Product Liability: Violation of a Protected Right

Compensation can only be claimed under § 823 para. 1 of the German Civil Code if the listed protected right – body, health, property – has been damaged.

From a case law perspective, the affected item does not necessarily have to have been harmed or destroyed for damage to property to have occurred. A restriction of its intended use is sufficient. However, in principle compensation must be paid for destroying other items due to the “producer goods”: By contrast, damage on the actual defective product – a built-in motor catches fire and destroys not only the machine but also itself – will only be compensated under the most limited conditions. This is the case because otherwise the boundary between the purely contractual liability of the seller and the interesting liability in tort of the producer would
become blurred. The details here are very complex and cannot be described within the scope of this Safety Compendium.

 

Liability in Tort and Putting a Defective Product Into Circulation

The wording of § 823 para. 1 of the German Civil Code (BGB) is very wide in scope and establishes producer liability in tort:

“Anyone who, intentionally or negligently, unlawfully injures the life, body, health, property or other right of another person shall be liable to pay compensation to the other party for the resulting damage.”

This general formulation includes liability for damage caused by a defective product at the purchaser’s, end user’s or other third party’s. If you transfer the individual conditions of liability into a structure, you will have the following method of assessment:

1. Act or omission of offender = Putting a defective product into circulation 
2. Physical injury or damage to health, damage to property
3. Physical injury or damage to health/damage to property caused by defective product
4. Illegality
5. Fault (slightest negligence is sufficient!)
6. Legal consequence: Compensation

Putting a defective product into circulation
Liability in tort, as stated in the Product Liability Act, begins when the defective product is put into circulation. Nonetheless, the point at which the product is put into circulation is not defined in law. At the latest therefore, this can be deemed to be when the product appears on the market, but this is not a condition: It is sufficient for the producer to pass the product to another person outside his sphere of producers.

The product is deemed to have been put into circulation when it has been delivered to a sales company which is legally independent of the producer, has been passed to the forwarder or carrier, or the subproduct has been supplied to the assembler. It has not been put into circulation if the product has merely been offered, held in stock or passed to a materials testing laboratory for test purposes.

Product Liability: Distribution of the burden of proof and special features

Distribution of the Burden of Proof

The success of a product liability case depends largely on the burden of production and proof. The underlying principle is that the claimant always has to prove all the foundations of his claim. Under the Product Liability Act, the injured party must prove the defect, the causal relationship between the defect and the damage and the damage itself. It is assumed that the defect was present as the product was put into circulation. The producer is excluded from liability if he can prove that the defect did not exist at the time when it was put into circulation.

Such a circumstance is conceivable particularly in a situation where a sub-product is initially free from defects, but becomes defective due to the specific way in which it is used, i. e. incorporated into the finished product. Take a scenario in which pipes that are intrinsically free from defects but are only suitable for normal pressure loads are built into a machine exposed to high pressure loads without consulting the producer. The producer shall not be liable if the pipes burst due to the high pressure.

Special features of the Product Liability Act

The Product Liability Act provides for a maximum liability payment per claim of EUR 85 million (approx. 109 million USD); a basic amount of EUR 500 (approx. 640 USD) will not be compensated. As such, the injured party shall bear a loss of EUR 500 on the material damage.

Claims under the Product Liability Act fall under the statute of limitations after three years. The limitation period begins from the day on which the plaintiff became aware, or should reasonably have become aware, of the damage, the product defect and the identity of the producer. All claims shall end ten years after the product has been put into circulation.

Product Liability: Importers, Suppliers and Exclusion of Liability

Importer

In accordance with § 4 of the Product Liability Act, the EU importer of the product shall also be liable. The product must be imported into the European Economic Area in the course of the importer’s business activity for commercial purposes (e.g. sale, hire, lease). This regulation is intended to protect the consumer from having to conduct a product liability case with a producer in a third country outside Europe.

For example, if electronic monitoring relays are imported from China and a defect causes a fire, the injured party does not have to conduct a product liability action against the Chinese producer but can turn to the EU importer of the relays as the liable party. By contrast, if the monitoring relays hailed from Italy (i.e. an EU country), the injured party would be expected to initiate proceedings against the Italian producer. Even an action such as this may involve considerable legal and factual difficulties. The court of jurisdiction, in other words the location of the action and the applicable law (Italian or German law) are questions that need to be clarified in advance.

Supplier

The liability of the supplier (agent) in lieu of the producer is limited by the Product Liability Act to those cases in which the producer of the product cannot be identified. If the product user has been harmed by an anonymous product, he can turn to the supplier, which in practice is the seller. However, the supplier shall only be liable in lieu and can discharge himself completely by naming the actual producer or his own supplier within a certain time period.

Exclusion of Liability

No liability for subsequent product improvement:

Any subsequent product improvement will not work retrospectively and render the previous product line defective. In other words, any technical advance in issues of safety shall not retrospectively render the previous model unsafe and therefore defective in the legal sense. However, if fundamental improvements are made to safety, in each individual case each trader must ask himself whether they need to be introduced as soon as possible into his own product segment, in order to comply with the new, modified safety standards. Social acceptance and social safety expectation plays an important role in assessing safety. Product improvements spread quickly, become standards and then become part of the general safety expectation.

An injured party cannot rely solely on the assumption that the product was defective because it was modified by the producer. If the modification is due to the ongoing technical development of the product, the previous model will not be deemed defective. However, if the claimant manages to show and prove that the product was modified purely in order to rectify a fault from a prior existing safety defect, it will be concluded that the defect dates back to the time that the previous product was put into circulation.

No liability for development defect:

From a legal perspective, a development defect is a defect that could not have been detected at the time the product was put into circulation in accordance with the state of scientific and technical knowledge at that time and therefore could not have been avoided. Objectively, a development defect is unavoidable if the  potential hazard from the product could not have been discovered by anyone – either in the relevant industry or at national/international level – because the knowledge was not available at the time the product was put into circulation. The burden of proof is with the producer. As a result, there is barely a case in law in which a producer has really been able to discharge his liability due to the presence of a development defect.

Note: Lawyers and engineers understand something quite different by the term “development defect”: When lawyers talk about a development defect, in the legal sense this corresponds more to a design defect. Caution: Product liability laws in other European states (currently Finland and Luxembourg) also provide for liability for development defects.

Exemption from liability when mandatory regulations are applied:

The producer’s liability to pay compensation is excluded if the defect is due to the product’s compliance with regulations that were mandatory at the time the product was put into circulation. This exemption from liability is fairly insignificant in practice because mandatory regulations for product design are rare in the Federal Republic of Germany. In particular, technical regulations, standards and recommendations (such as DIN regulations, VDE/ ETSI standards or VDE guidelines, VDE recommendations or VCI regulations) are neither statutory nor mandatory. Compliance with technical standards is always voluntary and, what’s more, they are not mandatory laws under the terms of liability exclusion, as this only refers to one binding paragraph in the Product Liability Act.

Product Liability: Producers and Other Responsible Persons

In accordance with § 1 para. 1 of the Product Liability Act, the producer is primarily liable. This is defined as the actual producer of the finished product, component or raw material. The producer usually has a market presence as an AG, GmbH or some other company or corporate form. As a result, the company’s liability is limited.


Assembling and mere product completion
Anyone who assembles the product from parts that other producers have pre-assembled, without any in-house manufacturing (often called an assembler), is also deemed to be the producer. In practice it can be difficult to distinguish between this sort of assembler activity and product completion, which is categorized as a typical agent activity. If a product’s safety-related properties are modified, it can always be assumed that this is the activity of a producer. A relevant pointer is whether the assembly could be achieved by a layperson with no design or technical knowledge, with simple hand movements and without any special tools. Another
relevant factor is whether the assembled product represents a stand-alone product in comparison with the subproducts.


The company that assembles table frames and glass plates into bistro tables should be regarded as a producer and not merely an agent.

By contrast, the company that only apportions and packages a finished product, such as a safety switch or servo amplifier, should not be regarded as a producer.

Liability of the quasi-producer
The quasi- producer is also liable in addition to the actual producer. In accordance with § 4 para. 1 clause 2 of the Product Liability Act, any person who, by putting his name, trademark or other distinguishing feature on the product, presents himself as its producer, shall have legal equality with the producer. This means anyone who presents himself on the market as the actual producer. This liability as quasi-producer has repercussions for mail order businesses and chain stores who have goods manufactured for them and then offer the product with their own trademark or company label. The same applies to industrial suppliers who complete their full range under their own label by purchasing commodities.


The “Produced for …” tag does not justify a status as quasi-producer because the very tag illustrates the point that someone other than the product supplier is the producer. 

It is irrelevant whether it’s the actual producer or the quasi-producer who applies the name,  trademark or any other feature of the quasi-producer to the product. And neither is it necessary for the producer to give his consent before the third party mark is applied. The definitive factor in the liability of the quasi-producer is that the product is put into circulation with the name or trademark of the quasi-producer and with his approval. 

Product Liability Act: Determining the User Circle

In this context, the circle for whom the product is ultimately intended is a key factor. If the product is only intended for a specific user circle, it can be geared towards their safety expectations.
For instance, case law has ruled that the producer cannot assume that wet concrete will only fall into the hands of those who are familiar with the risk of chemical burns from wet concrete. The producer would have to aim at the least informed consumer and so should provide warnings indicating the potential for alkaline chemical burns.

If the product is only to be supplied to a specialist firm, for example, the producer may assume that the products will only be used by specialist staff. However, the picture is quite different if the producer discovers that – despite restrictive sales channels – the product has still found its way into the hands of inexperienced end users (“product migration”).

Product's User Lifecycle

Example: The laser pointer was originally developed for commercial presentation purposes but has since found its way into the daily routine, even being regarded as a toy. Where safety expectation is concerned, the producer must consider the fact that laser beams may potentially be projected into  the human eye. As a result, he must guarantee a higher safety standard than was required for the originally intended application.

However, when certain products are specifically intended for specialists – such as a relay for  electrical engineers for example – and it is clearly stated that the product may only be installed, approved and used by specialist staff, assembly instructions need not be provided for laypeople.

Product Liability: Technical Standards and Specifications

Technical norms, standards and specifications play a role in the legitimate safety expectation from the design and manufacture of products. As a starting point, the product must comply with the current state of research and science at the time it is put into circulation. However, technical specifications and norms merely represent a  minimum standard which, if undershot, might suggest a violation of the expected level of safety. The reverse
conclusion cannot be drawn in this case: A product that complies with the technical standards may nonetheless be defective in the legal sense. Technical standards may have become obsolete or may need expanding due to continued technical developments; they may have been incomplete from the start, or the content may vary from  the current state of scientific and technical knowledge for some other reason. For this reason, in the event of damage in conjunction with a certain product, the position cannot be taken that product defects are excluded in law due to compliance with the designated technical standards. Time and time again the ruling has been that  although compliance with DIN regulations indicates that the product is free from defects, in no way does it exclude the possibility that a product may be defective.


In this context, the Federal Court of Justice (BGH) emphasizes the fact that the “latest state of scientific and technical knowledge” determines the scope of the necessary protection measures. The usual standard in the respective industry is not definitive in this case; instead, alternative technically superior designs must be used by the producer as soon as they are ready for series production and are economically acceptable to the producer.

Examples: A lifting platform may be defective, for example, if it conflicts with the applicable DIN regulations or VDE recommendations and these conflicts cannot be compensated by “more intelligent” solutions.  Neither can the defect be rectified by offering the customer a supplementary set of safety components for purchase.


European standards, such as Annex I of the EC Machinery Directive 98/37/EC, also contain legal technical specifications. If the requirements of European technology law are not met, e.g. in the design of a floor sanding machine, this must be regarded as a product defect. 


However, if a gardening implement meets the existing DIN standards for example, this indicates that it is free from defects but in no way guarantees it. A defect may arise from errors in the technical design if standards have not been implemented or if individual batches suffer from material defects.

Product Liability: Product defects

Under the Product Liability Act, liability shall be accepted for any death, bodily injury, damage to health or material damage caused by the defective product. However, damage to an item used for corporate, business, commercial or professional purposes, cannot be compensated under the Product Liability Act.


Types of product defect:
The “defect” is the key term in the Product Liability Act, as the product defect is the starting point for liability.

§ 3 of the Product Liability Act defines a defect as follows:
“A product is defective when it does not provide the safety which a person is entitled to expect, taking all circumstances into account, including:

• the presentation of the product,
• the use to which it could reasonably be expected that the product would be put,
• the time when the product was put into
  circulation.”

Legitimate safety expectation
It should be noted that nobody can expect one hundred per cent safety. In practical terms it’s important to distinguish between the absolute and relative hazard from a product: Each and every product carries a certain technical hazard potential, depending on its use in a specific case. Ultimately the deciding factor is how dangerous the product is – relatively speaking – compared with other products available on the market.

In other words, absolute safety does not have to be guaranteed. The thinking behind this is that unreasonable costs ought not be imposed on a producer in terms of production. Consequently he is not forced to implement every possible precaution that is technically feasible. The safety standard with which he needs to comply is limited to what is possible and reasonable. A producer must take all due diligence measures that cost less than the total amount of damages avoided by implementing them. As a result, the producer must carefully strike a balance between the threatened damage and the required safety measures.

Example: In the case of a dishwasher, where escaping water could ruin the whole kitchen, it is reasonable to install protection against rust perforation – which is technically feasible and manageable in terms of outlay – even in the face of heavy competition from the market.

The price of the product certainly plays a role in the legitimate safety expectation: The same basic degree of safety may be expected from a cheap product, but not the same overall degree of safety that would be expected from an expensive, highly developed product.