This piece examines recent decisions that may exert influence in the Italian legal system, providing an update on changes in EU legislation expected to have immediate effect and on the main Italian regulations adopted in 2023 regarding product liability & safety.

General product liability and safety rules are contained in Legislative Decree No 206/2005 (the “Consumer Code”) which covers the main provisions in force on consumer protection and rules on the relations between consumers and professionals (from advertising to correct information, contracts to product safety, and from access to justice to representative consumer associations).

For immediate reference, the following provisions will be considered:

• Articles 102-113 of the Consumer Code, implementing the provisions of Directive 2001/95/EC (transposed in Italy by Legislative Decree No 172/2004); and
• Articles 114-127 of the Consumer Code, implementing the provisions of Directive 85/374/EEC (transposed in Italy by Presidential Decree No 224/1998).

Definition of Victim/Claimant

The Court of Latina recently rendered a decision (No 2290 of 5 December 2022) on a claim made by an agricultural entrepreneur against the supplier and manufacturer of machinery alleging that the machinery did not comply with minimum safety requirements necessary to ensure the physical safety of its users, and leading to the amputation of some of the claimant’s fingers.

The claimant brought an action to establish the liability of the supplier and the manufacturer for breach of the Consumer Code. The Court held that the claimant could not be classified as a consumer under the Consumer Code (ie, a natural person acting for purposes other than the exercise of an entrepreneurial, commercial, handcraft or professional activity), since the claimant had purchased the machinery to use it in the exercise of their business.

However, the Court did consider that certain provisions of the Consumer Code applied, in particular:

• Article 117, setting the circumstances under which a product may be considered defective;
• Article 123, listing the cases in which damages caused by defective products can be compensated (ie, damages caused by death or personal injury, and damages caused by the destruction or deterioration of something other than the defective product);
• Article 118, outlining the cases in which the manufacturer’s liability is ruled out (eg, where the defect causing the damage did not exist when the manufacturer put the product into circulation).

In this instance, the Court held that none of the conditions supporting exclusion of the manufacturer’s liability, set forth in Article 118, prevailed, that the claimant had proved the defectiveness of the machinery, the causal link between defectiveness and damage, and the damage suffered, thereby satisfying the burden of proof under the Consumer Code.

The above decision is one of the few precedents of the Italian courts where the provisions of the Consumer Code are applied to a party other than a consumer. In fact, Article 123 of the Consumer Code, under the heading “Compensable damages”, provides that damages to property can only be compensated if the goods in question (if not defective products causing the damage) are intended for private use or consumption. In line with a previous decision of Italian Supreme Court (case No 19414/2013), it has been established that damages resulting from death or personal injury can be compensated even if the death or injury occurred in the course of professional activity.

Updating of the EU Regulatory Framework on Product Liability and Safety

The EU lawmaker has recently deemed it necessary to update product liability and safety legislation to accommodate continuous challenges posed by new technologies – in particular, artificial intelligence, the new business models of the circular economy (production and consumption models that favour the reuse, repair and refurbishment of products) and new global supply chains – which are creating some legal uncertainty, and also in relation to the meaning of the term “product”.

We believe the following regulations and directives adopted in 2023 will have the greatest impact on product liability and safety in Italy.

Regulation (EU) 2023/988 on general product safety, published in the Official Journal of the European Union on 23 May 2023 (the “Regulation”), applicable from 13 December 2024 and repealing Directive 2001/95/EC.

The Regulation aims at ensuring the functioning of the European market and consumer protection by adapting the legal framework to developments related to new technologies and online sales. In this respect, it is interesting to note Recital 25 of the Regulation, stating that: “New technologies might pose new risks to consumers’ health and safety or change the way the existing risks could materialise, such as an external intervention hacking the product or changing its characteristics. New technologies might substantially modify the original product, for instance through software updates, which should then be subject to a new risk assessment if that substantial modification were to have an impact on the safety of the product”.

The key points of the Regulation are as follows.

• The extension of the definition of “product”. While Directive 2001/95/EC referred to “any product – including in the context of providing a service – which is intended for consumers or likely, under reasonably foreseeable conditions, to be used by consumers even if not intended for them”, the Regulation specifies that “product” means “any item, whether or not it is interconnected to other items”.
• The rules for online sales, stating that “Products offered for sale online […] shall be deemed to be made available on the market if the offer is targeted at consumers in the Union”.
• The new obligations for economic operators, such as manufacturers, authorised representatives, importers and distributors.
• A set of rules for online sales platforms, which are expressly defined as “providers of an online marketplace”.

On product liability, the proposed Directive of the European Parliament and of the Council of 28 September 2022 “on liability for defective products” aims to modernise the framework of Directive 85/374/EEC, which will be repealed almost 40 years after its entry into force.

The Directive, which has not yet been published in the Official Journal of the European Union, will improve consumer protection in the digital and information market, as follows:

• the definition of “product” is broader than previously, and includes “digital manufacturing files and software”;
• together with manufacturers, importers and authorised representatives, economic operators liable for defective products include logistics service providers and, more generally, any entity with the power to modify the product affecting its safety;
• compensable damage includes any loss or corruption of data that is not used exclusively for professional purposes;
• the burden of proof on the damaged party is mitigated by the provision of certain presumptions (relating to defect and causal link);
• access to technical information relating to the product is easier, as the judge may order the defendant, upon request of the damaged party, to disclose such information in court.

The overall regulatory framework was completed by Regulation (EU) 2024/1689 published in the Official Journal of the European Union on 12 July 2024 “laying down harmonised rules on artificial intelligence” (the “AI Regulation”) and the draft Directive by the European Parliament and the Council “adapting the rules on non-contractual liability to artificial intelligence” (the “AI Liability Directive”).

The AI Regulation aims at mitigating risks to safety, health and other fundamental rights by establishing rules regarding the introduction to the market, putting into service, and use of AI systems (ie, machine-based systems designed to operate with varying levels of autonomy). In particular, the AI Regulation adopts a proportionate risk-based approach, understood as “the combination of the probability of an occurrence of harm and the severity of that harm”, and sets out minimum requirements for AI systems that are deemed to pose a high risk as well as the relevant conformity assessment procedures to be followed before they are placed on the market.

The purpose of the AI Liability Directive is also “to contribute to the proper functioning of the internal market by harmonising certain national non-contractual fault-based liability rules, so as to ensure that persons claiming compensation for damage caused to them by an AI system enjoy a level of protection equivalent to that enjoyed by persons claiming compensation for damage caused without the involvement of an AI system”.

The rules set out in the AI Liability Directive enable any type of claimant (individuals or businesses) to receive compensation if they are harmed due to fault or omission by a provider, developer or user of AI resulting in damage covered by national laws. To make this possible, the AI Liability Directive entitles the national courts to order the disclosure of evidence on high-risk AI systems suspected of having caused damage, and provides for a lighter burden of proof on the part of the claimant.

According to Article 3 of the AI Liability Directive, the courts may, at the request of a party and subject to certain conditions, order the defendant to disclose relevant evidence in their possession relating to a specific high-risk AI system that allegedly caused damages. If the defendant fails to comply with an order of disclosure, the judge shall infer the defendant’s non-compliance with the duty of care to be proved by the non-disclosed evidence.

Furthermore, Article 4 of the AI Liability Directive lays down a rebuttable presumption of causality by establishing, under certain circumstances, a causal link between non-compliance with a duty of care and the output of the AI system or the failure of the AI system to produce such output (if this has caused the alleged damage).

Law Decree No 19/2024 (as amended by Law No 56/2024) implementing the National Recovery and Resilience Plan (NRRP) has established a capital venture fund for artificial intelligence. Although the specific criteria for the allocation of the financial resources devoted to the fund have not yet been fully disclosed, the Decree has made it clear that it shall be used to assist companies in implementing AI security protection in the ex ante phase. The Council of Ministers also approved a draft law on 23 April 2024 to introduce provisions on AI in order to identify regulatory criteria capable of rebalancing the relationship between the opportunities offered by new technologies and the risks associated with their misuse, underuse or harmful use by providing  anthropocentric risk-management solutions. The Italian government has designated the Agency for Digital Italy (AgID) and the Agency for National Cybersecurity (CAN) as the National Authorities for Artificial Intelligence, which will ensure the application and implementation of the national and EU legislation on AI.

Representative Actions in Product Liability Claims

Legislative Decree No 28/2023, implementing Directive (EU) 2020/1828, introduced the discipline of “representative actions for the protection of the collective interests of consumers” (“Representative Actions”) into the Consumer Code alongside the discipline of class action already provided for by the Italian Code of Civil Procedure.

Representative Actions entitle claimants to obtain injunctive or redress measures against professionals failing to comply with national and EU legislative provisions aimed at protecting consumers, causing them harm.

Such actions may only be undertaken by qualified entities, namely consumer associations included in the public list established by Article 137 of the Consumer Code, as well as by other entities mentioned in Article 140-quater of the Consumer Code. Moreover, the public list provided for by aforementioned Article 137 contains a special section listing the subjects authorised to propose cross-border Representative Actions.

Three conditions must be met for the qualified entities to file a Representative Action in accordance with Article 140-ter of the Consumer Code, as follows.

• An infringement of the provisions contained in EU regulations or in national legislative acts implementing the EU directives, specifically identified in Annex IIsepties of the Consumer Code.
• The infringement must have been committed by professionals in the exercise of their business activity or their intellectual profession and against a plurality of “consumers”, meaning natural persons interested in concluding (or who have already concluded) goods purchase agreements or services contracts for purposes not related to their entrepreneurial, commercial, handcraft or professional activity.
• The alleged conduct must be harmful to the collective interests of consumers, namely the “interests of a number of consumers who have been or may be harmed by an infringement of the provisions of Annex IIsepties” of the Consumer Code. The conduct must have caused, or must be capable of causing, an actual prejudice to the interests of a plurality of consumers.

Finally, according to paragraph 4 of Article 140-ter of the Consumer Code, “the termination of infringements that occurred before the conclusion of the representative action does not determine the termination of the subject matter of the dispute”. As an effect, the infringement does not have to persist when the action is filed, and even less at the time the judgment is issued.

Representative Actions in Product Liability Claims and Litigation Funding

Strictly related to the regulation of the Representative Actions, Legislative Decree No 28/2023 has provided a legislative framework for litigation funding as consumer protection could represent a business opportunity.

The terms “Litigation Funding” or “Third-Party Funding” generally refer to an agreement in which a third party to a dispute (funder) agrees to bear the costs that one of the involved parties (the client) would incur to initiate and pursue a dispute (whether in court or before an arbitral panel). However, the client agrees to pay the funder a previously agreed sum in case of positive outcome of the dispute.

According to national press reports, Italian litigation funding is seeing strong growth as a result of significant rulings by the Antitrust Authority and due to the presence of the Unified Patent Court in Milan. This has led to the entry of international investment funds into the country as well as the establishment of Italian litigation funding companies and several partnerships with Italian law firms specialised in litigation.

The EU lawmaker has imposed a number of information requirements on qualified entities (which are entitled to bring Representative Actions for the protection of the collective interests of consumers) since their funding, if not duly established, may put the protection of consumers’ interests at risk, leading to a conflict of interests, ultimately undermining the proper administration of justice.

Recital No 52 of Directive (EU) 2020/1828 states the following: “Qualified entities should be fully transparent vis-a-vis courts or administrative authorities with regard to the source of funding of their activities in general and with regard to the source of funds that support a specific representative action for redress measures. […] The information provided by the qualified entity to the court or administrative authority should enable the court or administrative authority to assess whether the third party could unduly influence the procedural decisions of the qualified entity in the context of the representative action, including decisions on settlement, in a manner that would be detrimental to the collective interests of the consumers concerned, and to assess whether the third party is providing funding for a representative action for redress measures against a defendant who is a competitor of that third-party funding provider or against a defendant on whom the third party funding provider is dependant. The direct funding of a specific representative action by a trader operating in the same market as the defendant should be considered to imply a conflict of interest, since the competitor could have an economic interest in the outcome of the representative action which would not be the same as the consumers’ interest”.

In light of the preliminary considerations set out in recital No 52 and of Article 10 of Directive (EU) 2020/1828, under the heading “Funding of representative actions for redress”, Article 140-quinquies, second paragraph, letters d) and f), of the Consumer Code (as amended by Legislative Decree No 28/2023) requires the entities entitled to bring cross-border representative actions to include “in their articles of association rules, including those relating to the causes of incompatibility of legal representatives, appropriate to ensure the independence of the association and the absence of influence from persons other than consumers and in particular from professionals who have an economic interest in bringing representative actions, as well as appropriate measures to prevent and resolve conflicts of interest that may arise between the association, its funders and the interests of consumers” as well as to make public information about their sources of funding on their website.