General

In Germany, product safety is primarily governed by the Product Safety Act (PSA or Produktsicherheitsgesetz), which applies whenever products are made available on the market, exhibited on the market or used for the first time in the context of a commercial activity. It also applies to the erection and the operation of installations subject to mandatory inspections, which are used for commercial or economic purposes or which may put employees at risk. With the PSA, Germany has implemented the European Product Safety Directive (2001/95/EC) into German law.

In July 2021, the new Market Surveillance Act (MSA) came into force. With this act, the provisions on market surveillance and installations subject to surveillance were outsourced from the PSA into a separate act. The MSA ensures unified market surveillance in Germany for European harmonised and non-European harmonised non-food products. The conformity of European harmonised non-food products is ensured via the new EU Market Surveillance Regulation. For the first time, the Regulation also governs online trade in the area of market surveillance. From now on, products made available on the market online and offline are to be considered equally within the scope of market surveillance. With the MSA, the relevant provisions from the Regulation for the non-harmonised non-food product sector are transferred into German law. In particular, this concerns products that are only subject to the Directive on General Product Safety (Directive 2001/95/EC). These are, for example, all used consumer products as well as decorative objects, lighters and ladders. Consumer protection rights will thus be significantly strengthened, especially in online trade.

Going forward, the PSA will largely be overlaid by the new European Product Safety Regulation (to apply from 13 December 2024, see 3.2. EU Product Safety Regulation). A single market surveillance regime will apply to all products and market surveillance authorities will be able to oblige online marketplaces to remove dangerous products from their platforms.

Sector-Specific

Aside from the PSA and MSA, a number of product-specific laws and regulations exist, which are based on the respective European directives. Important national regulations include the machinery regulation (the ninth regulation to the PSA), the toy safety regulation (the second regulation to the PSA), the law on the electromagnetic compatibility of equipment (Gesetz über die elektromagnetische Verträglichkeit von Betriebsmitteln), the law on medical devices (Gesetz über Medizinprodukte), the medicinal products act (Gesetz über den Verkehr mit Arzneimitteln) and the food and feed code (Lebensmittel-, Bedarfsgegenstände- und Futtermittelgesetzbuch). Many more regulations implementing European law exist for specific types of products. Other laws such as the REACH Regulation, dealing primarily with the registration and admissibility of pharmaceutical products, also have direct relevance for product safety matters.

With the implementation of the new EU Market Surveillance Regulation, the subject is now regulated by the separate MSA. Thus, the sixth Section (market surveillance) and the seventh Section (information and notification obligations) of the previously applicable PSA are now almost completely transferred to the new MSA.

Under the regulations, the federal states are responsible for market surveillance. Each state is given the competence to determine its own market surveillance authority. Most states have either chosen their government districts (Regierungsbezirke) or trade inspectorates (Gewerbeaufsichtsämter). This means that there is not one main regulator, but rather several regulators that deal with product safety in the territories for which they are responsible. For manufacturers, this means that the local trade inspectorates at the seat of the manufacturer will typically be the relevant regulator.

The German federal states have established a central responsible body, based in Munich, which deals in particular with foreign manufacturers, co-ordinates the work of the local regulators and serves as a central contact point in certain cases.

There are also market surveillance authorities for specific sectors at a federal level, including for example the Federal Motor Transport Authority (Kraftfahrt-Bundesamt), the Federal Network Agency (Bundesnetzagentur) and the Federal Office for Consumer Protection and Food Safety (BVL). For medicinal products and medical products, the Federal Institute for Medicinal Products and Medical Products (BfArM) in Bonn exists as well.

Regulatory Authority Functions

The regulators have four main distinguished functions. First of all, if an authorisation is required before marketing certain products, the specific regulator is competent to issue this authorisation.

Secondly, if a product has been made available to the market, the regulator monitors compliance with product safety requirements. In this function, the regulator will request samples or even purchase samples from the market. Additionally, competitors will often inform the regulator of alleged product safety issues.

Thirdly, if a safety-related issue occurs, the regulator will typically co-ordinate with the producer, its authorised representative or the importer in order to pursue the appropriate remedies, such as a potential recall or withdrawal from the market, or a mere warning. Should the producer or other relevant party not be co-operative, or should the regulator view other measures to be more effective, the regulator can order remedies such as a recall as well.

Lastly, for certain product safety violations, the regulator can issue administrative fines or, if the violations amount to a criminal offence, involve the public prosecutor.

When making a product available on the market, the producer, its authorised representative and the importer are required to carry out sample-testing, investigate complaints and (if necessary) keep a register of complaints, as well as to inform the distributors of further measures related to the consumer product in question. The type of sample testing to be carried out depends on the risk level related to the products and on the possibility of preventing the risk. In any event, the producer’s obligations do not end once the product has been placed on the market; potential risks resulting from the use of the product also have to be monitored.

Upon discovery of a defect, the producer, its authorised representative and the importer are required to take the steps necessary to remove or mitigate any unacceptable risk. The most hazardous products may even be subject to product recall. However, this will also depend on the severity of the risks posed by the defective product. Although producers may be under an obligation to take appropriate steps to mitigate a risk, the specific steps that need to be taken will depend on the specific product and the specific risk.

For example, products that are inherently more dangerous than others, such as medicinal products, operate under a stricter product safety regime. Additionally, it is now accepted that for products sold only to business users, a product can be recalled by issuing appropriate warnings to discontinue the use of the product, without a replacement product having to be offered (outside any contractual warranties). In the case of consumer products, the situation is not as clear and will depend on an individual assessment of whether the producer, its authorised representative or the importer can actually rely on the assumption that the consumer will discontinue use of the defective product, even if the consumer does not receive a replacement.

In the future, under the new EU Product Safety Regulation (see 3.2. EU Product Safety Regulation), the person who substantially modifies the product will also be considered a producer subject to product safety obligations. A modification will be “substantial” if it has an impact on the safety of the product.

Trigger for Notification

Under the PSA (and the new MSA), the producer, its authorised representative and the importer are required to immediately inform the competent market surveillance authority if a product made available by them presents a risk to health and safety. This means that the trigger is actually risk-based and notification to the authorities can be required even if an incident has not yet happened. Information contained in this notification must at least cover:

• information allowing for the precise identification of the product or batch of products concerned;
• a comprehensive description of the risk;
• any available information which may contribute to the traceability of the product; and
• a description of the measures taken to prevent risks to consumers.

This regulatory reporting obligation presupposes that the producer, its authorised representative or the importer knows or, on the basis of the information available or their relevant experience, should know that the product in question poses a risk. Clear indications are therefore not necessary to trigger the obligation.

Going forward, under the new EU Product Safety Regulation, similar reporting obligations will apply to online marketplaces. They will be obliged to notify the regulatory authorities “without undue delay” if they receive information of any accident resulting in serious risk or actual damage to the health or safety of a customer caused by a product sold on their marketplace.

Time Limits

“Immediately” means without undue delay. This legal term is not strictly defined under German law and must be determined on a case-by-case basis, depending on the level of risk arising from the product in question and other specifics of the case. Some (albeit non-binding) guidelines can be found in the Commission Decision of 14 December 2004 (2004/905/EC). Under these guidelines, the report must be made “without delay, as soon as the relevant information has become available, and in any case within 10 days since [the manufacturer or importer, etc] has reportable information indicating the existence of a dangerous product. When there is a serious risk, companies are required to inform the authority immediately and in no case later than three days after they have obtained notifiable information. In an emergency situation, such as when immediate action is taken by a company, the company should inform the authorities immediately and by the fastest means. [...] However, no company should delay a notification because part of the information is not yet available”.

Formal Requirements

The formal requirements are relatively limited. There are no prescribed forms that must be used. Most importantly, notification can be given electronically. In particular, if a report has to be submitted in several member states of the European Union, the Product Safety Business Alert Gateway hosted by the European Commission can be used. This application form has the advantage that every competent authority in the affected member states will be notified simultaneously. Apart from that, a template form for the notification of dangerous products to the authorities by producers or distributors can also be found as Annex I to the Commission Decision of 14 December 2004 (2004/905/EC).

The authorities can demand a power of attorney (PoA). However, it is possible to initiate the notification even if a written PoA is not yet available.

The PSA provides for administrative fines and even criminal sanctions. For most violations of the PSA the administrative fine is kept at EUR10,000. However, for certain more severe violations the administrative fine can reach up to EUR100,000 and, in the case of intentional violations of certain of its provisions, the PSA even contains criminal offences which provide for imprisonment of up to one year or criminal fines. Notably, if a person is harmed by a product which should have been recalled but either has not been recalled, or was not recalled soon enough, criminal sanctions under general criminal law may apply as well.

German law does not recognise corporate criminal liability, which means that sanctions will be issued to individuals.

Apart from the above-mentioned administrative fines and criminal sanctions, the German general law on administrative fines provides for the skimming of profits, which may lead to the consequence that any revenue generated by the sale of non-marketable products must be paid back to the relevant authorities. This sanction may be issued to the relevant corporate entity and may be much higher than the respective fine.

Sanctions in the form of administrative fines under the PSA or other relevant product safety laws occur quite frequently. Usually, in particular in the case of a first violation by the responsible person, the amount of the fine will be rather limited. Criminal proceedings based upon violations of product safety laws are rare in Germany.

The new EU Product Safety Regulation is not expected to have an impact on the sanctions practice under the PSA. Penalties for infringements of the anticipated EU Regulation will be left to the discretion of the member states.

In Germany, both the Product Liability Act (PLA or Produkthaftungsgesetz) and tort law govern product liability. In addition, there is specific legislation with regard to certain products, such as the Medicinal Products Act, which governs liability for pharmaceuticals.

The Product Liability Act

Liability under the PLA presupposes that a defective product causes a person’s death, bodily harm, damage to health or damage to property. Liability for damage to property, however, only applies if the respective damage was caused to property other than the defective product or property ordinarily intended for private use or consumption.

The causes for actions due to product liability vary. German law differentiates between manufacturing defects, construction defects, instruction defects and monitoring defects. In some cases, the producer may also be liable for an ineffective product or suspected defects.

Claims can be brought against the producer of the product, anyone who holds himself out as the producer, the EEA importer or, under certain conditions, the supplier of the product.

The claimant bears the burden of proving the existence of a defect, the damage caused and the causal relationship between them. The producer may defend itself by referring to the technical and scientific knowledge that was available at the time when it made the product available to the market.

Tort

Liability under tort law is fault-based and requires a negligent breach of a duty of care. The claimant bears the same burden of proof. If successful, however, the burden of proof shifts and the producer must then refute the presumption that it acted negligently (in other words failed to fulfil its duty of care). In addition, unlike under the PLA, damage caused where the product was primarily used for business purposes can be recovered.

Anyone who suffers damage due to a defective product is entitled to bring a claim under both the PLA and tort law.

Until now, unlike other jurisdictions, German law in principle only provided for consumer associations to raise claims due to product liability under limited circumstances. Since 2018, consumer associations can file a so-called model declaratory action (“Musterfeststellungsklage”; see 2.16 Existence of Class Actions, Representative Proceedings or Co-ordinated Proceedings in Product Liability Claims). The model declaratory action is a (purely) civil procedure law tool providing a new form of collective redress in Germany to strengthen consumer protection. However, it does not create any substantive rights or claims for consumers. The model declaratory action has not yet been widely used in practice.

Any model declaratory action under German law will be dealt with by the appeal-level courts as courts of first instance. Only one further appeal directly to the German Federal Court is possible. The aim of such a proceeding is a declaratory judgment stating whether a producer may be liable for a product defect (or any other subject raised in the model declaratory action). This judgment will be binding for the defendant and for the registered claimants only (ie, it will not be binding for any other parties not involved). It can therefore be regarded as an opt-in model. After the declaratory judgment, the individual registered claimants will still have to file a claim for quantum against the defendant. So far, 34 cases for a model declaratory action have been filed, recently particularly against banks and energy providers. The first and best-known model declaratory action in Germany, against Volkswagen AG, ended with an out-of-court settlement in which more than 240,000 consumers received a compensation payment totalling more than EUR750 million from VW.

Going forward, the EU member states will further have to implement the EU Representative Actions Directive and apply the national implementing laws by 25 June 2023. The representative action will allow consumer associations to file claims on behalf of consumers for similar claims (eg, payment of damages), for example based on product defects or unlawful price clauses of banks (“Verbandsklage”; see 2.16 Existence of Class Actions, Representative Proceedings or Co-ordinated Proceedings in Product Liability Claims).

Claims under the PLA become statute-barred within three years of the day on which the party entitled to damages became aware, or should reasonably have become aware, of the damage, the defect and the identity of the party liable to pay damages. The limitation period shall be suspended if negotiations are pending between the party liable for damages and the party entitled to damages concerning the damages to be paid, until such time as one of the parties refuses to continue the negotiations.

In addition, there is a preclusion period. Claims under the PLA expire within ten years of the time when the producer made the product available on the market. This preclusion period does not apply if a legal dispute or dunning procedure is pending over the claim or if the claim has been legally established, if it follows from another enforcement order, if it is the subject of an extrajudicial settlement or if it has been acknowledged through a legal declaration.

Claims under tort law also become statute-barred within three years. The limitation period commences at the end of the year in which the claimant knew or should have known of the damage, the defect and the identity of the potential defendant. Here, too, legal proceedings or negotiations between the parties concerning the claim suspend the course of the limitation period.

The long-stop date depends on the type of claim. A claim for bodily injury has a long-stop date of 30 years. A claim for property damage either becomes statute-barred within ten years of the damaging event or within 30 years after the product was made available, whichever is earlier.

As a matter of course, actions due to product liability before German courts presuppose that German courts are competent. If that is the case, there are two potential types of jurisdiction. Firstly, there will always be jurisdiction at the seat of the defendant. Secondly, under Section 32 of the German Code of Civil Procedure (ZPO or Zivilprozessordnung), there is jurisdiction under tort law. This provision is applied for claims under the PLA as well. The relevant places under this provision are the place where the tort occurred as well as the place where the actual damage occurred. For example, this may be the seat of the producer that has omitted to initiate a recall or, if a consumer is hurt at their home, the home of the consumer as well. As a practical matter, consumers will often try to bring cases in their “home” jurisdiction.

In general, there is no requirement for pre-action procedures in German product liability law. However, under the Introductory Act to the Code of Civil Procedure, in some German federal states the claimant is obliged to conduct a pre-trial dispute resolution procedure when claiming less than EUR750.

It is customary for a claimant to send a demand letter before initiating a court proceeding. However, failing to do so will only have negative consequences with regard to the obligation to bear the costs of proceedings if the defendant acknowledges the claim immediately after a complaint has been filed and served.

German product liability law does not provide any particular rules for preservation of evidence. However, from a product safety perspective, any steps taken to remedy a potential risk need to be recorded. In a civil proceeding in a product liability case it is certainly also advisable to be able to demonstrate compliance with product safety provisions.

There are no particular requirements for the treatment of an already recalled product, as long as it is safely stored and does not pose any further risk to consumers. The producer, its authorised representative or the importer is therefore free to either destroy or keep the recalled products at its own discretion.

It is, however, advisable to keep sufficient quantities of product samples of all variations of the recalled product. Such product samples will, for example, be required in the context of a risk assessment which the alerted market surveillance authority will most likely conduct at some point. In addition, product samples may be required for evidentiary purposes in a potential action for damages by harmed consumers.

Furthermore, the authorities might – at least where the product in question poses a “serious risk” – order the destruction of products where they deem this necessary and proportionate (see Articles 19(2), 29(4) of Regulation 765/2008/EC and Section 26 (2) sentence 2 No 8 of the PSA).

Depending on the individual case, it might make sense to come to an agreement with the authority on reporting obligations concerning the progress of the particular recall.

Lastly, depending on the relevant product, there are general requirements for the disposal (and destruction) of the product – eg, of batteries, with which any manufacturer must comply.

In cases of product liability, as in German civil procedure law in general, the parties are responsible for submitting those documents to the court that they wish to rely upon as evidence (the so-called Beibringungsgrundsatz). They do not have to submit documents that may be harmful to their case, but there is a duty of truthfulness. False statements to the court may therefore constitute a criminal offence. This may also include the deliberate failure to produce, or the incomplete production of, documents if this leads to inaccurate reproduction of the facts.

Under very narrow conditions, the law provides for exceptions to the general Beibringungsgrundsatz. A party may demand that the other party disclose certain documents under Section 421 of the ZPO but the demanding party will have to identify the respective documents and explain why they require disclosure. Also, there is a claim for information under Section 84a of the Medicinal Products Act (AMG or Arzneimittelgesetz), which allows the claimant to request disclosure from a pharmaceutical entrepreneur in relation to known and suspected adverse reactions and interactions of the medicinal product.

In addition, the court may order a party to produce records or documents, as well as any other material, that are in their possession and to which one of the parties has made reference (Section 142 of the ZPO). However, German courts are very reluctant to follow a request under Section 421 of the ZPO or to issue an order pursuant to Section 142 of the ZPO.

Going forward, significant changes regarding disclosure obligations could follow from the proposed new Product Liability Directive (see 3.1. Reform of the Product Liability Directive).

The rules regarding expert evidence in product liability cases do not differ from the rules in civil procedure cases in general, which are laid down in Section 404 et seq of the ZPO. In their written submissions, the parties will state the facts they wish to rely on as well as the kind of evidence they suggest that the court consider.

The role of the party-appointed expert does not exist under German law. If a party suggests presenting evidence by way of an expert opinion, the court will appoint such an expert and can choose the person at its own discretion. However, before the appointment, the court generally hears the parties’ views on the proposed expert. In the case of a mutual agreement between the parties to the dispute regarding the person to be appointed as expert, the court will comply with what they have agreed; however, the court may limit the selection made by the parties to a certain number.

Expert Rejection and Disqualification

An expert may be rejected for the same reasons for which a party is entitled to challenge a judge. This means that they can be recused from the case where they are disqualified by law from exercising their duty and in those cases in which there is a fear of bias.

Reasons for an expert’s disqualification by law are:

• in all matters in which they themselves are a party, or in which their relationship to one of the parties in the proceedings is that of a co-obligee, co-obligor or a party liable to recourse;
• in all matters concerning their spouse or former spouse;
• in all matters concerning their partner or former partner under a civil union;
• in all matters concerning persons who are or were directly related to them, either by blood or by marriage, or who are or were related as third-degree relatives in the collateral line, or who are or were second-degree relatives by marriage in the collateral line; and
• in all matters in which they were appointed as attorney of record or as a person providing assistance to a party, or in which they are or were authorised to make an appearance as a legal representative of a party.

For fear of bias, the party must present sound reasons that justify a lack of confidence in the expert’s impartiality. This can be a personal or professional relationship to one party, former appointment in the same or a similar case or the concrete behaviour of the expert, any or all of which may give rise to concerns.

Aside from these mandatory reasons for disqualification as an expert, the parties can also challenge the professional expertise of an expert suggested by the court. If there are valid reasons, German courts often reconsider their proposal and appoint a different, more qualified expert.

Procedure

After giving their written opinion, the expert can then be requested to attend an oral hearing and can be questioned by both the court and the parties.

Apart from this, the parties may also submit their own expert’s opinion (ie, that of an expert not assigned by the court). However, these reports are only treated as party submissions, not expert evidence.

Both under the PLA and under tort law the claimant bears the burden of proof. As a result, they have to provide proof of the defect, the damage and the causal relationship between them. They must prove this to the satisfaction of the court. Under German civil procedure law, the standard of proof is “beyond reasonable doubt”. Prima facie evidence may suffice if the damage represents a typical result of the defect. For medicinal products, Section 84 (2) of the Medicinal Products Act includes a presumption of causality. The producer may, however, then prove a possible alternative cause for the damage. For medical devices, products belonging to a potentially defective production series may be considered defective under certain conditions without there being further need to establish a product defect of the individual device.

The producer has to provide proof for any defences it claims under both the PLA and tort law.

Liability under tort law is fault-based and requires a negligent breach of a duty of care. Typically, the producer has to prove that they complied with their duty of care, by proving, inter alia, that their production process – including quality control processes – complied with the state-of-the-art processes at the relevant time.

As German law does not provide for any discovery, proving a case can be difficult for a claimant – in particular when facts relate to things that happened within the sphere of the producer, such as the question of when a recall should have been initiated. In such circumstances German courts may require the producer, though it does not bear the burden of proof, to submit relevant facts and evidence (sekundäre Darlegungslast), or may even shift the burden of proof.

Going forward, rebuttable presumptions of facts in certain complex cases could follow from the reform of the Product Liability Directive (see 3.1. Reform of the Product Liability Directive).

Product liability cases are brought before civil courts. There is no special jurisdiction for such cases, neither do any specific procedural requirements exist. Up to a value in dispute of EUR5,000, district courts (Amtsgericht) are competent in the first instance. Above this threshold regional courts (Landgericht) are competent.

In the first instance, usually a single judge will preside over the case. Particularly in more complex cases, a panel of three judges may hear the case. Panels, however, only exist at regional courts.

In certain commercial disputes, the case may be transferred to a special chamber consisting of two non-professional judges with a professional commercial background and one legally trained judge.

Juries, however, do not exist in Germany.

Under the PLA there is an upper threshold for damages caused by bodily harm of EUR85 million as a maximum amount of liability for all cases caused by product. However, if the claim is based upon tort law, no limitation applies at all.

There are no specific rules in respect of product liability cases with regard to applicable rules for appeal. Under German procedural law (Section 511 et seq of the ZPO, Berufung), appeals are an available remedy against final judgments delivered by the courts of first instance. Appeals, however, are only admissible if the value of the dispute exceeds EUR600 or if, in its ruling, the court of first instance grants leave to appeal.

The court of first instance shall admit an appeal in cases:

• in which the legal matter is of fundamental significance or wherever the further development of the law or the interests in ensuring uniform adjudication require a decision to be handed down by the court of appeal; and
• wherever the judgment does not adversely affect the party by an amount higher than EUR600.

The time limit for filing an appeal with the court of appeal is one month. This is a statutory period which begins once the fully worded ruling has been served, and at the latest upon the expiry of five months following pronouncement of the judgment. The notice of appeal must, as a minimum requirement, set out the reference number and designation of the judgment against which the appeal is being lodged and the declaration of the appeal being filed against the judgment. Usually the appellant also submits a certified copy of the judgment being challenged together with the notice of appeal. The particulars of the appeal must be submitted within one further month – ie, within two months from when the fully worded ruling has been served. However, the judge may extend this period by up to one further month.

After the appeal, there is only one further appeal possible to the German Federal Court. This second appeal can only be based upon legal grounds and not misinterpretation of factual issues. It can only be brought if the appeal court has allowed it or the German Federal Court has accepted it.

PLA

Under the PLA, the producer may raise the following defences:

• they did not make the respective product available on the market;
• the circumstances of the case justify the assumption that the product was free from defect when it was made available on the market;
• the product was not manufactured for sale or any other form of distribution with an economic intent;
• the defect is due to compliance with mandatory regulation at the time the product entered circulation; or
• the state of scientific and technical knowledge at the time when the producer put the product into circulation was not such as to enable the existence of the defect to be discovered (development risk defence).

The producer of a component of the product will not be liable if they prove the defect can be attributed to the instructions given by the manufacturer or the design of the product.

Tort

Under tort law, the defences are very similar. Other potential defences to a producer’s alleged negligence also include that:

• they selected, trained and supervised their employees with care;
• they had adequate quality control measures in place;
• they selected their suppliers carefully and inspected their products; or
• they ensured that the product complied with relevant technical standards, laws and regulations.

Compliance with regulatory requirements does not generally constitute a defence as such for the producer. However, these requirements can usually be considered in order to determine the level of legitimate safety expectation, the relevant state of the art processes and the applicable standard of care to be applied.

The prevailing party is entitled to recover its costs, including its attorney’s fees, from the losing party.

The amount of the claim for reimbursement of costs is dependent on the extent to which the prevailing party prevails in relation to the underlying defeat of the other party.

In Germany, the minimum attorney’s fees are regulated in the Lawyers’ Compensation Act (Rechtsanwaltsvergütungsgesetz) and depend on the amount in dispute. Even if the client and the attorney agree on hourly fees, the prevailing party’s claim for reimbursement is limited to the statutory fees. The statutory fees include rates for the conduct of litigation and the conduct of the court hearing. Additional fees are charged for particularly extensive taking of evidence or in the event of a settlement agreement. In addition, expenses such as travel expenses, translation costs, etc, are also taken into account in the reimbursement claim. Furthermore, advance payment of the court fees, which must be made by the claimant, is proportionally recoverable to the extent the claimant prevails. The same applies to any advanced payments for witnesses or experts.

Even if the costs of litigation are fairly moderate compared to some other jurisdictions, more than 40% of all German households have legal protection insurance in place – ie, insurance policies with private insurance carriers covering legal costs and expenses associated with enforcing or defending legal claims both in and out of court. These policies play an important role in consumer litigation as they practically annihilate the “loser pays” rule and allow policyholders to bring legal action without a cost risk.

In addition, legal aid is available in certain circumstances and is particularly common in consumer cases. A court will grant legal aid only if it is satisfied that the potential claim or defence has reasonable merits and that the party seeking legal aid meets the financial criteria of indigence. If granted, legal aid covers attorneys’ fees and court fees, including the fees of any court-appointed experts and other necessary expenses. There is no legal remedy available to the opponent to contest the grant of legal aid.

Furthermore, third-party litigation funding is permissible in Germany. While third-party funding has been available in Germany for several years, it used to only play a role in commercial litigation. Recently, however, litigation funders have begun to fund consumer claims and product liability claims in particular as test cases for potential mass litigation.

Conditional or contingency fees are not permissible in Germany. The same applies to success fees, with a very narrow exception for cases in which the client would otherwise not be able to fund the proceedings.

To date, German civil procedure generally does not permit class or group actions seen in other jurisdictions.

In 2018, however, the so-called model declaratory action (Musterfeststellungsklage) was introduced into the German Civil Procedure Act. Consumer advocates considered it a milestone for consumer protection. This new type of representative proceeding enables certified consumer associations to seek declaratory findings on questions of fact that may be relevant for the subsequent determination of a multitude of consumer claims, and which become binding upon those consumers who opt in to the proceedings by registering their individual claim in a public claims register before the first court hearing. The litigation is run by the consumer association, whereas the registered consumer does not become a party to the proceedings. Registration in the claims register, however, suspends limitations of the consumer claims registered. Strict requirements apply concerning the size and standing of the consumer associations, in order to avoid plaintiffs’ law firms or litigation funding companies setting up such institutions as a vehicle to pursue commercial interests. Among other things, the consumer associates must operate on a non-profit basis, have at least 350 members and have been in existence for at least four years by the time the action is filed. Upon filing the action, the consumer association must show that the subject matter of the action affects the claims of at least ten consumers. Also, at least 50 consumers must have registered their claims in the claims register within two months following publication of the action.

The German legislature intends for the model declaratory action to be covered by the German laws implementing the EU Representative Actions Directive which are expected to enter into force in 2023. Under these new laws, there will be less stringent requirements on consumer associations to file declaratory actions on behalf of consumers (see 3.2. Future Policy in Product Liability and Product Safety).

Until then, the model declaratory action aims at the determination of (i) factual and legal preconditions for the existence of a consumer claim (eg, whether a certain product suffered from a product defect), or (ii) the existence or non-existence of a legal relationship between a customer and a producer (eg, whether consumers of a certain product can request that the producer supply a replacement product).

The model proceeding can end with a settlement between the consumer association and the defendant producer or by a declaratory model decision. The decision is binding on all consumers who registered their claims up to one day before the first court hearing. The consumers must pursue their individual claims against the producer in a separate and ordinary court proceeding – eg, to prove causation and damages in their individual cases. The court ruling on the individual claim will, however, then be bound by the decision in the model declaratory action – eg, that a certain property of the product used constituted a product defect.

Please refer to 2.2 Standing to Bring Product Liability Claims for further discussion of the model declaratory action and the status of relevant developments and procedures.

Diesel Litigation

Over the past years, German civil courts have been very busy dealing with consumer claims in the so-called diesel emissions scandal. Several thousand German consumers filed individual claims against their car dealers (claims under contract) and/or against several German car manufacturers (claims in tort). To date, many courts, including several Higher Regional Courts, have rendered judgments on these claims. In February 2019, the German Federal Court dealt with a claim against a car dealer and determined that the emission control software used constituted a defect under the sales contracts so that the buyer is generally entitled to request delivery of a replacement car. The court held that, depending on the circumstances of the individual case, such claims may even extend to the supply of a new car of the current production series, if the model of the car that was bought has run out of production. In May 2020, the German Federal Court ruled that a buyer of a manipulated Volkswagen diesel car was entitled to damages against Volkswagen (VW). VW must pay damages for immoral intentional harm and refund the purchase price against return of the car. However, the buyer must take into account the benefit of the previous use of the car for the kilometres so far driven in it. In addition, the Federal Court ruled in July 2020 that in cases where the purchase of the vehicle took place after the diesel scandal became known in September 2015, immoral intentional damage is to be denied. In July 2022, the European Court of Justice ruled that a device which ensures compliance with the emission limits only when the outside temperature is between 15 and 33 °C and the driving altitude is below 1,000 metres can constitute a prohibited “defeat device”. A judgment by the Federal Court is expected in June 2023.

Removal of the RAPEX Notification in Cases of Incorrect Risk Assessment

In 2019, the Muenster Administrative Court ruled that the manufacturers of a wrongly notified product can force the removal of the RAPEX notification if the notification was based on an incorrect risk assessment (Muenster Administrative Court, judgment of 13 November 2019, docket 9 K 2514/16). The Rapid Exchange of Information System (RAPEX) is the European Union’s rapid alert system for dangerous consumer products, excluding food, medicines and medical devices. Under the RAPEX system, national market surveillance authorities notify information on dangerous products to the European Commission if they are considered to pose a serious risk under the PSA and require a recall of the products. On a weekly basis, the Commission publishes a list of the notified products, to warn consumers of their dangers. However, it often happened that the notified products did not actually constitute a risk and the RAPEX warnings were inaccurate. This caused great damage to manufacturers.

A manufacturer of erasers, which were declared as toys for children over the age of three, brought an action before the Muenster Administrative Court. The Court ruled that the market surveillance authority that initiated the notification of the product to the list is responsible for its removal. The manufacturer or importer is entitled to have the authority request the Commission to remove the RAPEX warnings posted on the Commission’s website if the notification was based on an incorrect risk assessment.

Reform of the Product Liability Directive

On 28 September 2022, the European Commission made a proposal for a new Product Liability Directive. The current Directive 85/374/EWG from the year 1985 is to be replaced in order to adapt the product liability regime to the new ways in which products are produced and distributed and to the digital age. The proposal includes numerous significant amendments to product liability law and procedure, such as:

• extension of the scope of the directive to include software as a product, regardless of whether it is integrated into a physical product;
• potential defendants are to include manufacturer’s authorised representatives, fulfilment service providers and – under certain conditions – retailers and online marketplace platforms;
• restarting of limitation periods for products substantially modified by third-parties;
• extension of the 10-year limitation period;
• added details to the definition of a product defect;
• introducing rebuttable presumptions of fact regarding the burden of proof under certain conditions; and
• courts may order disclosure of evidence in certain cases.

The European Parliament and Council must now take a position on the proposal before negotiations on a final version can begin.

Mass Litigation

The German product liability landscape has undergone significant changes as a result of the mass litigation concerning the so-called diesel emissions scandal. Several formerly small and mostly local plaintiff law firms have systematically engaged in this litigation by building up human and technical resources to bring individual claims against the manufacturers and their dealers on behalf of hundreds and in some cases thousands of consumers. There have been widespread client advertising campaigns involving radio, TV and social media, on a scale previously unknown in Germany. One must expect that the plaintiffs’ law firms will seek to employ the skills and the new resources developed in this period to target other products and other companies and that product liability litigation will consequently play a bigger role in Germany than in the past.

The 2018-introduced model declaratory action (Musterfeststellungsklage) – for more on which refer to 2.16 Existence of Class Actions, Representative Proceedings or Co-ordinated Proceedings in Product Liability Claims – has so far had a limited impact. The first model declaratory action filed by the Federal Consumer Association against Volkswagen did not end with a court ruling, but with a settlement. More than 240,000 consumers affected by the diesel emissions scandal – who had bought a car by 31 December 2015 and registered their claims in the claims registry – received a refund of 15% of the original purchase price, as long as they agreed to the settlement. Aside from this particular case, this new form of collective redress has not markedly contributed to the efficient resolution or dismissal of product liability claims.

However, the topic of mass litigation remains of high importance. The EU representative action (see 3.2. The EU Representative Action) and other EU Commission proposals are likely to facilitate the assertion of product liability claims in the future.

In addition, the already mentioned recent interest of litigation funders in mass proceedings in the German market – see 2.15 Available Funding in Product Liability Claims – will make it much more likely for consumer claims to be brought.

The EU Representative Action

While the German legislature introduced the model declaratory action as a collective redress mechanism (see 2.16 Existence of Class Actions, Representative Proceedings or Co-ordinated Proceedings in Product Liability Claims and 3.1 Trends in Product Liability and Product Safety Policy), the European Commission saw the need for the introduction of further-reaching collective redress mechanisms across all member states as part of the so-called REFIT process of the consumer law acquis.

In November 2020, the European Parliament adopted the Directive introducing the European representative action (Directive (EU) 2020/1828) in accordance with the European Commission’s proposal. The Directive sets a binding framework for representative actions for the member states. Essentially, the Representative Actions Directive provides that qualified entities can bring actions against traders who breach EU consumer protection rules, with the aim of obtaining injunctive or remedial relief such as damages, repair or termination of contract. In addition to general consumer law, the Directive directly affects the field of product liability, among others.

Even though the implementation period ended on 25 December 2022, Germany has yet to implement the directive into national law. The EU member states then have to apply the respective national implementing laws by 25 June 2023. Therefore, it is to be expected that the representative action will be introduced in Germany by the June 2023. In April 2023, the German government published the draft bill implementing law (VRUG or Verbandsklagenrichtlinienumsetzungsgesetz). The new law has to pass through the German parliament and is still expected to enter into effect in 2023. However, it is clear that the EU Commission will continue to consider product liability litigation as a means of public enforcement of product safety rules and standards. Issues of civil procedure law and litigation mechanisms will thus likely remain on the agenda of EU lawmakers, including as part of the EU’s product safety policy.

EU Product Safety Regulation

The final draft of the Product Safety Regulation has come into force on 12 June 2023. After a transition period, the regulation will apply directly in the member states from 13 December 2024. It will make large parts of the German PSA redundant.

The new Product Safety Regulation will replace the Product Safety Directive. The Product Safety Regulation will introduce new product safety obligations for online markets. Products are already considered “made available on the market” when they are offered on shopping platforms and can be prosecuted by market surveillance. Another essential element of the Product Safety Regulation is the way it functions as a safety net by defining the market surveillance rules for non-harmonised products (eg, furniture, childcare articles or textiles) and adapting them to products falling within the scope of harmonisation rules (the so-called harmonised products; eg, electronic devices or medical devices), which are defined in Regulation (EU) 2019/1020 (the “Market Surveillance Regulation”). The same market surveillance rules apply to all products. Furthermore, the Product Safety Regulation will introduce new reporting obligations regarding accidents caused by a product, new requirements for product recalls, specific measures to protect vulnerable customers and cybersecurity and the possibility of class actions being brought for breaches of the Regulation.

New Machinery Regulation

Additionally, a new Machinery Regulation will soon enter into force and replace the Directive 2006/42/EC (the “Machinery Regulation”). The purpose of the new Machinery Regulation is to further increase the level of safety and to take into account the latest IT innovations in areas such as digitalisation, artificial intelligence and collaborative robotics. In particular, the Machinery Regulation is intended to resolve inconsistencies with other EU product regulations and close existing regulatory gaps in the current Machinery Directive. The new Machinery Regulation will apply from 14 January 2027, after a transition period of 42 months.

EU Legislation for Artificial Intelligence

The European legislator aims to build trust in artificial intelligence (AI) systems. EU legislation is planned for AI both in the area of product safety and product liability.

On 21 April 2021, the EU Commission originally proposed a regulation establishing harmonised rules for artificial intelligence (the “AI Regulation”, also often referred to as the AI Act). The proposed AI Regulation primarily places obligations on providers of AI systems for the placing on the market, commissioning and use of artificial intelligence systems. The regulation takes a risk-based approach and is intended to reconcile innovation and high ethical standards in the future. A total of four risk classes (unacceptable, high, low and minimal risk) are envisaged. The measures range from minimum requirements that must be met by providers and users of the systems to bans on AI systems that violate fundamental EU values. AI systems with a low or minimal risk are not subject to regulation, but providers of such systems can voluntarily follow codes of conduct. The AI Regulation shall apply two years after its entry into force. After numerous changes, the Council adopted a general approach position on the legislation in November 2022. On 14 June 2023, the EU Parliament agreed on its position. The next step is trilogue negotiations between the Council, the EU Parliament, and the EU Commission to finalise the legislation.

On 28 September 2022, the EU Commission made a proposal for an “AI Liability Directive” to sanction violations of product safety obligations under the AI Regulation. However, rather than providing for new causes of action, the proposal mainly focuses on facilitating non-contractual fault-based claims for damage caused by an AI system. For this purpose, the proposal contains a duty to disclose evidence and rebuttable presumptions of non-compliance and of a causal link between the breach of a duty of care in the case of fault and the output produced by the AI system. The proposal still needs to be adopted by the EU Parliament and the Council.

Toys Directive

The EU Commission is preparing a revision of Directive 2009/48/EC (the “Toys Directive”). In February 2022, the EU Parliament voted in favour of stricter safety requirements for all toys sold in the EU. The Parliament sees dangers to children’s privacy and mental health in networked toys in particular. In addition, the EU Parliament is in favour of an import ban on toys containing certain chemicals, such as “endocrine disruptors.” The EU Commission was initially expected to adopt the revised Directive in the fourth quarter of 2022, however, this is still pending.

Construction Products Regulation

On 30 March 2022, the EU Commission also presented a proposal for the revision of the Construction Products Regulation. This is intended to pursue the following objectives:

• ensure the smooth functioning of the internal market and the free movement of construction products;
• improve the sustainability performance of construction products;
• activate the contribution of the construction ecosystem to the achievement of climate and sustainability goals; and
• support the digital transformation as a prerequisite for the competitiveness of the system.

The Council and the EU Parliament must now take a position on the proposal before negotiations on a final version can begin.

With regard to product safety law and products that are afflicted with notifiable pathogens or if this can be assumed and a spread of the disease is to be feared as a result, the German Infection Protection Act (IfSG or Infektionsschutzgesetz) provides for special powers of action for the authorities to avert imminent dangers. These can be decontamination measures (such as disinfection), quarantine measures or even destruction. As lex specialis, the Infection Protection Act is applicable and has priority over the regulations of the PSA. The IfSG was adapted to the current situation with effect from 20 March 2022, as most of the COVID-19-protection measures that had their legal basis in it were limited in time until 19 March 2022.

Supply Chain Management

In general, according to surveys, many German companies implemented immediate measures in the areas of liquidity increases, cost reduction and supply chain stabilisation. Measures to ensure liquidity include – in particular – the adjustment of working capital, scenario-based planning and the reduction of currently non-critical expenses. The main measures taken to stabilise the supply chain and make it more resilient include the introduction of alternative supply scenarios and the establishment of a central “War Room” where information on the COVID-19 pandemic is gathered and from where further decisions are initiated.

Force Majeure

At the beginning of the pandemic, a supplier that was unable to supply its customers due to officially ordered quarantine measures or closures, or whose employees could not carry out their work due to quarantine or lockdown orders, might be exempted from its obligation to perform during this period under German law. In particular, this applied to contractual exemption clauses in cases of force majeure, which in most cases will include pandemic conditions. However, at this stage, the pandemic is more likely to no longer be considered an unforeseen event and therefore no longer falls under a force majeure exemption. In this respect, it is of major importance that the principal is able to provide alternative service.