In its judgement of December 17, 2020 in case C-693/18 CLCV and Others,1 the Court of Justice of the European Union (Court) adopted a broad interpretation on the definition of defeat devices and limited the scope of exceptions for their use in vehicles sold, registered, or put into service in the European Union (EU).
The Court found that a device that improves the performance of an emission control system during vehicle type-approval tests, constitutes a “defeat device” even if such improvements can also exceptionally be observed under normal vehicle use conditions.
Fundamentally, the Court found that a defeat device’s contribution to “preventing ageing or clogging up of a vehicle engine” cannot justify its use under the so-called “engine protection exception.”2 In the Court’s view, this exception should be “strictly interpreted” and limited to protection of the engine against “sudden and exceptional damage” and that only those “immediate risks of damage which give rise to a specific hazard when the vehicle is driven” can justify the use of a defeat device.3 The Court’s narrow interpretation of the engine protection exception breaks sharply from U.S. legal interpretations. The judgment may have significant implications with respect to light-duty passenger and commercial vehicles (e.g., cars, vans, and pickup trucks) in the EU internal market.4
This update proceeds as follows. Section 2 gives a brief factual background and highlights key issues raised before the Court. Section 3 presents the key findings in the judgment on the definition of defeat devices and the scope of exceptions for their use. Section 4 examines the implications of the judgment and includes a comparison with the U.S. legal interpretation of the relevant provisions.
1. Key issues before the Court
The case arises from criminal proceedings in France pending before the tribunal de grande instance de Paris (Referring Court) against a vehicle manufacturer (Company X). Company X supplied vehicles allegedly equipped with software capable of modifying the results of type-approval tests for emissions of gaseous pollutants such as nitrogen oxides (NOx). Such type-approval tests detect whether pollutants emitted by vehicles exceed the emission limits specified under Regulation (EC) No 715/2007 (Regulation).
The vehicles in question had an exhaust gas recirculation (EGR) valve, an emission control system for reducing vehicle NOx emissions. The EGR valve regulates the flow of exhaust gas into the gas inlet manifold by redirecting exhaust gas from the engine back into the manifold to make it burn a second time. The opening of the EGR valve in these vehicles was controlled by an electronic engine controller. The software installed on the controller detected whether the driving conditions corresponded to those in the approval procedure and then activated the emission control system. Under normal driving conditions, the opening of the EGR valve was narrower, resulting in increased NOx emissions and reduced effectiveness of the emission control system.
Accordingly, emission limits imposed by the Regulation were observed only when the driving conditions corresponded to those in the approval procedures. At the same time, an expert report presented to the Referring Court indicated that a reduced opening of the EGR valve contributes to preventing engine aging and clogging up.
In the proceedings pending before the Referring Court, prosecutors allege that Company X deceived consumers on the essential qualities of the vehicles, in violation of the French Consumer Code.5 Noting that the French criminal proceedings are closely linked to the definition of defeat devices and the exceptions for their use under Articles 3(10) and 5(2) of the Regulation, the Referring Court asked the Court for a preliminary ruling on the interpretation of these provisions.
2. Definition of a defeat device
The Referring Court raised three questions seeking clarification on the interpretation of the term “defeat device” and key related concepts. Article 3(10) of the Regulation defines a defeat device as “any element of design which senses temperature, vehicle speed, engine speed (RPM), transmission gear, manifold vacuum or any other parameter for the purpose of activating, modulating, delaying or deactivating the operation of any part of the emission control system, that reduces the effectiveness of the emission control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use.” The Court relied on a literal, contextual, and “aims and effect” approach to interpret the meaning of these concepts.
2.1 “Element of design”
First, the Referring Court asked whether a software integrated into the engine control computer, or more generally acting on it, can be regarded as an “element of design” within the meaning of Article 3(10) of the Regulation. The Court held that the concept of “element of design,” which is not defined in the Regulation, refers to an object manufactured with a view to its inclusion in a functional unit. The use of the term “any” indicates that the concept is broad enough to cover mechanical parts as well as electronic elements controlling their operation, as both features affect the operation of the emission control system and are capable of reducing its efficiency.6 The Court noted that in the case before it, the efficiency of the emission control system for the vehicles at issue is linked to the opening of the EGR valve, which is controlled by the software installed on the electronic engine controller. Thus, software may be considered an element of design when it affects the operation of the emission control system and reduces its efficiency.7 2.2 “Emission control system”
Second, the Referring Court asked whether the concept of emission control system only covers technologies operating “downstream,” (i.e., to reduce emissions after they are produced) or whether it also covers technologies operating “upstream” (i.e., to reduce the emissions produced within the engine itself). Company X argued for a restrictive interpretation of the concept of emission control system, limiting it to technologies located in the exhaust system and excluding in-engine technologies such as the EGR system.
The Court adopted a literal interpretation of emission control system, defining it as a component of a vehicle the objective of which is to control its emissions. Further, the Court relied on other provisions of the Regulation as relevant interpretative context. For example, the Court noted that Article 4(2) of the Regulation, which requires original equipment manufacturers (OEMs) to adopt technical measures that limit tailpipe emissions, neither specifies the means to achieve these reductions nor imposes any particular technologies for doing so. The Court noted that in procedures for vehicle type-approval, emission levels are typically measured at the outlet of the exhaust pipe. Thus, no distinction can be made between downstream and upstream technologies. Further, the Court considered its broad interpretation of the concept of emission control system to be consistent with the objective of ensuring a high level of environmental protection set out in recital 1 of the Regulation. In light of these considerations, the Court found that the concept of emission control system includes both upstream technologies, which seek to limit the emissions produced in the engine, and downstream technologies, which reduce emissions after these have been produced.8 2.3 “Normal vehicle operation conditions”
Third, and last, the Referring Court asked whether a device that detects conditions linked to the vehicle approval procedures for purposes of improving the operation of the emission control system during these procedures, and thus obtaining type-approval of the vehicle, constitutes a defeat device even if such improvements may also occur from time to time under normal vehicle operating conditions.
Based on the text of Article 3(10) of the Regulation, the Court held that the aim of a defeat device is to reduce “the effectiveness of the emission control system under conditions which may reasonably be expected to be encountered in normal vehicle operation and use.” Thus, a defeat device can be in operation during both the approval procedure and normal vehicle operations.
The Court also relied on other provisions of the Regulation as relevant context to define the scope of what constitutes a defeat device. In particular, the Court noted that Articles 4(2) and 5(1) of the Regulation make reference to obligations that OEMs should comply with under “normal use.” Accordingly, no distinction can be made between the operation of a defeat device during the approval test phase and when driving under normal conditions.
In the case presented, the ERG system modified the emission control system and varied the level of emissions when its software detected certain predefined conditions. Under normal conditions, the level of NOx emissions was increased and the effectiveness of the emission control system was reduced. However, under the exceptional circumstances where normal driving conditions corresponded to those in the approval procedures, the performance of the emission control system was improved.
The Court found that this exceptional case would not affect whether the ERG system at issue constitutes a defeat device because under normal vehicle use conditions, the ERG system would operate under a different regime and NOx emissions would be higher.9
3. Exceptions on use of a defeat device
The Referring Court also asked a single question on the interpretation of the exceptions for use of defeat devices under Article 5(2) of the Regulation.
In principle, the use of defeat devices that reduce the effectiveness of emission control systems is prohibited under Article 5(2) of the Regulation. However, this prohibition is subject to certain exceptions such as “the engine protection exception” under Article 5(2)(a) of the Regulation. The engine protection exception permits the use of a defeat device if it is “justified in terms of protecting the engine against damage or accident and for safe operation of the vehicle.”10
In the Court’s view, this exception should, however, be “strictly interpreted” and limited to protection of the engine against “sudden and exceptional damage.”11 In the Court’s view, the use of a defeat device can be justified only in cases where immediate risks of damage give rise to a specific hazard when the vehicle is driven.12 The Court, therefore, concluded that aging or clogging up of an engine cannot be considered “damage” (or an accident) within the meaning of Article 5(2)(a) of the Regulation.
To reach this narrow interpretation, the Court applied a literal, contextual, and “aims and effect” approach.
First, the Court held that in its ordinary meaning, the French term “accident” refers to an unforeseen, sudden event that results in damage or danger, such as injury or death; while the French term “dégât” (i.e., damage) refers to damage generally resulting from a violent or sudden cause.13 It follows, in the Court’s view, that the exception should be limited to protection of the engine against “sudden and exceptional damage.”14
Second, the Court held that this interpretation finds contextual support. The Court noted that the engine protection exception under Article 5(2)(a) is an exception to the prohibition on the use of defeat devices under Article 5(2). The Court explained that consistent with its case law, exceptions must be interpreted strictly, in a way that safeguards the useful effect of the prohibition and that respects its purpose.15
Third, and finally, the Court held its interpretation to be consistent with the environmental objective of the Regulation, which requires effectively reducing NOx emissions over the entire normal life of vehicles. The Court held that the prohibition on the use of defeat devices would be rendered meaningless and deprived of any useful effect if OEMs were allowed to install defeat devices with the sole aim of guarding the engine against clogging up and aging.16
On these grounds, the Court concluded that a defeat device that systematically improves the performance of the emission control system during approval procedures, such as the one under consideration, does not fall within the scope of the engine protection exception even if it contributes to preventing the ageing or clogging up of the engine.
4. Implications of the Court’s judgment
Generally, a preliminary ruling is binding on (1) the court that requested it, for the purposes of the decision to be given in the main proceedings,17 and (2) all other courts in EU Member States.18 The Referring Court, and any other court in the EU, is therefore bound to the definition of “defeat devices” and the limited scope of the engine protection exception discussed above. The Court’s judgment may set the benchmark for similar proceedings on the admissibility of defeat devices in the EU. Notably, the Court is examining a request for a preliminary ruling from Germany in case C-873/19 Deutsche Umwelthilfe concerning the (in)admissibility of thermal windows.19
To put the Court’s judgment in context, it is important to understand that the definition of defeat device in the EU is nearly identical to the U.S. definition adopted nearly 50 years ago by the U.S. Environmental Protection Agency (EPA) and later the California Air Resources Board (CARB). The Court’s discussion of “defeat device” and “emission control system” was not necessarily surprising from a U.S. perspective, as EPA and CARB eschew narrow definitions of those terms. In particular, both regulators consider EGR to be a core part of the emission control system and have significant concern with software parameters linked to emission test cycles.
In other respects, however, the EU judgment breaks sharply from U.S. legal interpretations. Most prominently, the Court took a much different view of the engine protection exception to the defeat device prohibition. Clogging, soot deposits, and other physical effects of the EGR system are widely understood to be concerns that may cause malfunctions. After all, the EGR is taking the untreated exhaust from the diesel engine and recirculating inside of the engine, creating physical conditions that may damage the engine or vehicle. As such, OEMs routinely rely on the engine protection exception in obtaining annual certification to sell diesel vehicles and engines in the U.S. and broader North American market.
The Court’s narrow view of engine protection might create substantial problems for OEMs and suppliers. A “sudden and exceptional” damage standard is a wholly novel standard for certification and homologation. From a technical perspective, there is no guidance on how a technology such as EGR — which has known damaging effects on engines such as soot deposits — would qualify. Given the lack of definition in the EU Regulation, many (if not all) OEMs and suppliers likely assumed that the engine protection exception was viewed consistently with its U.S. origins.
Moving those goalposts decades later may pose substantial compliance issues. Alleged defeat devices pose potential risks of both civil lawsuits from consumers and criminal proceedings being launched anywhere in the EU, with potentially far-reaching consequences. Notably, in France the penalties for breaching the rules prohibiting deception of consumers may involve a prohibition on the activity “in the exercise or on the occasion of which the offence was committed.”20 In Germany, the Deutsche Umwelthilfe, an environmental and consumer protection association. is pushing for “a recall and hardware retrofitting” for over five million diesel engines.21