December 2023 witnessed ground-breaking changes that have reshaped the understanding and application of legal responsibility in the European Union (the “EU”). These reforms have introduced new perspectives around how product safety and liability will be determined and enforced in the years to come. This pivotal shift not only addresses the complexities of modern interactions along supply chains and technologies, but also reflects a deeper societal commitment to fairness and justice in the face of new challenges.

Please see below some highlights from recent weeks:

AI Act

On 8 December 2023, after marathon “trilogue” negotiations, the Council of the EU, the European Parliament and European Commission reached a landmark agreement on the law that will regulate artificial intelligence (“AI”) in the EU. Although the final text is still subject to legal and linguistic revision, and is yet to be published, it is undeniable that the agreed compromise will pave the way for a model of comprehensive regulation of AI systems, having a major impact that is likely to go beyond EU borders.

The agreed text pursues an all-encompassing, but risk-based approach. Put simply, the greater the risk arising from the AI system, the more far-reaching the obligations applicable to the person responsible for this system. It is clear that the AI Act will focus on “high-risk” AI systems, for which it sets out a number of requirements, including inter alia, the publication of a sufficiently detailed summary of the data used to develop the foundation model. This is likely to soon become a point of contention for many providers, as it will be a particularly challenging obligation to comply with retrospectively.

Revised Product Liability Directive

On 14 December 2023, the European Parliament and the European Council announced a provisional agreement on planned updates to the Product Liability Directive (“PLD”), to adapt the EU’s liability rules to changes in technology, while ensuring better protection for consumers and greater legal certainty for economic operators.

To this end, the proposal expands the definition of a “product” to comprise software (including updates) and AI systems and digital services, among other things. This, in combination with other changes, means that the revised PLD is likely to increase litigation risk for manufacturers and companies in the EU, notably by:

• introducing a new burden-of-proof framework, which would shift the burden to defendants by imposing (in certain circumstances) a presumption of defectiveness and causation;
• widening the definition of what constitutes a “product” for potential liability; and
• relaxing the causation standard, to compensate potentially increased and expanded damages.

Corporate Sustainability Due Diligence Directive

Also on 14 December 2023, the European Parliament and Council reached a provisional agreement on the Corporate Sustainability Due Diligence Directive (“CSDDD”).

The CSDDD will introduce mandatory due diligence obligations to identify and address adverse human rights and environmental impacts for both EU and non-EU companies, as well as establishing the basis for those companies to be held liable for violating those obligations. This will have a major impact on product manufacturers, who will have to review not only their own activities, but also those of their subsidiaries or business partners in the value chain.

The provisional agreement also includes an obligation for large companies to adopt and put into effect, through best efforts, a transition plan for climate change mitigation.

On liability, the agreement reinforces the access to justice of persons affected as it notably establishes a period of five years to bring claims by those concerned by adverse impacts. In some situations, the CSDDD will also mean that where companies identify activities by their business partners that may have adverse impacts on the environment or human rights, they may have to look into this and consider what measures may be expected from them under the circumstances.

A quick note on the UK

Earlier this year, the UK government announced its intention to overhaul and modernise product safety laws in the UK. It has published a consultation paper outlining thirteen wide-ranging proposals, including proposed changes to the frameworks for product compliance, product safety, and product liability in the UK, to bring these regimes in line with technological developments. The consultation closed on 24 October 2023 and the UK Government will publish its response in due course.

Indications to date are that the views raised in response to the consultation were in favour of maintaining alignment with the EU. It will be interesting to see whether the UK government will use this opportunity to showcase its long-standing promise to diverge from EU law, and set its own path – as it has done so far in its light-touch approach to AI regulation.

The UK government is also moving more cautiously than the EU with respect to its plans for sustainability reporting and disclosure frameworks for companies operating in the UK. That said, there are developments in this space with the UK’s consultation on the International Sustainability Standards Board’s Scope 3 reporting standards (and in particular whether to include Scope 3 reporting at all within domestic legislation) closing just last week.

Next steps

As indicated by Commissioner Thierry Breton, the agreement on the revised PLD is another milestone in EU institutions’ efforts to organise the digital space. Despite the major changes December has brought, many milestones are yet to come. In particular, even where a compromise was reached on the AI Act, it remains as exactly what this first of its kind product safety regulation for AI will ultimately look like in detail.

Regarding the CSDDD, the provisional agreement reached with the European Parliament now needs to be endorsed and formally adopted by both institutions.

Hogan Lovells is actively monitoring developments in all of the areas mentioned above, with expertise in the EU, UK and beyond. We encourage businesses to keep an eye out for our future updates, and to get in touch with any questions they may have.