Recommerce Reads - product liability and the circular economy

Changes are coming to the existing EU and UK product liability regimes, aimed at responding to the digital age, the circular economy and new global supply chain models. Over the last 40 years, the current regimes have provided a harmonised framework by which consumers who have suffered damage as a result of a defective product may seek compensation. However, significant changes to the kinds of products consumers buy, and how they buy them, means reforms are overdue. Today’s marketplace is full of tech and smart products that were of no concern to legislators in the 1980s. Additionally, eco-conscious consumers increasingly seek refurbished products (everything from refurbished household electronics, to modified classic cars), and in response to that demand some e-commerce giants (“B2C retailers”) have launched their own online resale offerings - such as Amazon Renewed, and eBay’s Refurbished.

Due to their scope, the European and UK reforms will be of interest to all businesses placing consumer products on the market, including operators in the recommerce space. In this Recommerce Reads instalment, we explore: the likely impact of EU’s new Product Liability Directive (“the new PLD”) on UK-based recommerce operators, particularly with regard to refurbished goods; and the recently published UK Product Regulation & Metrology Bill (“PRM Bill”) and how it may respond to the circular economy and the European reforms.

1. The new European Product Liability Directive

The new PLD is designed “to strike the right balance between the need to remain an effective instrument for victims injured by defective products, and the legal certainty economic operators deserve in a fast-changing market characterised today by digitalisation, the circular economy and global value chains”.^[1]  It is in the final stages of adoption and is widely expected to be implemented by late 2026.

Key features

This revamp of the original 1985 PLD provides welcome clarifications, but also introduces some novel consumer-friendly concepts. Those involved in the production and sale of consumer products, including refurbished products such as machinery and equipment, and electronic goods, should ensure they are familiar with the key features and the resulting risks. For example:

• Geographical scope  /  The new PLD aims to protect EU consumers from damage caused by defective products, regardless of where the product was made. It is therefore relevant to UK operators in the recommerce sector who trade in the EU.
   
• Product  /  The expanded definition of “product” includes all tangible and intangible goods, components (including related services integrated into or inter-connected with another product), software (and by extension, AI systems), digital manufacturing files and related digital services, and raw materials. Importantly for stakeholders in the recommerce sector, remanufactured and refurbished products are expressly recognised.
   
• Liability  /  The core concept of strict liability is retained, meaning liability may attach without any fault or negligence by the manufacturer, provided the consumer can show the product was defective, they or their property suffered damage, and there is a causal link between the damage and the defect.
   
• Defendants (economic operators)  /  Primary liability for a defective product lies with the manufacturer (including manufacturers of components and, in the case of substantially modified products, the person who modified the product). Where the manufacturer is established outside the EU, liability may also attach to the importer and/or the authorised representative. If neither the importer or authorised representative are established in the EU, a fulfilment service provider may be liable. When none of these economic operators can be identified in the EU, secondary liability may arise for distributors and even online platforms.
   
• Recoverable losses / As well as being able to recover damages for death, personal injury, and property damage, consumers will also be able to recover damages for psychological harm, and destruction or corruption of data.
   
• Limitation / Substantial modification of a product restarts the limitation clock from the date the new product is made available on the market. Also, the long-stop limitation period for all products is (significantly) extended in cases of latent personal injuries, from 10 years to 25 years.
   
• Disclosure / If the consumer presents facts and evidence sufficient to support the plausibility of the claim for compensation (a low threshold), the defendant may be ordered to disclose relevant evidence. Significantly, a defendant’s failure to disclose such evidence may result in a presumption of the product’s defectiveness.
   
• Rebuttable presumptions (defectiveness and causation) / The new PLD allows for the burden of proof relating to issues of defectiveness and/or causation to be shifted from the claimant to the defendant in certain circumstances. In particular, defect, causal link or both will be presumed where, despite the defendant’s disclosure of information, the claimant is considered to face “excessive difficulties” in proving one or other (or both) and can demonstrate their likelihood.

Remanufactured and refurbished products

In recognition and promotion of the circular economy, the new PLD specifically applies to ‘substantially modified’ products. When an existing product is substantially modified out with the original manufacturer’s control and then made available on the EU market, it will be considered a new product and the modifier will be liable as the manufacturer (an exception exists where the modifier can show that the damage complained of is related to a part of the product not affected by their modification). It is worth noting that similar provisions exist in the EU’s Artificial Intelligence Act (“the AI Act”), in terms of which those who substantially modify high-risk AI systems will assume the obligations of ‘producers’ of such systems.  

Whether changes to a product amount to a ‘substantial modification’ will be assessed by reference to the relevant EU or national legislation on product safety, and manufacturers and B2C retailers should therefore ensure they are aware of the criteria for “substantial modifications” under the national law of the country they are operating in.^[2] Where no criteria are laid down in respect of a particular product, substantial modifications will be deemed to be physical or digital modifications that change the original intended function of the product or affect its compliance with applicable safety requirements, or change its risk profile.

Takeaways

The European reforms provide necessary clarity to grey areas which were developing as a result of the gap between the 1980s consumer market for which the current regime was designed, and today’s reality. But the broadening of the regime’s scope (in terms of the products, economic operators, damages, etc. it covers) means more operators in the consumer product supply chain, including those in the recommerce sector, are likely to be exposed to the risk of product liability claims. Additionally, when that risk materialises, the novel consumer-friendly concepts the new PLD introduces to litigation procedures are likely to cause defendant litigation costs to be higher and more front-loaded than previously. All economic operators in the recommerce space should familiarise themselves with the European reforms, and consider the risks the reforms pose and how to mitigate those.

2. UK’s Product Regulation & Metrology Bill

In July 2024, general plans for a new UK “Product Safety Bill” were announced alongside the King’s Speech, with the promise of a Bill that would “preserve the UK’s status as a global leader in product regulation, supporting businesses and protecting consumers”. It was suggested it would, amongst other things, respond to new product risks and opportunities to enable the UK to keep pace with technological advances (such as AI), and identify new and emerging business models in the supply chain, ensuring the responsibilities of those involved in the supply of products (such as online marketplaces) were clear and enabling Government to better protect consumers.

The Product Regulation and Metrology Bill (as it is now called) was laid before Parliament on 4 September 2024^[3], and largely confers regulation-making powers on the Secretary for State to replace, amend and update existing domestic legislation so as to make provision for the marketing and use of products in the UK (and to harmonise UK and EU law to mitigate the environmental impact of products). It is not particularly lengthy, nor particularly rich on detail. It does however offer to define “product” as “a tangible item that results from a method of production”, which casts some doubt over the extent to which the PRM Bill intends to respond to AI products or components. The definition of “production”, on the other hand, as a “means of manufacturing, packaging, labelling or any other process or operation…which impacts on the character of an item” seems apt to cover the modification and refurbishment of products, and those on whom product requirements may be imposed by future regulations include producers, marketers, importers and online marketplaces. Such reforms suggest at least some recognition of the circular economy and emerging business models in the supply chain.

Unfortunately, however, the Bill goes on to clarify that it is not intended to amend Part 1 of the Consumer Protection Act 1987. Accordingly. despite some initial hope, the PRM Bill does not provide the means to overhaul the principal source of the UK’s ageing product liability regime. Progress of the Law Commission’s proposed review of the current product liability laws, which is currently subject to an ‘indefinite extension’, now seems more important than ever.

Takeaways

We can expect the new PLD to be in force long before the UK has a new product liability system in place, meaning there is potential for significant divergence between the UK and European regimes once the new PLD is in force. The extent to which the UK will seek to narrow those differences and return to a system more harmonised with the European market in due course is far from certain. The Government made clear in relation to the PRM Bill that it wished to “make the sovereign choice to mirror or diverge from updated EU rules”^[4] where it is in the best interests of UK businesses and consumers to do so. Especially having regard to the nature of some of the European product liability reforms, it seems highly likely that the UK will take advantage of its post-Brexit freedom to beat a different route in relation to product liability also, if considered to be in the best interests of UK consumers and businesses.

Next Steps

With both the EU and the UK committed to the circular economy, many exciting opportunities lie ahead for operators in the recommerce sector. However, although we are still without any indication of how or when the UK intends to update the current regime for product liability, some reforms can be anticipated due to their necessity in simply bringing the UK’s aging product liability regime into the 21^st century (e.g. expansion of the key concepts of ‘product’, the operators who may be liable, the sorts of losses that are recoverable etc). We expect such reforms will widen the scope of the existing law similar to the position in Europe, bringing more products and more economic operators within the area of potential litigation risk. This risk to economic operators will be increased if consumer-friendly procedural mechanisms are also introduced - such as the duties of disclosure and rebuttable presumptions which will benefit European consumers - due to their cost implications for defendants. It is far from clear if the UK is ready to legislate on these more procedural - and arguably political - consumer protection mechanisms, and these features may well end up defining the two regimes.

The wider litigation landscape shows a flourishing UK and European consumer class actions culture,[5] even before taking account of the increased availability of representative actions in Europe following the implementation of the Representative Actions Directive. With these additional risk factors in mind, it will be particularly important that all economic operators in the recommerce space (including manufacturers, refurbishers, software developers, B2C retailers, online platforms and fulfilment service providers) consider and monitor the forthcoming reforms and their impact on risks, and take steps to mitigate those risks where possible.

If you would like to discuss the impact of the new PLD on your litigation or class action risk, please do not hesitate to contact one of our specialists.
 

^[1] Quote from the Legal Affairs Committee (JURI) co-rapporteur Pascal Arimont (EPP, BE), accessible at: https://www.europarl.europa.eu/news/en/press-room/20231205IPR15690/deal-to-better-protect-consumers-from-damages-caused-by-defective-products

^[2] The European General Safety Regulations (Regulation (EU) 2023/988) describe a substantial modification as one, by physical or digital means, which impacts the safety of the product, and where: the modification changes the product in a manner not foreseen in the product’s initial risk assessment; the nature of the hazard has changed, a new hazard has been created, or the level of risk has increased because of the modification; and the modification has not been made by the consumer on their behalf for their use (Art. 13).

^[3] *Product Regulation and Metrology Bill [HL] (parliament.uk)

^[4] FINAL - 17/07/24 King's Speech 2024 background briefing final GOV.uk.docx (publishing.service.gov.uk)

^[5] See the CMS European Class Actions Report 2024