European Union - Franchise and Distribution newsletter #26

Big changes coming to the EU’s product safety regime

The European Commission has published its much-anticipated Proposal for an amended General Product Safety Directive (GPSD), following a public consultation held between June 2020 and October 2020. 

The GPSD's objective is to protect consumer health and safety by ensuring that unsafe products are not placed onto the market. If products on the market are deemed unsafe for consumers, the GPSD requires businesses to take corrective action, including recalling products and notifying market surveillance authorities, if necessary. 

The Proposal features a revised General Product Safety Regulation (the Regulation) with several changes that aim to address key gaps in the current product safety regime – which is almost 20 years old – particularly those arising from the growth of online marketplaces and new consumer technologies. We examine some of the key elements of the Proposal below.

Online marketplaces

In the Proposal, the European Commission admits that the lack of explicit provisions in the GPSD to address the "specificities of online selling" has negatively affected the safety of EU consumers. Chapter IV of the proposed Regulation is dedicated to online marketplaces, with key measures including:

• Online marketplaces will have to establish a single point of contact (through the Safety Gate portal), allowing for direct communication with market surveillances authorities in relation to product safety issues.
• Market surveillance authorities will have the power to order online marketplaces to remove specific illegal content referring to a dangerous product from its online marketplace, disable access to it or display an explicit warning to end users.
• Online marketplaces will have to cooperate with market surveillance authorities to facilitate any action taken in relation to dangerous products sold through their online services, including cooperation with product recalls.

New technologies

One of the key questions that has arisen for manufacturers and legal practitioners alike is how the GPSD applies to new technologies like software, AI-powered products and Internet of Things devices. The proposed Regulation seeks to provide greater legal certainty for business and protection for consumers in this regard. Some of the main proposals include:

• Expanding the definition of "product" to refer to items which are "interconnected or not to other items" (although "software" is not explicitly mentioned).
• Expanding aspects used to assess the safety of a product, including the effect that other products might have on the product to be assessed (including the effect of non-embedded items); the evolving, learning and predictive functionalities of a product; and the state of the art and technology (including the opinion of recognised scientific bodes and expert communities).
• Expanding the legal responsibility of actors other than the manufacturer to include any natural or legal person (other than the manufacturer) that "substantially modifies" the product. If this occurs, that person shall be considered a manufacturer. 

Market surveillance and product recalls

The proposed Regulation also attempts to increase the effectiveness and consistency of market surveillance and product recalls in EU Member States through the following measures:

• The establishment of a Consumer Safety Network, to facilitate the exchange of information, joint surveillance and testing projects, greater cooperation regarding tracing, withdrawal and recall of dangerous products, and product safety enforcement.
• Manufacturers will be obliged to notify the Safety Business Gateway within two working days from the moment they know about the "accident" caused by a product. No definition of "accident" is set out in the Regulation.
• The Proposal attempts to standardise recall notices used in product recalls. Certain information (eg description of the product, the hazard and actions taken) must be displayed on recall notices, but other terms (eg "voluntary" or "precautionary") are prohibited. Recall notices must also include an instruction to immediately stop use of the affected product.
• Member States are empowered to lay down rules relating to penalties applicable to GPSD infringements. The Proposal sets out the maximum fine shall be 4% of the economic operator's or online marketplace's annual turnover in the Member State concerned. 

A timeline for any implementation of the Proposal is uncertain, as it will still need to pass through the legislative process. This is not a certainty given the legislative setbacks previous proposals of this type have experienced before. Stakeholders can provide feedback on the Proposal to the European Commission until 31 August 2021.

Will this affect the UK?

Following Brexit, the UK is not obliged to implement any of these proposals should they be finalised. However, the UK government is currently carrying out its own review of the UK product safety regime with responses to the public consultation expected to be published shortly.

It remains to be seen to what extent the UK's proposals will mirror the proposals of the EU. We suspect the UK will attempt to implement measures that also focus on online marketplaces, as well as expanding the definition of "product" to provide certainty for UK businesses and consumers. That said, business that manufacturer and sell products into Europe will be directly affected by the proposed changes and should continue to monitor developments.