The new EU Product Liability Directive could open the door to a surge in class actions. To protect consumers, we need to curtain abuses while ensuring that individuals have access to appropriate compensation.
If you were hoping for a quiet start-of-year period, I am the bearer of bad news – at least for those of you with an interest in legal developments or the medical technology sector.
There are two chief sources of winter gloom: one old, one new. In combination, they are a recipe for trouble, unless action is taken.
The first is the EU Product Liability Directive (PLD) which came into force on 9 December 2024. That date marked the beginning of a two-year transition period which ends in December 2026.
The PLD will have real-world implications for business. One of my concerns about the PLD is that in practice it reverses the burden of proof in product liability cases in the medical technology sector. In my mind, it marks a step in the wrong direction, making the EU less attractive to innovation, investment and growth.
It also has the potential to usher in a US-style class action industry. This brings us to our second source of woe: Third-Party Litigation Funding (TPLF).
Yes, it’s quite a mouthful, but TPLF has the potential to turbocharge Europe’s shift to a for-profit model that allows private investors to back frivolous and predatory litigation. There are considerable financial gains at stake, with some funds banking well over 40% of the compensation that should have gone to the consumer.
I think most people will find this, at best, distasteful and potentially exploitative. But it can also skew the relationship between lawyers and their clients. To be clear, there is a place for third-party support for litigation in instances where it facilitates access to justice for a plaintiff who lacks the means to pursue redress. We all know legal bills can pile up quickly and there are financial risks involved in going to court.
Conflicting priorities
The problem is that profit-driven third-parties and an individual harmed by a product may have different priorities. Where a person may want to seek compensation, hedge funds and other investors tend to pursue a single goal with determination: profit. Imagine the conflicts of interest that could arise if the goals of a plaintiff, their lawyer and the entity funding the case are misaligned. Rather than reach a settlement, a fund may be more inclined to pursue the maximum compensation, even if it means lengthy and costly court proceedings. Alternatively, it may push for an early settlement, disregarding other potential redress options preferred by the actual consumer.
PLD + TPLF = trouble
Alas, there’s more. Unregulated TPLF also leaves the door open to sovereign wealth funds to take cases that suit their interests. It is not difficult to imagine foreign powers seeking to disrupt innovative companies or to use legal mechanisms to the advantage of homegrown competitors.
The PLD and the TPLF are a combustible combination. Something must be done to close the door to the kinds of unscrupulous or hostile scenarios set out above, while preserving the integrity and efficiency of the legal systems in Europe.
MedTech Europe has joined leading European industry bodies in calling for regulation of TPLF. We propose building on the 2022 European Parliament Resolution on Responsible Private Funding of Litigation which proposes safeguards that could provide a solid foundation for regulating TPLF in the EU.
I know: this is grim reading. But consider this a heads-up on one of the issues that will be on the agenda in 2025. In the meantime, we’re here to help you prepare for the PLD which will affect our sector for years to come.
