??AI Liability | Special AI Law Edition

AI News and AI Governance | Edition No 4

->Thank you for joining this newsletter! ?? I am Karin Tafur, an AI Legal and Ethics Consultant, Author, and International AI Speaker & Trainer. ??I work with international organizations on AI governance and ethics, helping ensure responsible development and compliance.

Through this newsletter, I will provide valuable insights, industry updates, expert research, analysis, and the latest regulations! to help you stay informed and navigate this critical field. ??I appreciate your engagement and look forward to exploring these topics together!

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***Effective February 2, 2025, the European AI regulation will require all AI providers (developers) and users (non-AI companies that use AI and AI companies) across Europe to ensure their staff possess sufficient AI literacy.

??FOR INDIVIDUALS:

This live online session is designed to gain expert insights that will empower you to lead in AI literacy and regulation in your organization. DATE: February + Only 15 seats available. ?? To receive further information, contact me here.

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??The Future of AI and Liability: Key Insights from the New EU Directive

To gain a clear and complete understanding of this EU Product Liability Directive 2024, it’s important to explore its background, the reasons for its update, and the key changes it introduces.

I will also address the key questions it poses, clarify its implications for businesses and consumers, and explain when it will become fully mandatory.

The EU Product Liability Directive 2024, adopted on October 23, 2024, is a major update to the EU’s product liability rules. It replaces the older Council Directive 85/374/EEC on Liability for Defective Products, which has been in effect since 1985.

The new directive, the EU Product Liability Directive 2024, is specifically designed to address the realities of modern technology, including AI systems, software, and digital products, ensuring that consumers are protected while businesses remain accountable.

With the rapid rise of technologies like AI and the Internet of Things (IoT), the EU recognized the need to modernize its laws.

EU Product Liability Directive 2024 rules beyond traditional products to include digital tools and software, areas that the 1985 directive couldn’t fully cover.

?? Who should read this document (the EU Product Liability Directive 2024)?

? Business Leaders: Especially those in manufacturing, technology, and digital product sectors who need to understand their new responsibilities under the updated liability rules.

? Legal Professionals: Including compliance officers, lawyers, and consultants specializing in product liability, consumer protection, and AI-related cases.

? Policymakers and Regulators: In the EU and beyond, focused on product safety, technological advancements, and legal harmonization.

? Technology Developers: Particularly those working with AI, software, and digital tools, who must align their processes with the directive's liability framework.

?? Why This Directive Is Important

This document provides a clear and comprehensive overview of the EU Product Liability Directive 2024, which now includes software and AI systems. These updates are important because they:

• Impose new legal obligations on businesses and developers regarding AI and digital products.
• Enable proactive risk mitigation for businesses dealing with defective or harmful AI systems.
• Establish clear consumer compensation mechanisms in the event of non-compliance.

?? Key Updates:

• Covers more than just physical products: Liability now includes AI systems, software, and digital services, as well as traditional goods.
• Defines defective products clearly: A product is defective if it doesn’t meet the safety standards people reasonably expect.
• Focuses on new technologies: Tackles safety risks from AI, IoT, and software updates that might cause harm.
• Holds multiple parties accountable: Both manufacturers and, in some cases, suppliers or importers can be held liable.
• Strengthens consumer rights: Simplifies the process for filing compensation claims.

??KEY QUESTIONS UNDER THE EU PRODUCT LIABILITY DIRECTIVE 2024

1. What products are covered under this Directive?

This applies to physical movable products, software, AI systems, digital files, and electricity when these products are involved in causing harm due to defects.

?? Movable Products: The directive applies to all movable products (physical items that can be moved). These include goods such as electronics, vehicles, and appliances.

?? Software: is explicitly included in the definition of a "product." This includes software that can be standalone or integrated into physical products like operating systems, apps, or AI-related software.

?? Digital Manufacturing Files: Digital files (such as CAD files or 3D printing files) are also covered, as they are considered products when they contain the information necessary for producing tangible goods.

?? Electricity: is defined as a product within the context of the directive, particularly about energy-related products and services.

??AI and Digital Services: AI systems and related digital services (like software or services that influence the safety of a product) are also covered. If AI or digital services are integrated into a product, they are treated as components of that product, and the manufacturer can be held liable for defects in those services or systems if they cause harm.

2. What makes a product defective under this Directive?

??A product is considered defective if it does not provide the safety that people are entitled to expect or that is required under Union or national law. This assessment takes into account various factors, including:

? Presentation and characteristics: How the product is labeled, designed, and marketed, including its instructions for use and maintenance.

? Reasonably foreseeable use: How the product is intended or likely to be used, including predictable misuse.

? The moment in time: The state of the product at the time it was placed on the market or, if the manufacturer retains control when it left their control.

? Group-specific needs: The specific safety requirements for the group of users for whom the product is intended (e.g., children or individuals with disabilities).

3. Who is responsible for defective products under this Directive?

• Manufacturers are primarily responsible: This directive explicitly states that the manufacturer of the product is the first entity held liable if the product is defective.
• Suppliers (like importers or retailers) may be responsible: If the manufacturer cannot be identified, suppliers or importers may be held liable unless they provide the injured party with information about the manufacturer or the person who supplied them with the product.

4. How does liability apply to new technologies like AI?

The law explicitly includes AI systems ?? and software. So, if AI or software causes harm because it’s defective, the AI manufacturer is responsible. This includes cases where AI systems learn or acquire new features after being placed on the market if those features introduce defects:

?? Software and AI Systems as Products: AI systems, including standalone software, integrated software, or software accessed via the cloud, are classified as products under this Directive. Liability applies to these technologies in the same way it does to physical products.

?? Interconnected Digital Services: Digital services, like AI components integrated into products, are also subject to liability when they are essential for the product’s safety or functionality. This Directive holds manufacturers responsible for digital services that are part of a product and affect its safety, like navigation or health monitoring systems. However, internet access services are not included because the manufacturer doesn’t control them.

??→The only exception is if the product needs the internet to work safely, and losing the connection makes it unsafe. In that case, the product could be considered defective.

?? For example, a smart home security system that relies on an internet connection to send alerts and monitor cameras remotely. If the system loses its internet connection, it may stop sending emergency alerts or fail to record footage, compromising the safety of the home. If the product is designed to depend on an internet connection for its safety features, the loss of connectivity could make it unsafe, and the security system could be considered defective under the Directive.

5. What damages can you claim compensation for?

6. What obligations do businesses have regarding software updates?

?? Maintain Product Safety with Updates: Manufacturers are responsible for addressing safety risks through necessary updates, particularly cybersecurity vulnerabilities.

?? Liability for Defects Due to Missing Updates: Manufacturers remain liable if the absence of updates (such as software patches or upgrades) leads to a product defect.

?? Responsibility for Third-Party Updates: If a manufacturer authorizes third-party updates, they must ensure those updates maintain the product's safety. Liability remains with the manufacturer in such cases.

??For example, imagine you buy a smart TV that requires you to download a video app from another company's website. If the app is defective and causes damage, both the TV manufacturer and the app developer are responsible, even though the app issue occurred after the TV was sold. This rule ensures manufacturers remain accountable for defects that happen due to digital services they control or authorize.

? Exclusion of Liability for Non-Installed Updates: Manufacturers are not liable if the consumer does not install a provided update that is necessary for safety.

7. How does the "EU Product Liability Directive 2024" impact global supply chains?

This Directive introduces specific changes to ensure accountability and compliance for products placed on the EU market. Its impact on global supply chains includes:

? Liability for Manufacturers, Importers, and Authorized Representatives

• Manufacturers are primarily liable for defective products, including their physical and digital components.
• Importers and authorized representatives are responsible for ensuring that products manufactured outside the EU comply with EU safety standards. They act as the liable parties when placing products on the EU market.

? Accountability for Digital Components

• The directive explicitly covers digital products, software, AI systems, and machine-learning technologies, holding manufacturers liable for defects in these components.
• Manufacturers must provide necessary updates and maintain the safety of products throughout their lifecycle, particularly for software and cybersecurity.

? Limited Liability for Fulfillment Service Providers

• Fulfillment service providers (e.g., companies storing or shipping products) have limited and subsidiary liability, ensuring accountability when no other responsible party (e.g., manufacturer, importer, or representative) exists in the EU. This Directive has expanded the understanding of accountability in modern supply chains to include non-traditional actors like fulfillment service providers.

8. What is the time limit for filing a liability claim under the "EU Product Liability Directive 2024"?

9. What does the "EU Product Liability Directive 2024" mean for businesses and consumers?

?? For Businesses: The directive requires businesses to ensure product safety and liability, covering both physical and digital products, including AI and software. Manufacturers, suppliers, and importers are responsible for defects and must be prepared to handle compensation claims. Companies must also implement processes to identify defects and ensure compliance with safety standards, especially for AI and connected devices.

??For Consumers: The directive offers enhanced protection, allowing consumers to claim compensation for injuries, property damage, or data destruction caused by defective products, including digital and AI systems. It ensures higher safety standards for all products and simplifies the process for seeking compensation. This creates a clearer legal framework to hold manufacturers accountable and ensures better consumer protection.

10. When will the "EU Product Liability Directive 2024" become legally mandatory?

The EU Product Liability Directive 2024 includes a transition period for EU member states to implement it into their national laws. ?? It will become legally mandatory on December 10, 2026. From that date, businesses must comply with the new rules, and consumers will be able to claim compensation for defective products.

***Legal Disclaimer: As an AI expert, I provide this information for GENERAL GUIDANCE and insights based on current industry knowledge. However, this should not be interpreted as tailored legal advice and should not be considered a substitute for personalized professional consultancy.        

11. What are the key differences and implications of transitioning from Directive 85/374/EEC to the "EU Product Liability Directive 2024" (Directive EU 2024/2853)?

??(*) Recent Judicial Ruling: In 2001, a consumer purchased a Ford car from Stracciari S.p.A., an Italian dealer. The car, manufactured by Ford WAG in Germany and distributed by Ford Italia, had a defective airbag that failed during a 2004 accident. The consumer requested damages against Ford Italia and the dealer. Ford Italia denied liability, claiming it wasn’t the manufacturer.

The Italian Supreme Court sought clarification from the Court of Justice of the European Union (CJEU) on whether a supplier whose name resembles the product’s trademark could be considered a producer under Article 3 of Directive 85/374/EEC.

→ ?? The CJEU issued its judgment in Case C-157/23, Ford Italia, on December 19, 2024.

The court concluded that a supplier whose name resembles the product's trademark could be considered a producer under Article 3 of Directive 85/374/EEC. This decision ensures stronger consumer protection by potentially holding suppliers liable for defective products, even if they did not manufacture the product themselves.

→?? This decision also sets a significant legal precedent, impacting industries across Europe.

?? AI LITERACY TRAINING (Live Online Session)

***Effective February 2, 2025, the European AI regulation will require all AI providers (developers) and users (non-AI companies that use AI and AI companies) across Europe to ensure their staff possess sufficient AI literacy.

??FOR INDIVIDUALS:

This live online session is designed to gain expert insights that will empower you to lead in AI literacy and regulation in your organization. DATE: February + Only 15 seats available. ?? To receive further information, contact me here.

→ Instructor: Karin Tafur: Explore my AI expertise and contributions here.

??FOR TEAMS:

Contact me at: contact [at] karintafur [dot] com, with the SUBJECT LINE: AI Literacy for Teams.

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Best regards,

Karin Tafur | EU AI?Legal and Ethics?Consultant | Author?| Lecturer | International AI Speaker?& Trainer