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General climate and recent developments
State of legal development
In general terms, how developed are the product regulation and liability laws in your jurisdiction?
Germany has highly developed laws and regulations concerning product regulation and liability, many of which implement EU law. The Product Liability Act and the Product Safety Act provide the basic rules in this regard, complemented by the Civil Code and the Criminal Code. Particular laws and ordinances also include specific safety and liability rules for certain products (eg, pharmaceuticals). Further, the liability for defective products under the Civil Code has generated a wealth of case law.
Have there been any notable recent developments in relation to product liability law and product safety law in your jurisdiction, including any regulatory changes and case law?
National and EU case law continues to shape the product liability and safety landscape in Germany, with several recent European Court of Justice decisions originating from German proceedings.
The government intends to implement a law introducing a collective action mechanism by November 1 2018. The mechanism preferred by the government is referred to as ‘musterfeststellungsklage’, which differs from traditional class or group actions. Under this concept, only qualified entities, such as registered consumer associations, have standing to sue commercial entities for a declaratory judgment. Consumers benefit by registering for a musterfeststellungsverfahren via a litigation register and registration suspends the limitation period for a consumer's claim. The existence or non-existence of prerequisites for civil claims can be a suit’s subject matter. The declaratory judgment is binding for registered consumers, despite not being parties to the musterfeststellungsverfahren, and the defendant entity if the latter is the same in both lawsuits. The concept and details of the collective redress mechanism may further develop during the legislative process. EU legislation could also further affect collective redress by consumers given the ongoing revision of EU consumer laws and the potential reform of the EU Injunctive Directive.
What primary and secondary legislation governs product safety and liability in your jurisdiction?
German product liability law is based on:
- contract law;
- fault-based tort law; and
- strict liability law.
These regimes form concurrent legal bases for product liability claims. The Civil Code governs contract and tort law. Product liability claims in tort are often based on negligence and a breach of a duty of care by placing a defective product on the market. Liability under tort law can also be found in conjunction with a breach of statutory or regulatory provisions (eg, those of the Product Safety Act, the Food Act, the Drug Act, the Medical Devices Act or the Criminal Code).
The Product Liability Act implemented the EU Product Liability Directive (85/374/EEC) and deals exclusively with the strict liability of producers, as stipulated by the directive.
The Product Safety Act implemented the EU General Product Safety Directive (2001/95/EC) and governs safety requirements for all non-food products, except where more specific legislation applies (eg, for medical devices, plants, animals, pesticides, antiquities and second-hand products).
Specific legislation must be considered for certain products. For example, the Drug Act covers drugs and other medicinal products, regulating both safety and liability exclusively and taking priority over the Product Liability Act. Other laws, such as the Medical Devices Act and the Food Act, regulate safety standards for specific products, but contain no primary liability provisions.
Regulatory and enforcement authorities
Which government authorities regulate and enforce product safety and liability laws in your jurisdiction, and what is the extent of their powers?
Product liability laws are enforced solely by means of private claim enforcement.
Product safety laws are enforced by the federal states' supervisory authorities. Market surveillance activities are federally coordinated by:
- the state authorities' Market Surveillance Working Committee;
- the Central Office of the Federal States for Safety Technology; and
- the Federal Institute for Occupational Safety and Health.
Further, at the federal level, several authorities regulate and enforce product safety and liability by sector. For example, the Federal Ministry of Labour and Social Affairs supervises the implementation of the product safety law and relevant EU directives, except for toys and leisure boats, for which the Federal Ministry for Economic Affairs and Energy is competent. The Federal Ministry of Food and Agriculture is responsible for implementing the EU General Product Safety Directive and the Federal Ministry of Finance implements customs arrangements. Automobile market surveillance is performed by the Federal Motor Transport Authority.
Product safety law is also enforced by the criminal and regulatory authorities where criminal or administrative provisions are violated.
How is a ‘product defect’ defined in your jurisdiction?
The definition of a ‘product defect’ depends on the applicable regime. Under contract law, a product which does not meet the agreed quality or is unsuitable for the use intended under the contract or its customary use will be considered defective. Under tort law and the Product Liability Act, liability results from an unsafe product (ie, a product that does not provide the safety that the average consumer is entitled to expect, considering all circumstances, such as reasonably expected use, presentation and the time when it was put into circulation).
Causation and burden of proof
How is causation of loss or damage established in relation to product liability claims and where does the burden of proof lie? Can this burden be shifted in any way?
Under the Product Liability Act, an injured person has the burden of proving:
- the defect;
- the damage; and
- the causal relationship between the defect and the damage.
A claimant has the burden of proof and must establish causation between:
- the injury or damage to health or property and the defect; and
- the injury or damage and the loss claimed.
The burden of proof cannot be shifted to the defendant. Under certain conditions, claimants can rely on prima facie and circumstantial evidence.
Under Section 84 of the Medicinal Products Act, claimants must prove that:
- the risks of the product in question outweigh its benefits; or
- the information on the product’s label (eg, regarding potential adverse events) did not accurately reflect the state of scientific knowledge at the time when the product was put into circulation.
The Medicinal Products Act provides for a presumption of causation where certain requirements are met, including elements that the claimant must prove. As a result, the standard under the Product Liability Act is, in practice, similar to that under the Medicinal Products Act. The burden of proof for causation lies with the claimant. The Federal Supreme Court has rejected shifting the burden of proof.
While the burden to prove fault usually falls on the claimant in tort, this rule differs in product liability cases. Where a breach of a duty of care is in question, it is often sufficient for the consumer to prove that the product was defective. The burden then shifts to the producer, which must show that it did everything necessary and reasonable to discover and avoid the defect. The onus remains on the claimant to prove damage (ie, the injury and any consequential damages resulting from the injury).
Legal bases for claims
On what legal bases can a product liability claim be brought?
Most product liability claims in tort are based on negligence. This requires a breach of a duty of care. The Federal Supreme Court characterises putting a defective product on the market as indicative of a breach of duty. In this context, the Supreme Court has identified three types of defect:
- design defects;
- manufacturing defects; and
- instruction defects (ie, failure to warn or provide proper instructions).
Producers must also monitor their products and take appropriate measures once they are in circulation. German tort law further includes liability for a breach of statutory or regulatory provisions.
Strict liability for products in Germany is included in the Product Liability Act, the Drug Act and the Genetic Engineering Act.
The Drug Act is an important strict liability regime for pharmaceutical products that takes priority over the Product Liability Act. The Drug Act includes liability for development risks and renders insurance compulsory. The Genetic Engineering Act provides for liability for damage caused by genetically manipulated organisms (GMOs). This also includes liability for development risks.
In practice, most claims are brought under the Product Liability Act.
Contract law is relevant only where the injured person and the defendant have a contractual relationship. The law of contract provides for compensation for damage caused by a product – particularly where the product does not conform with the contract – although this will, in most cases, require fault on the defendant’s behalf. However, according to statutory contract law, fault may be presumed if the defendant delivered a defective product.
Can a defendant be held criminally liable for defective products?
Criminal penalties for individuals exist in connection with supplying defective products. For example, relevant provisions exist in both the Food Act and the Drug Act. In addition, penalties for individuals can follow from the general Criminal Code (eg, if a person is injured by a defective product). Companies may face administrative fines of up to €10 million and a confiscation of profits for breaching criminal or regulatory provisions.
Which parties can be held liable for defective products?
The Product Liability Act imposes responsibility for a defective product on the producer. Within the meaning of the act, a ‘producer’ includes:
- the manufacturer of the final product or a component part;
- the producer of raw materials;
- the own brander; and
- the person importing the product into the European Union or the European Economic Area.
The supplier of the product is liable only if the producer cannot be identified. The supplier can exonerate itself from liability as producer by providing the injured person with the identity of the producer or the person that supplied the product within one month. The same applies if the importer cannot be identified, even if the producer’s identity is known.
The Drug Act assigns responsibility to any party which, in its own name, put the drug into circulation in Germany (ie, the pharmaceutical entrepreneur). This also includes any marketing authorisation holder that is not the manufacturer of the product. A similar rule applies under the Genetic Engineering Act for liability for products incorporating GMOs.
A duty of care in tort can rest on parties involved in the production and marketing of a product, although the characteristics of the duty may vary, depending on the role that the individual has in this process (eg, manufacturer, quasi-manufacturer, supplier, wholesaler, retailer, importer or licensee). In contrast to the situation under the Product Liability Act, the supplier may be liable in tort, regardless of whether the producer can be identified. A duty of care can also rest on managers and other qualified persons of a company. Liability for a breach of statutory or regulatory duty falls on the party to whom the relevant provision assigns the duty.
Limitation of liability
Can liability be excluded or mitigated in any way?
The strict liability stipulated by the Product Liability Act cannot be excluded. In general, a contractual exclusion of liability regarding injury to life, body or health or in case of gross negligence is impossible. However, within narrow limits, it is possible to exclude tortious liability on an individual contractual basis. The liability for products within the scope of contractual arrangements with non-consumers and commercial providers can be excluded by means of clauses limiting liability (ie, exemption agreements).
Warnings and product recalls may mitigate liability (eg, in relation to consumers who continue to use the product despite knowledge of the risks and depending on the circumstances of the individual case).
What is the procedure for filing a product liability claim before the courts in your jurisdiction?
Standard civil procedural law governs product liability claims.
Claimants must file suit with the competent first-instance court. The first-instance court is the local court for claims of €5,000 or less, while the district court is the competent court for claims exceeding €5,000. Claims before a district court may be brought only if the claimant is represented by a licensed attorney.
Local jurisdiction is generally determined by the defendant's place of business, but a claimant may choose to bring a claim in the locality where:
- a tort was committed or its results were felt; or
- a contract will be fulfilled.
Can the court issue interlocutory orders or judgments in product liability cases? If so, what rules and procedures apply?
German civil procedure law provides no possibility of an interlocutory judgment or an interlocutory judgment as regards the merits of a product liability claim. An interlocutory judgment decides on preliminary questions – usually on points of contention concerning procedural issues. However, the German courts may rule on parts of the claim in advance (eg, a judgment on the merits regarding the legal foundation of the claim will be rendered first and only after that will a judgment on damages be rendered). These judgments are not interlocutory judgments but can be appealed by ordinary appeal.
What pre-trial disclosure/discovery mechanisms are available in product liability cases, if any?
None are available.
What evidence is accepted to support claims in product liability cases? What formalities apply to evidence submission?
Evidence may be formally taken:
- by visual inspection;
- by hearing witnesses;
- from experts; and
- from records and documents.
For certain issues, the judge may rely on less formal evidence.
Evidence taken by visual inspection is offered by designating the object to be inspected visually and by citing the facts regarding which evidence is to be provided. If an electronic document is to be relied on, it is offered as evidence by producing or transmitting the file. Evidence by hearing witnesses is offered by naming the witnesses and designating the facts regarding which the witnesses are to be examined. A party can be heard as a witness only in exceptional and limited circumstances. Evidence from experts is offered by designating the items for which a report will be prepared. Producing the record or document will constitute the offer of evidence by records and documents.
Under what circumstances will the court appoint an expert to assist it in examining the merits of the case? What rules and procedures apply?
Only a judge can assess evidence. The court must appoint an expert where it lacks the required technical or scientific knowledge for considering technical issues. The usual course is for the court-appointed expert to prepare a written report on the technical and scientific issues identified by the court and the parties. The expert can be summoned to a hearing for illustrating his or her report. The court may also order a supplement of the expert report.
Can the parties rely on expert witness testimony to support their claims? If so, what rules and procedures apply?
Each party can obtain its own private expert opinion and submit the opinion as part of its pleading. Private expert opinions are not formal evidence under the Code of Civil Procedure, but the parties can agree that a private expert opinion will be treated as a formal expert opinion. Presenting private expert opinions is common in medicinal and healthcare-related cases.
Are class actions or any other collective proceedings available for product liability claims in your jurisdiction? If so, what is the procedure for their formation and what benefits do they afford claimants? Are class actions formed on an opt-in or an opt-out basis?
Class actions, or similar forms of collective redress, are currently not available for product liability claims in Germany but could become available later in 2018. A procedure for consolidating multi-claimant proceedings already exists in securities litigation. The concept being discussed in consumer matters is known as ‘musterfeststellungsklage’. This collective redress mechanism differs from traditional class or group actions. Qualified entities, such as registered consumer associations, will have standing to sue commercial entities for a declaratory judgment, while consumers can benefit by registering for the musterfeststellungsverfahren via a litigation register without becoming a party to these proceedings. The existence or non-existence of prerequisites for civil claims can be a suit’s subject matter. The plaintiff will be required to demonstrate the existence of 10 similar cases where such subject matter could be relevant. In addition to this requirement, the government intends to implement a threshold of 50 consumers registering in the litigation register. Registration with the litigation register will suspend the limitation period for the consumer's claim. The declaratory judgment is binding in a follow-up suit between a registered consumer and the defendant entity in the musterfeststellungsverfahren.
What rules and procedures govern appeals of court decisions?
Appeals of first-instance court decisions may be taken as a right where the amount of the complaint exceeds €600. Otherwise, the party requires leave to appeal to access the Court of Appeal. Court of Appeal decisions can be appealed to the Federal Supreme Court, but only in relation to questions of law. In some instances, higher review also requires the Court of Appeal to grant leave to appeal.
Statute of limitations
What is the statute of limitations for filing product liability claims?
The time limit for bringing product liability claims under tort law, the Product Liability Act or the Drug Act is generally three years. It is a ‘year-end limitation’ (ie, the three-year limitation period begins at the end of the year in which the claimant became or ought to have become aware of the facts on which the claim is based).
Regardless, time limits expire 30 years after the incident in question occurs (maximum limitation period). However, claims for property damage are limited to 10 years from the time when the damage manifests itself (subject to the 30-year limitation period commencing the day on which harmful event occurs). Claims under the Product Liability Act will be extinguished 10 years from the day on which the producer put the product into circulation, unless the claimant has initiated proceedings during this time.
The court has no discretion to disapply time limits.
What is the typical duration of proceedings in product liability cases?
The duration of product liability proceedings varies. First-instance proceedings can take from a few months to three years and appeal proceedings can add several months or years.
Costs, fees and funding
Can the successful party to the litigation recover court and attorneys’ fees and any other related expenses from the losing party? If so, what rules and procedures apply?
The successful party can recover all necessary costs, including court fees and legal costs. The necessary costs for a lawyer are reimbursed according to statutory fees depending on the claim’s value.
What rules and restrictions (if any) govern contingency fee arrangements?
There are strict restrictions for contingency fee arrangements which are generally not permitted. Fee arrangements can be made conditional on the success of a claim only if the case’s specific circumstances justify such an arrangement. The law specifically provides that such a situation may arise where the client, due to its financial situation, would otherwise be prevented from pursuing the claim.
Is third-party litigation funding permitted in your jurisdiction? If so, do any rules or restrictions apply?
Third-party funding has been available in Germany for several years. Several institutions offer third-party funding. Legal insurance is also common in Germany.
Is legal aid (ie, public funding) available to claimants in product liability cases? If so, what rules, restrictions and procedures apply?
Claimants can apply to the court for legal aid. Legal aid will be awarded if the applicant has insufficient financial resources to fund the claim and the claim has a sufficient chance of succeeding.
What rules and procedures govern the settlement of product liability cases?
No special rules apply for the settlement of product liability cases. Parties can settle in or out of court. Both types of settlement have pros and cons and decisions will be taken on a case-by-case basis if a settlement is the objective.
How common are settlements in product liability cases?
It is difficult to estimate how common settlements are because whether a settlement can be achieved is determined by the facts and circumstances of the individual case.
Alternative dispute resolution
Are any alternative dispute resolution (ADR) methods required or advised before or in lieu of proceeding with litigation?
ADR methods are not required by law before initiating litigation. The courts sometimes suggest conducting mediation proceedings before proceeding with litigation. The courts must always act in the interests of arriving at an amicable resolution of the legal dispute or the individual points at issue. For the purposes of fostering an amicable resolution of the litigation, court hearings are usually preceded by a conciliation hearing unless:
- efforts to come to an agreement have already been made before an ADR entity; or
- it is obvious that the conciliation hearing has no chance of success.
In April 2016 the Consumer Dispute Resolution Act implemented the EU ADR Directive (2013/11/EU) into German law. The act created out-of-court dispute settlement bodies, which are available to consumers in the event of disputes with commercial entities. The law sets out requirements in terms of professional competence, impartiality, independence and transparency and regulates the course of a dispute settlement procedure.
How commonly is ADR used in relation to product liability cases in your jurisdiction?
It is difficult to estimate how commonly ADR is used, as the use of ADR methods is determined by the facts and circumstances of the individual case.
What defences are available to defendants in product liability cases?
A defendant will not be liable in tort if it can show that it did not breach a duty of care.
Several defences are also available under the Product Liability Act – namely, a defendant will not be liable if it can be proved that:
- the defendant did not put the product into circulation;
- the product did not have the defect which caused the damage at the time when the producer put it into circulation;
- the defendant manufactured the product neither for sale nor any other form of distribution for economic purposes;
- the defect is due to the product’s compliance with mandatory regulations issued by the public authorities;
- the state of scientific knowledge at the time when the product was put into circulation was not such as to enable the defect to be discovered; or
- in the case of the manufacturer of a component, the defect is due to the design of the finished product or the component was made according to the instructions of the producer of the final product.
A defendant will avoid liability under the Medicinal Products Act if it can prove that the harmful characteristics of the drug are not attributable to its design or manufacturing, but came into existence later in the supply chain.
Finally, contributory negligence is a defence under all grounds.
What preliminary procedural mechanisms are available to defendants, if any?
The Code of Civil Procedure provides for so-called ‘independent evidentiary proceedings’, which are available outside court proceedings and are generally also open to defendants. Admissible petitions require a legitimate interest in establishing:
- the state of a person or value of an object;
- the cause of personal injury, property damage or a material defect; and
- the effort required to remedy a personal injury, property damage or a material defect.
What types of damages may be awarded in product liability cases? What rules and standards govern their calculation? Are damages capped?
Material damages (eg, damage to persons or property or loss of income or profits) and immaterial damages (eg, compensation for pain and suffering) may be awarded. Contract and torts law generally allow for uncapped compensation. The Civil Code provides for the basic rules governing damages and their calculation (eg, the nature and extent of the damage, lost profits and intangible damage). The general principle is that a party liable for damages must restore the position that would exist if the circumstance obliging it to pay the damages had not occurred. Where damages are payable for injury to a party, the injured party may demand the required monetary amount in lieu of restoration. Under the Civil Code, contributory negligence can result in reduced damages where fault on the part of the injured person contributes to the occurrence of the damage.
The Product Liability Act contains special rules for damages and caps:
- damages are capped where personal injuries have been caused by a product or identical products with the same defect; and
- the party liable to pay damages will be liable for a maximum of €85 million.
Damages regarding injury to property are subject to a deductible of €500. The Product Liability Act provides for specific rules that govern the determination of the extent of liability for damages in the case of death or bodily injury. Where fault on the part of the injured person contributes to the occurrence of the damage, the Product Liability Act refers to the possibility of reduced liability provided for in the Civil Code (contributory negligence).
Are punitive damages allowed?
Are any other remedies available?
Are there any statutory criteria under which a product must be recalled or other corrective action be taken?
Recall and other corrective actions are governed by the Product Safety Act, which implements the EU General Product Safety Directive (2001/95/EC). Certain statutory criteria provide that a product must be recalled or other corrective actions must be taken. As a rule, authorities and companies must make these decisions on a case-by-case basis after carrying out a proper risk assessment. In doing so, the risk is defined as the combination of the severity and probability of a potential injury. It is crucial that risk assessments are carried out by stakeholders that have the necessary experience and skills. Industry experience shows that a proper risk assessment often indicates that a mandatory recall is unnecessary, but that certain voluntary corrective actions can be advisable, particularly to reduce unnecessary legal risks.
What rules and procedures govern notification of the product recall to government authorities and the public?
Authority notification obligations are codified in Section 6, Paragraph 4 of the Product Safety Act. This provision implements Article 5, Paragraph 3 of the EU General Product Safety Directive, which reads as follows:
"Where producers and distributors know or ought to know, on the basis of the information in their possession and as professionals, that a product that they have placed on the market poses risks to the consumer that are incompatible with the general safety requirement, they shall immediately inform the competent authorities of the Member States thereof."
The notification obligation is triggered by a potential risk. A proper risk assessment shows whether there is a respective risk that requires authority notification.
Repairs, replacements and refunds
What rules and procedures govern repairs, replacements and refunds for defective products?
German law provides numerous contractual, statutory warranty, tort and product liability provisions that may require a producer to repair, replace and refund a defective product. Depending on the individual case, the customer, owner or user of a defective product might be entitled to a repair, replacement or refund.
What penalties apply for non-compliance with the legal provisions governing product recalls?
Under German civil law, non-compliance with the legal provisions governing product recalls may result in liability claims against both the company and its decision makers.
As regards German product safety law, shortcomings may trigger authority actions. In particular, market surveillance authorities may simply order the recall and inform the public.
As regards German criminal law, non-compliance might result in administrative fines. The authorities have the power to take a percentage of a company's profits. Criminal investigations against the company and its decision makers (eg, for negligently causing bodily harm or negligent manslaughter) are also possible, particularly in the event of personal injury incidents. There are numerous criminal law precedents against companies and their management regarding non-compliance with the legal provisions governing product recalls. There have even been convictions, including jail sentences, against managers.