Software & the Product Liability Directive

Product Liability Directive: an example of how important it is to voice our position in Brussels

It has pushed forward by Free ICT Europe that updates to clarify the status of software and data, but also address the fact that technological products always need to be updated over time.

Adopted nearly 40 years ago, the Product Liability Directive (PLD) was in need of a revision to take into account developments that have impacted it, including changes in consumer expectations, the digital age, circular economy business models and global value chains.

The PLD proposal unveiled in September 2022 by the European Commission seeks to achieve clarification in this area by explicitly including software and software updates, digital manufacturing files and digital services but also clarifying the rules applicable to companies that substantially modify products for resale.  It suggests in addition that the claimant’s burden of proof should be softened in certain circumstances and aims to ensure that consumers are compensated for defective products manufactured outside the EU.

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An intensive lobbying from the tech industry to modify the text

The still ongoing legislative works showed a much different picture as the tech industry tried to lobby for a final version of the text that will exclude standalone software from the scope of the Directive. In addition, tech industry also asked to not target autonomous software, artificial intelligence applications and digital services in the scope of the text, pointing out that other liability regimes are already effectively covering defective software. They also insisted on the need to focus on material damage and not, as the Commission proposed, on the loss or corruption of data and psychological damage.

This heavy pressure was for sure reflected in the positioning of the Parliament since not all MEPs agree on the explicit inclusion of software within the scope of the directive. Thus, if the Socialists supporting the inclusion of software in the scope of the Directive, the liberals and the centre-right were willing to include only the software necessary for the operation of a tangible product or which is of interest in terms of security.

This is why it is crucial to participate in the decision-making process in Brussels. Indeed, Free ICT Europe, alongside other partners organizations, raised awareness throughout the legislative talks on the necessity to include software in the scope the Directive. This has been done through informal talks with the key decision-makers in the Parliament but also through personal letters sent to a wide range of MEPs. As a consequence, the Internal Market and Legal Affairs committees decided early October to explicitly include software in the harmonized system of compensation for consumers injured by defective products.

Member States went on another route when it comes to the debate on inclusion of software in scope. The Council – representing the Member States – decided that software shall be considered a product irrespective of whether the software is stored on a device, accessed through cloud technologies, or supplied via a software-as-a-service model. In addition, the Council clarified that mere information-like content of digital files (e.g. media files or e-books as well as source code of software) shall not be considered a product.

On software-updates and other related services and components, the Council's Amendments foresee that liability of the manufacturer shall depend on whether or not these related services and components are within the manufacturer's control. There shall be control where they are integrated, inter-connected or supplied by the manufacturer or a third party who has been authorised by the manufacturer to do so, or at least who acts with the consent of the manufacturer. Further to the condition of placing these components on the market, the main criteria shall be that the manufacturer has the technical ability to supply software updates or upgrades either itself or through a third party.

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What are the next steps?

The final text needs to be defined. Tech lobbies are still leading a vast campaign to pressure the decision-makers, still advocating against the inclusion of software in the scope of the text.

The Parliament, the Council alongside the European Commission are currently in Trilogue negotiations and an agreement is expected by mid-December. Now that the Parliament no longer excludes non-embedded software (such as applications) from the scope of the Directive, as initially proposed by the co-rapporteurs, the mandate of the Parliament and the Council are relatively aligned on this important part.

Informal negotiations and technical meetings are going pretty well and so far there seems to be no risk at seeing software being left out of the scope of the Directive.

To be continued, hopefully with good news and the final text!