CMS Guide to changes to EU Product Liability Directive in Austria

• The Product Liability Directive 85/374 has been implemented in Austria in the Product Liability Act (“PHG”).
• Product liability arises according to the PHG when damage is caused by a defective product, and it falls under the tort liability of the manufacturer. Compensation can be claimed under the PHG if personal injury or damage to a privately used object other than the product occurs due to the defect.
• The PHG imposes strict, mandatory and regardless of fault liability on entrepreneurial manufacturers, importers, or retailers for personal injury and property damage caused by a defective product. The defect must be the cause of the damage and must have existed when the product was placed on the market.
• According to the PHG, the producer is primarily liable, but if the producer is based abroad, the domestic importer becomes liable. If neither the producer nor the importer can be identified, the retailer becomes liable for the damage incurred under the PHG.

• According to the new Product Liability Directive, software, which also includes AI within the meaning of the AI regulation, is also to be regarded as a “product”.
• The most important changes are the expansion of the product definition to include software, which also includes AI systems within the meaning of the AI Regulation.

Furthermore, the group of liable parties has been expanded and obligations have been established for manufacturers outside the EU, changes have been made with regard to the burden of proof on the plaintiff, which makes it easier to prove damage suffered from a defect product.

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Challenges might arise out of the obligation to disclose evidence according to Art 8 of the new Product Liability Directive. Further, the processing and utilization of digital evidence before national courts might be challenging. 

• At the moment, the liability of digital products, especially software, under the PHG is very much dependent on the individual case. In this context, a very casuistic case law has developed in Austria on this topic in recent years.
• The advantage of the new Product Liability Directive is that straight forward conditions under which a manufacturer etc. is liable for software are established by law. This will provide legal certainty and the importance of case law, and the consideration of individual cases will recede into the background or only be decisive in cases in cases of doubt.

• As mentioned in the previous question, the current situation in Austria is that the assessment of software as a product within the meaning of the PHG is highly dependent on the individual case.
• In this context, case law has established that one is only liable for software errors if it is "attached" to a physical and movable object. A connection with a physical object is therefore required (e.g. smart car). In this context, the question of liability for defects that can be traced back to AI systems, for example, is very difficult.
• This is precisely where the new Product Liability Directive comes in, as it now establishes in law that liability can also arise for defective software, in particular AI systems or other emerging technologies within the meaning of the new Product Liability Directive. Defective software will thus be treated in the same way as traditional product liability cases.

• The new Product Liability Directive improves consumer protection in the sense that it facilitates the enforcement of claims for compensation by persons harmed by software, especially by AI systems. This is achieved by the fact that "software" is specifically defined in the new Product Liability Directive and can therefore be understood independently and not in the sense as described above, requiring a connection to a physical and movable object.
• In addition, disclosure requirements and causality assumptions are intended to ensure that consumers who have been harmed by AI systems are not placed in a worse position than people who have been harmed by 'conventional' products.

• The new directive will have a particular impact on companies operating in the software (development) and AI sectors.
• In this context, companies should also implement liability limitations and obligations in the supply chain to mitigate risks and ensure legal compliance.
• Besides, only complying with the requirements set out in the new Product Liability Directive there will be many other relevant legal regulations such as the AI Act, which will require them to develop AI systems that comply with certain essential requirements.  

• As mentioned above, the scope of the disclosure obligation under the new Product Liability Directive is not entirely clear.
• Further, according to the case law of the Austrian Data Protection Authority, an algorithm is one of a company's trade and business secrets. In this context, the question would therefore arise as to whether the disclosure obligation of companies is restricted here. In this context, however, it is doubtful whether meaningful information on the logic of automated decisions, as required by Art. 15 GDPR, is sufficient for the disclosure obligations under the new Product Liability Directive.
• Finally, it is not yet clear how technical evidence will be processed and weighed by Austrian courts in the future.
• On the one hand, it will probably be up to the legislator to enact appropriate rules and, on the other hand, these issues will sooner or later be clarified by the ECJ in the context of preliminary rulings in order to ensure uniform enforcement throughout the European Union.

In Austria, the new Product Liability Directive is expected to be transposed into national law by means of a bill to update and extend the provisions of the existing PHG.

Businesses are advised to:

• Regularly review and update product documentation, including user manuals and warning labels, to ensure accuracy and compliance with regulatory standards.
• Organize AI systems and their design in line with the AI Act requirements, if applicable.
• Utilize high-quality, non-discriminatory datasets for AI training purposes.
• Protect company information as business and trade secrets by implementing measures as outlined in § 26a of the Austrian Unfair Competition Act.
• Ensure protection through limitations of liability, indemnification, as well as fulfilling information, updates, and upgrade obligations within the supply chain.
• Engage with legal experts in product liability law to ensure a comprehensive understanding of the new regulatory requirements and potential liabilities associated with their products.