questions. For business to consumer relations, they do acknowledge that difficulties may arise in the future, e.g. on 3D Printing or autonomous systems. On the other hand, the majority of consumers believe that the current rules are not fit for new technological developments. At the Conference on Product Liability, business associations reiterated that complex value chains and automatisation are nothing new and that the Directive is in fact technology-neutral. Only completely autonomous systems, such as self-driving cars might eventually require regulatory changes. They cautioned against premature regulation without concrete evidence of real life problems. It was for example highlighted that in terms of liability effects there is no difference between using a 3D printer to produce product parts or finished products, and using other more traditional machinery or manufacturing methods. Therefore, businesses considered that, at this stage, the directive is fit for purpose and that any changes would be premature as some technologies such as fully autonomous systems are not even marketed yet. Representatives of insurers agreed that the directive is suitable, but that research on what safety is with regards to emerging digital technologies is needed. Consumer organisations were in favour of a revision of the Directive. Also, most Member States have expressed caution against precipitated legislative action on several occasions; for instance, during the meeting of the Internal Market Advisory Committee (IMAC) of 23 October 2017 or at the Workshop with the Member States on emerging issues of the data economy of 31 May 2017. Member States indicated that they prefer collecting robust evidence of shortcomings before amending the current legal framework. It appears that there is a need to ensure legal certainty for consumers and producers to support innovative businesses in this area. The Study on emerging issues identifies a set of several main specificities of new technologies that challenge the product liability framework. These refer notably to changing complexities over the lifetime of a product that are no longer controlled by the producer (this can be autonomous, self-learning behaviour or added software applications). These technologies can also become increasingly intangible. For the Directive, this raises mostly questions in terms of whether its current concepts are still relevant to grapple these types of situations.

Source: Open public consultation In summary, due to the lack of concrete cases and experience with damages caused by new technological developments, the Directive’s effectiveness remains a highly contested subject. Any assessment has to be purely abstract and further evidence gathering and reflection would be necessary to arrive at a sound conclusion on the Directive’s (in)effectiveness in this respect. 5.1.4.Main drivers to the objectives achieved EQ Which are the elements that have contributed to meeting the Directive's objectives? The main drivers to the effectiveness of the Directive are related to the level of uniformity in its implementation, its role as “safety net” within a broader legislative framework to protect consumers, the level of generality of some provisions that allow for flexibility and wide coverage, and the high level of awareness of stakeholders. Firstly, the principle of strict liability on the producer in case of damages caused by a defective product is applied in all Member States with a reasonable uniformity in its implementation. Also the number of cases in comparison to the population of each Member State does not vary so much that one might suspect that in some Member States there are interpretations materially more favourable to the injured persons than in others Secondly, the Directive is fully integrated into the wider EU legislative framework. Even if the number of case law examples identified in the European Union from 2000 to 2016 can be seen as low, these data need to be interpreted in light of the fact that the Directive acts as a “safety net” in the framework of European legislation. Indeed, there are several layers of protection which coexist and contribute to reducing the need to invoke the Directive: first, the safety legislation, both general and sectorial, guaranteeing the marketing of safe products in the internal market; second, the system of market surveillance; third, the contractual obligations and the guarantee available to the consumer. In addition, the Directive does not exclude any other compensation claim based on contractual or other extra-contractual liability. Thirdly, some provisions of the Directive are general enough to cover a wide variety of situations: ·Stakeholders’ awareness of the right to seek compensation for damage caused by a defective product increases the Directive’s effectiveness. ·The Directive does not provide indications on the systems to settle claims. Consumers are free to choose the most effective system (either direct negotiation with the person or entity held liable, alternative dispute resolution methods such as mediation and arbitration, or litigation in court. This is one of the strengths of the Directive, allowing for adaptation to national contexts (including their judicial systems) and specific circumstances. ·The concepts of product and defect cover a vast range of sectors and situations. The case law shows that almost any kind of movable can be the subject of product liability. All in all, evidence suggests there are no difficulties in interpreting what a product is, even though this may become less evident if there are services that affect the functioning of the product with resulting damage. In addition, a clarification of the concepts of damage, in particular of economic damages, and defect may nevertheless render the Directive more effective in practice. ·The methods for compensation are not defined in the Directive; producers are free to use the most useful way of covering their liability. In fact, most producers have a general insurance contract covering different risks, including the cost of compensation in case of defective products. 5.1.5.Conclusion on effectiveness The Product Liability Directive appears overall to have met its objectives of guaranteeing the producer’s liability for damages caused by a defective product, and, in turn, the protection of consumers, while ensuring an effectively operating internal market for goods. Overall, the Directive has reached a reasonable uniformity in its implementation and the set of its rules makes it effective. However, certain concepts of the Directive, would benefit from clarification to ensure legal certainty. This relates, as highlighted above, to the concept of product in the context of new technological developments with regards to the increasing overlap between products and services as well as with regards to software, the concept of damage or the concept of defect in particular in relation to complex products such as pharmaceuticals. In addition, with regard to emerging digital technologies further evidence is necessary.

Efficiency EQ. What are the regulatory (including administrative) costs for relevant stakeholders stemming from the Directive and how do they compare to the benefits? As pointed out, the data collected for the purpose of the evaluation should not be regarded as complete. This section is therefore rather based on qualitative than quantitative analysis. 5.2.1.Analysis of costs The relevant stakeholder groups affected by the Directive and its related obligations are producers, consumers, and Member States authorities. The main costs entailed by the Directive are mapped in table below, explained more in detail in the following paragraphs. Types of cost Provision Stakeholder affected Enforcement costs (e.g. court fees, lawyers’ and experts’ fees) Given that the Directive is a private law instrument, it leaves to the parties (and specifically to consumers) the burden to “enforce” its rules, i.e. to raise a claim in case of damage caused by a defective product. Consumers, producers. Member States affected only in case of in-court settlement Substantive compliance costs (e.g. the amount of compensation to be paid) Strict liability of producer (Art. 1) Producers Burden of proof (Art. 4) Consumers Joint liability of producers (Art. 5) Producers EUR 500 threshold (Art. 9) Consumers three-year limitation period (Art. 10) Consumers 10-year limitation period (Art. 11) Consumers Administrative burden Communicate to the Commission the derogation to Art. 7(e) (Art. 15(2)) Member States Indirect costs (e.g. specific liability insurance, reputational costs) Not required by any Directive provision Producers Source: Study for the Evaluation of the Directive 85/374/EEC Enforcement costs The Directive does not provide specific details and procedures on how to settle claims for damages caused by defective products, and most of the settlements occur out of court, with negotiations between the parties. Therefore, the enforcement costs related to the Directive can be of two types, based on whether the claim is settled in court or out-of-court. If the claim is settled in court, the enforcement costs are comprised of, for instance, lawyers’, bailiffs’ and experts’ fees, court fees, taxes, and all costs related to judicial proceedings. These costs vary considerably across Member States, and depend, among other factors, on the type of litigation, the overall length of the proceeding, the compensation amount, the court and the final decision. For instance, civil proceeding fees can range from less than EUR 200 (e.g. in Belgium, Estonia and Sweden), to over EUR 1,000 (e.g. in Hungary and Slovakia). By way of example, these costs vary on the basis of the final decision as usually fees are reimbursed (wholly or in part) if the claimant is successful. Enforcement costs of this type primarily weigh on consumers, on producers or on the insurance company (if the producer has a specific insurance), and partly on national budgets, as courts are public institutions and not all court costs may be fully covered by court fees. In case that the claim is settled out of court, the enforcement costs are related to lawyers’ and experts’ fees, and may also include mediation or arbitrators’ fees. This type of enforcement costs weighs on consumers and producers (or insurance companies).

A general quantification of enforcement costs is not possible due to data limitations and to the fact that they are determined on a case-by-case basis based on specific systems of each Member State jurisdiction. However, these costs (including procedural, court, experts and lawyers’ fees) mainly are determined by national praxis and judicial systems – not the Directive. Substantive compliance costs The Directive attempts to strike a balance between consumers’ and producers’ interests. Its costs are a trade-off: the benefit of one is the other’s cost. Compliance costs related to the Directive are detailed below per category of stakeholder: Producers: ·Strict liability (Article 1): introduces a cost that –if the claim is successful- will be equal to the amount of compensation to be paid. This cost is case-dependent. Consumers: ·The burden of proof (Article 4): This provision is the stepping stone to compensation for damage but also appears to be the most burdensome to consumers. The costs related to the burden of proof varies from sector to sector. Particular difficulties were highlighted for pharmaceuticals. One of the major problems appears to be related to the demonstration of the link between the damage and the defect; ·The EUR 500 threshold (Article 9) represents a cost for consumers (and a benefit for the producer) inasmuch as it prevents any claims (and related possible compensation) under EUR 500 from being raised, which is often the case. ·The three-year limitation period (Article 10) for the recovery of damages entails a cost for consumers (and a potential benefit for the producer) in terms of missed compensation. ·The 10-year limitation period (Article 11) to make a claim from the date on which the producer put into circulation the product which caused the damage potentially entails a cost in terms of missed compensation. This provision is particularly costly in the case of damages caused by defective pharmaceutical products that are amongst the products most frequently subject of claims. Administrative burden The Directive foresees an information obligation in Article 15(2), requiring Member States to inform the Commission in case they derogate to the development risk clause (i.e. to Article 7(e)). This cost is deemed to be residual. It only requires a simple transmission of information. The Commission received no comments on the administrative burden related to the implementation of the Directive. Given that the implementation costs of the Directive are residual, one can conclude that there is no simplification potential. Indirect costs Indirect costs are not introduced by the Directive, but are its direct consequence. These costs affect producers and mainly relate to the payment of insurance premiums related specifically to strict liability. Responses to the consultation show that these costs are basically unchanged from 2000, also considering sectors characterised by new technological developments. The coverage offered by strict liability insurances varies from one case to another. For instance, in Denmark and France, product liability insurance usually covers damages resulting from the defective product, the costs of the technical analyses made by the expert and the proceeding costs. Therefore, the producer is fully covered and does not need to bear any additional expenses. In Germany, insurance offers seem to be more differentiated and the product liability insurance may, for instance, cover damage compensation until a certain limit, and cover in addition the extra costs (expert, lawyer, proceeding costs) or cover up to a certain limit both damage compensation and proceeding costs.

Reputational costs and Research and Development (R&D) costs are definitely relevant, especially for those manufacturers that produce robotic devices. Indeed, investments in research and development could lead to the creation of products with a certain technological added value, but also with high liability risk. In these cases, producers tend to delay the introduction of the products to the market, up to the moment when the technology is considered safer to avoid potential reputational damages. 5.2.2.Analysis of benefits The Directive has set the basis for a common rule on strict liability of the producer and for consumers’ right to claim compensation for damages due to a defective product. As it is the case with the costs, the assessment of benefits is based on a qualitative analysis. A summary of the analysis appears in the table below: Types of benefit Provision Stakeholder affected Improved well-being Strict liability of producer (Art. 1) Consumers Joint liability of producers (Art. 5) Market efficiency Burden of proof (Art. 4) Producers Exemptions (Art. 7) EUR 500 threshold (Art. 9) Three-year limitation period (Art. 10) 10-year limitation period (Art. 11) Increased harmonisation Compliance with the Directive (Art. 19) and harmonisation through the cases of the CJEU Consumers; Producers, including suppliers and importers. Source: Study for the evaluation of Directive 85/374/EEC Consumer's improved well-being The strict liability of producer represents a clear benefit for injured parties. Since 1985, consumers enjoy the right to obtain compensation for damage caused by a defective product directly from its producer. Consumers’ claims have been successful in 60% of the cases examined in the context of the Study for the evaluation. Therefore, the Directive has increased consumer protection. This has been confirmed by the results of the public consultation, since stakeholders strongly agree that consumers can enjoy the same rights in terms of compensation wherever they are in the European Union. Market efficiency With the aim to ensure an effective internal market, the Directive provisions entailing benefits for producers are those related to the existence of burden of proof, the 500 EUR threshold and the three- and 10-year limitation period, as these provisions limit the possibility for consumers to claim for compensation. More in particular, the 500 EUR threshold limits the number of claims that can be raised against producers. In addition, the exemptions provided in Article 7 are beneficial to producers as they limit the producer’s liability in certain cases, even if a defective product has caused damage. It is up to the producer to demonstrate that he is not liable due to one of these exemptions. Five member States have derogated from the development risk clause thus potentially disadvantaging producers in these countries – even though there was no significant data to confirm this argument. The benefits related to these provisions translate into the development of a clear and stable legal framework, confirmed by the results of the open public consultation. Stakeholders strongly agree that the level playing field created by the Directive is a benefit.

Increased harmonisation The increased harmonisation stemming from the Directive is a benefit that most stakeholders consulted perceived. Indeed, the large majority of the respondents to the open public consultation believe that the fact that consumers can enjoy the same rights in terms of compensation is a strong advantage, together with the fact that Member States cannot implement different product liability rules than those already covered by the Directive for national producers and that would lead to different levels of protection. 5.2.3.Balance and distribution between costs and benefits EQ. Are the benefits achieved at reasonable cost for consumers and producers (with focus on SME)? The relevant costs for consumers are equal to enforcement costs as well as the costs they bear for the financial threshold, time limitations and exceptions. This includes i.e. all requirements weighting on consumers to prove the rightfulness of the claim and to the cost relating to the damage suffered, which can be high if the claim is settled in court, and which can be a substantial obstacle when the claimant must anticipate them. The costs for producers are mainly indirect costs related to insurance, and enforcement costs related to the settlement of claims (when consumers are successful). Overall, few producers choose to pay for specific strict liability insurance directly related to the Directive, but most of them have an insurance policy covering product liability jointly with other risks and, if they do so, they incorporate this cost in product prices and transfer it on consumers. As for the enforcement costs, they are in principle paid by producers in 60% of the cases as they are paid whenever a consumer claim is successful The cost-benefit ratio for producers remains reasonable also when SMEs are considered. There does not appear to be a specific impact on SMEs. Thus benefits appear to be achieved at a reasonable cost for producers but – depending on the product in question – costs may be very high or sometimes even prohibitive for consumers. EQ. Does the Directive strike the right balance between the costs borne by the producers to cover the strict liability and the requirements on the injured party to obtain compensation? EQ. What factors influenced the efficiency of reaching the achievements which the Directive sets out? Some products require a more complicated and costly assessment procedure, in terms of complexity of the procedure itself, whereas other products require less onerous systems of assessment. The costs for producers are mainly the costs originating from claims and costs of insurance. For consumers, however, most of the costs are related to the burden of proof. The benefits that were shown for both parties were efficiency and legal certainty for producers, and compensation for damage for consumers. However, some concerns remain regarding fairness in this balance for consumers, especially in view of the higher cost of substantiating proof of a defect and its link with the damage in more complex products such as pharmaceutical. Given that costs are to a very large extent related to procedures not covered by the Directive, arguments have been put forward that this should be addressed outside the scope of the Directive. The positive or negative assessment on efficiency with respect to the provisions of the Directive depends on the category of stakeholders concerned, producer or consumer. In fact, the provisions which are considered more efficient for producers are they considered more inefficient for consumers, and vice versa. This therefore also requires a political assessment in terms of balancing the original objectives of the Directive. 5.2.4.Conclusion on efficiency According to the qualitative assessment, the Directive in principle has managed to strike a balance between the costs and benefits borne by producers and consumers. However, the balance between costs and benefits relating to the Directive appears to be appropriate for producers but it is not uniform across Member States and sectors or product types for consumers. There are also other factors that could play a significant role in determining the efficiency of the Directive, such as the costs and duration of judicial procedures, which vary substantially from one Member State to another and have a more direct effect on consumers. They represent the most important administrative burden. However, as these are not due to burdens that the Directive itself imposes no specific simplification potential was identified in this respect. Coherence EQ To what extent is the intervention consistent and coherent with the EU rules on consumer protection in the area of contractual liability?

EQ To what extent is the Directive coherent with wider EU policy, such as the free movement of goods and/or the protection of the consumers, including EU product safety legislation? Several pieces of legislation have been identified and analysed to assess the coherence of the Directive with EU policies and rules: 1.Safety sectorial legislation and the General Product Safety Directive (the “GPSD”); 2.Rules on consumer protection in the area of contractual liability, and, in particular: ·The Directive on Consumer Rights (the “DCR”); ·The Sales and Guarantee Directive (the “SGD”); 3.Rules on applicable law, litigation and Alternative Dispute Regulation: ·The Rome II regulation; ·The Brussels IA regulation; ·The Directive on consumer ADR. 5.3.1.Product safety legislation European Union product safety legislation aims at ensuring that only safe products can be placed on the internal market. Manufacturers (producers) are responsible for the safety of their product. All products placed on the market in the internal market are subject to safety rules, set under either: ·EU harmonisation safety legislation, which that sets EU wide essential health and safety requirements (EHSR) that the products in question need to meet. , The vast majority of products marketed in the EU are covered either partly or fully by EU harmonisation safety legislation. ·The General Product Safety Directive (GPSD), that establishes a general obligation upon manufacturers to ensure that consumer products, which do not fall within the scope of sectorial legislation covering safety aspects, are manufactured in compliance with the general safety requirements provided therein. The GPSD has a safety net role for products and risks not covered by the harmonisation legislation. When the product is placed on the market or brought into use for the first time, designers and manufacturers must meet all essential requirements relevant to the specific product based on the state of the art. Then, within the market surveillance system, relevant national authorities check whether products meet the requirements of the applicable safety legislation and take necessary steps to make sure that products are compliant. Producers and distributors have also legal obligations once the product is placed on the market; for instance, according to Articles 5.3 and 8 of the GPSD, if they become aware that a product that they have placed on the market poses risks to the consumer, they shall immediately inform the competent authorities and take all the necessary measures up to the product recall if needed. Sectorial safety legislation

Specific rules exist for example for the safety of toys, electrical and electronic goods, cosmetics, chemicals, medical devices, food and feed, and other specific product groups, as machines or pharmaceutical products. Providing just a few examples, it is important to consider: ·Directive 2014/35/EU on low voltage electrical equipment (hereinafter also “Low Voltage Directive” or “LVD”), which ensures that electrical equipment within certain voltage limits provides a high level of protection for European citizens. Electrical equipment under the LVD covers a wide range of consumer and professional products e.g. household appliances, cables, power supply units, laser equipment and some components such as fuses ·Directive 2014/53/EU on radio equipment (hereinafter also “Radio Equipment Directive” or “RED”) which ensures a Single Market for radio equipment by setting essential requirements for safety and health, electromagnetic compatibility, and the efficient use of the radio spectrum and applies to all products using the radio frequency spectrum, this includes embedded software. ·Regulation (EU) 2017/745 on medical devices and the Regulation (EU) 2017/746 on in vitro diagnostic medical devices establish a modernised and more robust EU legislative framework to ensure better protection of public health and patient safety. Moreover both the two regulations state that software is considered, under the provisions of the regulation, as a product. Further, the Regulations on medical devices provide that the liability they set forth is without prejudice to the Product Liability Directive. ·Regulation (EC) No 178/2002 on general food law (the GFL Regulation) sets outs an overarching and coherent framework for the development of food law (including feed) both at Union and national levels. To this end, it lays down general principles, requirements and procedures that underpin decision making in relation to food and feed, covering all stages of food and feed production and distribution. These principles, requirements and procedures are further incorporated in other Union legislative acts covering the food chain. Amongst others, the GFL Regulation sets out the primary responsibility of food and feed business operators (FBOs): they must (a) ensure compliance with all EU and national food law that is relevant to their activities and within the businesses under their control and (b) perform their own controls. Furthermore, food placed on the market must be safe, i.e. food must not be potentially injurious to health or unfit for human consumption (food safety requirement). Similarly, feed placed on the market must be safe (feed safety requirement). Where FBOs consider or suspect that food or feed is not safe, they must withdraw or recall such products and notify the competent authorities under certain conditions. All FBOs must be able to identify from whom and to whom a product has been supplied ('one step back – one step forward' traceability for safety purposes) and to have systems and procedures in place that allow for this information to be made available to the competent authorities upon request. Feed and food imported into the Union must comply with all requirements of Union food law. National competent authorities are responsible for enforcing food law, verifying that food and feed placed on the EU market are safe and applying effective, proportionate and dissuasive measures and penalties where a violation of food law is detected. As stated in Article 21 of the GFL Regulation, the application of the general principles and requirements underpinning Union food law are without prejudice to the Product Liability Directive. ·Directive (EC) 2006/42 on machinery covers a wide range of machines and equipment for consumers and commercial or industrial purposes, it is also the relevant safety legislation for robots. This Directive ensures a high level of health and safety for consumers, users and other exposed persons as regards the products in its scope, placed on the market. ·Directive (EC) 2001/83/EC on pharmaceutical products sets standards to ensure a high level of public health protection and the quality, safety and efficacy of authorized medicines. In addition, it promotes the functioning of the internal market, with measures to encourage innovation. It is based on the principle that a medicinal product requires a marketing authorisation by the competent authorities before being placed on the market. The mentioned pieces of legislation do not contain specific provisions on the liability of the concerned products, but expressly refer in the text to the application of the Product Liability Directive in case of damages caused by a defective product. However, as it was noted already in 2011, some stakeholders, as e.g. the European Federation of Pharmaceutical Industries and Associations, have indicated on several occasions that pharmaceuticals products should be outside of the scope of the Directive and should have a specific liability regime. General Product Safety Directive (GPSD) The GPSD aims to ensure that only safe consumer products are placed on the market. A product is safe when under normal or reasonably foreseeable conditions of use, including duration and, where applicable, putting into service, installation and maintenance requirements, it does not present any risks or only the minimum risks compatible with the product use, considered to be acceptable and consistent with a high level of protection for the safety and health of persons, taking into account particular aspects such as the (i) characteristics of the product, (ii) the effect on other products, (iii) the presentation of the product, (iv) the categories of consumers at risk when using the product. The GPSD applies in the absence of other European Union laws relating to product safety, complementin