Global | Publication | July 2024
The EU’s Artificial Intelligence Regulation, commonly referred to as the AI Act, is expected to come into force during the summer of 2024 (the AI Act). The AI Act will be the first comprehensive legal framework for the use and development of artificial intelligence (AI), and is intended to ensure that AI systems developed and used in the EU are safe, transparent, traceable, non-discriminatory and environmentally friendly. Alongside the introduction of the AI Act, the EU is revising its product liability regime to ensure that, where AI systems cause harm to users, there are appropriate recourse and compensation mechanisms.
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European Commission proposals
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While the two proposals are proceeding on separate timescales, businesses will need to ensure that they are fully aware of their scope and how they will be applied in respect of AI systems. Risk and compliance frameworks and contractual protections need to be reviewed and amended to protect against any potential liability arising from these new areas. It is also important to remember that the revisions to the product liability regime explained in this article will sit alongside other claims that may be available to potential claimants, such as for breach of contract and (in common law jurisdictions at least) claims in tort for negligence.
The two legislative initiatives focus on different areas of civil liability:
Doubt has recently been cast as to the necessity of the AILD, with the EU Parliament’s legal affairs committee commissioning a study on whether there is a legal gap left by the AI Act and PLD for the AILD to fill. Its future is therefore uncertain. However, and as set out below, the Revised PLD has already been adopted by the EU Parliament.
The Revised PLD was adopted by the European Parliament in March 2024 and is awaiting approval by the European Council. There are several major amendments to the PLD proposed as part of the Revised PLD that are designed to ensure that the underlying regime can respond to the specific features of AI systems as a consumer product.
Definition of “product”
This will include software, which includes AI systems. However, free and open-source software that is developed or supplied outside the course of commercial activity is expressly excluded in an effort to avoid hampering innovation or research. However, manufacturers that integrate free and open-source software into their products may be potentially liable for any defects that arise as a result. Such integration will therefore need to be carefully considered and managed.
Definition of “defect”
The concept of defect now encompasses the “effect on the product of its ability to continue to learn or acquire new features after is has been placed on the market or put into service”.
This means that an AI systems’ ability to self-learn and acquire new features will be relevant to considering if an AI system is defective, and the recitals to the Revised PLD specifically state that consumers can expect AI systems to be designed so as to prevent hazardous product behaviour. Accordingly, manufacturers that design a product that develops unexpected behaviours will remain liable in the event that such behaviour causes harm.
Additionally:
It is important to note that a product will not be considered defective simply because a better product, including updates or upgrades, has since been put into service.
| Expansion of potential defendants A company that has substantially modified a product outside the control of a manufacturer can be held liable for a defect it has introduced and/or caused. Additionally, manufacturers of a defective component that has been integrated into a product can be liable under the Revised PLD. These new categories of defendants will be specifically relevant to AI systems. |
Defendant’s disclosure obligation
Where an injured party has presented facts and evidence to support the “plausibility of the claim for compensation”, the Revised PLD places an obligation on the manufacturer to disclose information that is relevant to the claim. This is intended to assist claimants in proving claims that involve technically complex products, such as AI systems.
However, the Revised PLD incorporates a corresponding obligation for claimants to disclose relevant evidence where a defendant demonstrates it is required for the purposes of making a counterclaim.
Presumption of defectiveness and causation
To further assist claimants in proving a defect in products that are technically complex and inherently difficult to understand without specialist knowledge, the Revised PLD imposes a presumption of defectiveness where any of the following conditions is met:
In respect of causation, where defectiveness has been established and the damage caused is typically consistent with the defect in question, a causal link between defect and damage will be presumed.
Finally, where a claimant can demonstrate that it is likely that the product is defective and/or that a causal link between the defect and the damage exists but it faces excessive difficulties in proving either of those things because of technical or scientific complexity, then a court shall presume either defectiveness or causation, or both.
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Definition of “damage” The definition of damage has been extended to include the loss or corruption of data (although data used for professional purposes is excluded). There is concern that the inclusion of this head of damage could lead to effectively open-ended liability for defendants. Importantly, however, the Revised PLD clarifies that the corruption or loss of data will not automatically be considered material damage and will, therefore, presumably be a matter of evidence. The Revised PLD also includes the concept of medically recognised psychological harm as an additional type of damage. |
Exemptions from liability
The Revised PLD includes certain specific exemptions from liability, one of which is where a defect in a product did not exist at the time it was placed on the market.
However, that exemption will not apply where it relates to digital services integrated into a product, software (including upgrades or updates), a lack of software required to maintain safety, or a substantial modification of the product.
This means that manufacturers or providers of AI systems will remain liable for defects arising after the system is placed on the market where that defect arises as a result of:
These outcomes are linked to the expanded definition of defect (discussed above).
The AILD adopts many of the definitions contained in the AI Act and relates to non-contractual fault-based claims for damage caused by:
Disclosure of evidence and presumption of non-compliance
A provider, a person subject to the obligations of a provider, or a user (as defined in the AI Act) can be ordered to disclose evidence in relation to a specific “high-risk AI system” that is suspected of having caused damage where a claimant has asked for such evidence but it has not been provided. For a discussion of the meaning of high-risk AI systems under the AI Act, see our AI Act overview.
However, a claimant must be able to prove the plausibility of the claim before the order for disclosure will be made. A defendant has the right to rebut the presumption.
Presumption of causation
However, the above presumption will only apply in relation to non-high-risk AI systems (for the meaning of such systems, see our AI Act overview) where it is considered excessively difficult for the claimant to prove a causal link.
In respect of high-risk AI systems, the presumption will not apply where sufficient evidence and expertise is reasonably accessible for the claimant to prove the causal link itself.
In summary, the AILD appears to be designed to assist claimants in overcoming some of the technical complexities that could make establishing non-contractual fault-based claims in respect of AI systems more difficult. However it has recently been subject to the criticism that its introduction may result in “over-regulation”. As set out above, a decision as to its future will be taken following a review of the of the proposed directive by the European Parliamentary Research Service.
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Mass Claims - application of the Representative Actions Directive ((EU 2020/1828) (the RAD) The Revised PLD, like its predecessor, falls within the scope of the RAD, as would the proposed AILD. The RAD requires all member states to have in place at least one procedural mechanism that allows qualified entities (independent not-for-profits protecting consumer interests) to bring representative actions. It applies to representative actions brought in respect of infringements of in-scope legislation that harms or may harm the collective interests of consumers. The AI Revised PLD and AILD, if brought into force, may therefore open the door to representative actions being brought on behalf of a class of claimants for harm caused by an AI system. |
The ability of AI systems to self-learn and develop means that the concept of defect and fault will now extend beyond the point at which the product is placed on the market and is not within the direct control of the manufacturer or supplier. This means businesses will have to engage with the nuances of the new liability regime and be prepared to both explain and defend the technical complexities of all AI products they place on the market.
It is also clear from the various presumptions included in both the Revised PLD and AILD that the European Commission is keen to ensure that claimants are not unfairly disadvantaged by the sophistication of AI technology and the large knowledge gap that will exist between economic operators involved in the supply of AI systems and end-users. The presumptions and obligations of disclosure therefore seek to level the playing field in relation to compensation claims for defective AI systems.
It is important that:
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Action points for businesses
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On 24 October 2024, the Court of Justice of the European Union (CJEU) confirmed that the European Commission’s (the EC) 2009 decision, which imposed a (then record) €1.06 billion fine on Intel, was flawed as far as it found that loyalty rebates granted by Intel had anti-competitive effects.
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