Providing (some) readability regarding product legal responsibility, data and software program – European Regulation Weblog

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On 10 June 2021, the Court of Justice decided in Case C-65/20 Krone that inaccurate health advice included in a printed newspaper copy does not constitute a ‘defective product’ within the meaning of the Directive 85/374/EEC on product liability. While the outcome is not entirely surprising in light of Advocate General Hogan’s Opinion and most prior scholarship on the matter, as discussed below, the decision offers an important extra demarcation of the European product liability regime. Moreover, it is worthwhile to examine in this blogpost what this decision might mean for the debate on whether software and other digital content fall within the Directive’s scope of application, which is central to the ongoing review of European product liability law.

Background

Shortly after the adoption of Directive 85/374 in 1985, some authors already started discussing whether information, especially information incorporated in a physical good such as a printed publication, can be qualified as a ‘product’ in accordance with the Directive’s material scope of application (see e.g. Taschner, p. 84 and Whittaker LQR 1989, p. 126). It eventually took until 2020 for this question to arise before the Court, probably because most cases where such information causes damage are decided on the basis of contractual or national tort liability regimes. In the case discussed here that eventually led to the referral of this question to the Court, a product liability claim was raised against Krone, an Austrian newspaper publisher, for damages suffered by a reader who had followed incorrect herbal medicinal advice for treating rheumatic pain, that had been included in an issue of the newspaper of which she had consulted a printed copy.

The Advocate General’s Opinion

In his Opinion in Krone, Advocate General Hogan touches on several arguments why information included in a newspaper should be excluded from Directive 85/374’s scope of application (see paras. 21-41). His main argument is that the Directive should be interpreted as applying to ‘the physical properties of products only’ (para. 22). Hence, he distinguishes between the physical properties of the newspaper like the paper, ink and staples, which constitute a product subject to product liability, and the non-physical information included in the newspaper, which should be excluded. This distinction is in accordance with most scholars who have in recent years stated a clear opinion on the matter (see e.g. Le Tourneau, p. 124; Oechsler (Prodhaftg §2), para. 78; Wagner (Prodhaftg §2), para. 19. Contra Straetmans and Verhoeven, p. 47-50). Furthermore, the Commission’s Green Paper from 1999 (p. 31) and the national implementing legislation of Austria (§4) and Belgium (Article 2(1)) all confirm the interpretation that the Directive is limited to physical products.

Throughout his Opinion, the Advocate General also occasionally connects the distinction based on physical properties with a distinction between products and services. Whilst the former distinction is common in the property law of many Member States, the latter distinction is central to EU economic law. In this view, the physical properties of the newspaper are considered as a product and the non-physical information as a service (see Opinion, paras. 26, 29-30, 34-35). 

The Court of Justice’s Judgment

In its decision, the Court fully seizes on this product-service distinction and focuses less on the distinction between the newspaper’s physical and non-physical aspects. The Court asks itself ‘whether health advice which, by its nature, constitutes a service, can […] result […] in the newspaper itself being defective in nature’ (para. 32). It considers the printed newspaper as ‘merely the medium’ of the service of providing inaccurate health advice (paras. 36-37). And the Court establishes that this service is unrelated to either the presentation or the use of the printed newspaper (para. 36), which would otherwise be pertinent with regards to the Directive’s scope of application in light of Article 6(1). It is of course undisputed that the Directive does not harmonize rules on services (see Judgment paras. 27 and 32; see also the failed proposal for a services liability directive). The Court has furthermore already clarified in Veedfald and Dutrueux how Directive 85/374 relates to services. Hence, in separating the health advice from the newspaper copy and labelling it as a service, it is unsurprising that the Court subsequently comes relatively quickly to the conclusion that this information – the medical advice – is excluded from the scope of Directive 85/374 (para. 39).

The decision itself to exclude printed information from Directive 85/374 seems sensible. The (historical) context and objectives pursued by the legislator are important considerations for interpreting EU legislation (see Judgment, para. 25; Opinion, para. 23). The Directive was originally designed to prevent and compensate the rising safety risks resulting from industrial production and mass distribution of increasingly complex consumer goods (see also Recitals 2-3 of the Directive). This was a relatively new and growing problem in European society during the second half of the 20th century, compared to the already existing risks concerning incorrect and dangerous printed information. With this background, it is indeed telling that the provisions and recitals of the Directive do not make any reference to printed information and seem solely focused on physical consumer goods. Secondly, submitting editors and journalists to the stricter product liability regime may have a ‘chilling’ impact on the freedoms of expression and of the media (Article 11 of the EU Charter; Article 10 ECHR), as pointed out by the Advocate General (para. 36). Finally, the decision to exclude printed information from the Directive’s scope is in accordance with the aforementioned European scholarship and also with most case law from the United States regarding the same question within the context of strict liability in tort (for an overview, see Owen and Davis, §17:26-29).

It is, however, unfortunate that the Court of Justice’s decision in Krone fails to confirm whether all printed information unrelated to the presentation or use of a product, can be considered a service. The Court continuously emphasizes that the ‘health advice’ or ‘advice’ constitutes a service (see paras. 24, 32, 36, 39, 42 and the holding). What about content of printed periodicals or books that cannot be considered as offering advice to the reader? It would be hard to imagine that such printed information suddenly falls within the scope of the Directive, but the Court’s relatively brief judgment leaves room for such arguments. Admittedly, this discussion can be seen as largely theoretical because most cases where publicly distributed information can cause damage and is considered defective, will concern advice. However, as long as the Court maintains its casuistic approach, there will continue to be cases of uncertainty regarding information such as navigational maps or other reference materials.

Impact on the qualification of software and other digital content

Finally, it is important to examine what the Krone decision might mean for the question whether software and other digital content can be qualified as a product subject to the EU rules on product liability. This question is particularly important given the growing presence of consumer goods that use software and digital content and the rising liability risks involving digital technologies that blend the physical and digital spheres, like the internet of things and artificial intelligence. The Commission is currently reviewing Directive 85/374 in light of its compatibility within this new digital context (see this report and the public consultation inception impact assessment). If the Court in Krone excludes information printed on a physical newspaper copy from the Directive’s scope of application, does this mean that digital content should also be excluded? At least one observer has already inferred this consequence (Finkelmeier, NJW 2021(28), p. 2017). In my opinion, however, this is a misguided analogy, at least with regards to software. Moreover, it seems to overlook the decisive difference in motivation between the Court’s Judgment and the Advocate General’s Opinion in the Krone case.

Digital data can indeed be compared with printed information and, hence, for this type of digital content the analogy may hold. Software, however, does not simply convey information but rather constitutes an operational entity that can be used directly like a traditional consumer good for the specific purpose for which it has been designed. This is a fundamental difference that can justify a different qualification within the context of product liability for software and printed information (see also Twigg-Flesner EuCML 2021(6), p. 265). Furthermore, it is striking how the Court in its motivation in Krone tries to avoid as much as possible to rely on the distinction between physical and non-physical aspects of a product which is central to the Advocate General’s Opinion and the aforementioned scholarship. If the Court had instead stated like the Advocate General that the Directive is limited to ‘the physical properties of products’ (Opinion, para. 22), this would have indeed created a strong basis for deducing that, consequently, all digital content including software is excluded from the Directive. This, in turn, may have created new legal uncertainty, especially for software that is embedded in a physical consumer good and is essential for its operation, which most commenters currently believe to fall within the scope of Directive 85/374. Such uncertainty might have even necessitated a legislative amendment. However, the Court did not take such a step and based its motivation entirely on the product-service distinction instead. Establishing that printed health advice or even any other information in a newspaper constitutes a service does not necessarily mean that the same can be said of software, particularly when considering the aforementioned inherent difference between the two. Hence, it appears that the Court in Krone has tried to avoid influencing the debate concerning the qualification of digital content and software. This maximizes the Commission’s leeway for determining whether to simply provide guidance on applying current European product liability law in the digital context or to propose amendments to Directive 85/374. 

In my opinion, the product-service distinction not only fits better within the Directive’s framework than a distinction based on physical properties, it is also more appropriate for our new economic reality which is increasingly digitised. It allows the Court to continue building on its case law regarding Directive 85/374 in a theoretically consistent manner that will likely withstand any possible future legislative changes, without having to determine already under which conditions digital content and in particular software are subject to product liability. Finally, the fact that the Court does not discuss the Advocate General’s argument regarding the risk of a ‘chilling effect’ on the fundamental freedoms of expression and of the press (see Opinion, para. 36), is also consistent with a pattern of avoiding premature judicial interference in the debate on the qualification of software. If the Court had based its decision to exclude information from the scope of Directive 85/374 on potential risks to the aforementioned freedoms, this could have implied that, a contrario, software should not be excluded since software is less pertinent to the freedoms of expression and the press than information.

In conclusion, the Court of Justice eventually reaches in Krone the same conclusion as the Advocate General and most scholars who had previously opinionated on the matter. However, the Court’s succinct motivation, based solely on a product-service distinction, is novel and seems to me a more astute and durable choice of argument within the evolving context of product liability law.

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