Innovation Law Insights

Artificial Intelligence

New directive on product liability applies to AI and is now in place

The new product liability directive (the Directive), published in the Official Journal on 18 November 2024, is expected to have a significant impact on companies involved in the production and commercialization of AI systems. The key point is the extension of the scope of the Directive to software, to allow injured parties to seek compensation for damages caused by AI systems.

After a long wait, the EU Council approved the Directive and published it in the Official Journal on 18 November 2024. The Directive will apply to products placed on the market after 9 December 2026.

Until the publication of the Directive, it was unclear whether the original 1985 version covered intangible products, including software. With the progressive development of technology – and the related risks – the legal doctrine argued for an interpretative extension of product liability to include software. This was based on the assumption that differentiating liability between tangible and intangible products was unjustifiable.

But the European Court of Justice had never given a definitive clarification on this issue. So the matter was – up to the publication of the Directive – uncertain. The Directive seeks to fill this gap by explicitly extending the regime to software, ensuring robust protection even in cases where the damage is caused by an intangible product.

The Product Liability Directive applies to AI

The Directive establishes joint and several liability among various economic operators involved in the production chain of an AI system. Specifically, Article 8 of the Directive identifies the following liable parties:

• The manufacturer of a defective product, defined as:
• Any party that develops, produces, or manufactures a product. If the product is composed of multiple components, this includes the party responsible for the final assembly. This provision is relevant where an AI system is embedded in a physical product, making the final assembler liable even if it did not directly develop the AI system.
• Any party that markets a product under their own name or brand, even if it did not manufacture the product. In the context of the AI Act, this would be the provider of the AI system.
• Any party that develops, produces, or manufactures a product for its own use.
• The manufacturer of a defective component, if that component is integrated into a product or interconnected with a product under the control of the manufacturer. This is particularly relevant when an AI system embedded in a physical product causes a malfunction (eg software controlling a robot malfunctions and injures a person).
• Any party that significantly modifies a product already placed on the market. This provision aligns with the AI Act’s concept of reclassification as a provider when a deployer significantly alters a system. For instance, liability may arise if a user modifies or integrates AI software, altering its functionality.
• The importer of a defective product or component, or the authorized representative of the manufacturer. If there’s no importer or authorized representative established in the EU, the liability extends to the logistics service provider.

Definition of product

Article 4(1) of the Directive broadens the definition of product. According to the Directive, products are not only tangible goods but also electricity, files for digital manufacturing, raw materials, and software, including AI.

The only exclusion applies to open-source software, provided that it’s developed or supplied as part of a non-commercial activity.

Damages

Article 6 of the Directive limits compensable damages to the following:

• Death or personal injuries, including medically recognized psychological harm. This is particularly significant as it allows for compensation for psychological harm potentially caused by chatbots or algorithms displaying harmful content to users.
• Damage to or destruction of property.
• Destruction or corruption of non-professional data. This covers cases where software causes data breaches impacting data integrity (eg corruption of data) or availability (eg deletion of data). However, this applies only if the affected data isn’t used for professional purposes.

Further, under Article 5 of the Directive, the right to compensation is no longer limited to consumers but extends to any individual harmed by a defective product.

Definition of defective product

According to Article 7 of the Directive, a product is considered defective when it fails to offer the safety that a consumer can reasonably expect. This concept is particularly challenging to apply to AI systems, as their complexity and advanced learning capabilities (eg through machine learning techniques) create a “black box” effect, making it difficult – even for the developers – to understand why the system produced a certain output.

Nevertheless, under Article 10 of the Directive, a product’s defectiveness is presumed when:

• the claimant demonstrates that the product fails to meet mandatory safety requirements set by EU or national law aimed at preventing the specific harm suffered; or
• the claimant demonstrates that the damage was caused by an obvious malfunction.

These presumptions underscore the importance of compliance with the obligations set out in the AI Act in determining a product’s defectiveness, since the lack of compliance trigger the presumption of defectiveness. As a result, in addition to the penalties imposed under the AI Act, companies face the risk that non-compliance may provide grounds for third-party compensation claims. This position of the Directive seems reasonable, since adherence to standards set by sectoral regulations – including those on cybersecurity – remains the most effective way to facilitate the assessment of a product’s defectiveness.

Burden of proof

The Directive confirms a strict liability system, meaning that it doesn’t require the injured party to prove fault or negligence. However, under Article 9 of the Directive, claimants must still prove:

• the defectiveness of the product;
• the damage suffered; and
• the causal link between the defect and the damage.

Proving defectiveness and causation is particularly complex due to the technical nature of AI systems and the “black box” effect, as injured parties typically lack access to the necessary technical information.

To address this, the Directive introduces a disclosure mechanism. Member states have to ensure that, upon request from a claimant presenting sufficient facts and evidence to establish a plausible claim, the defendant has to disclose relevant evidence in their possession. If the defendant refuses to disclose, it triggers the presumption of defectiveness. This measure is designed to help injured parties meet their burden of proof.

The Directive stops short of reversing the burden of proof, a measure that would have had a significant impact on liable companies.

Exemptions from liability

The Directive retains and introduces several grounds for exemption from liability. Particularly relevant for AI systems are:

• Proof that the defect didn’t exist at the time the product was placed on the market. However, Article 11(2) specifies that this exemption doesn’t apply if the damage was caused by software embedded in a physical device under the manufacturer’s control (eg failure to update software). In such a case, the manufacturer has to ensure the security of the software throughout the entire period in which the product is under its control.
• Proof that the defectiveness resulted from compliance with legal requirements.
• Proof that the state of scientific and technical knowledge at the time the product was placed on the market or while under the manufacturer’s control didn’t allow for the discovery of the defect. This is especially relevant in cases where an AI system produces completely unpredictable outputs that cannot be traced back to errors in training or other development stages.
• Proof that the defect was unrelated to any modifications made to the product.

Conclusions

The Directive significantly expands the scope for obtaining compensation for damages caused by defective products, now explicitly including AI software. This represents an additional layer of regulation for the AI ecosystem, where coordination with other legislation – particularly the AI Act – will play a crucial role in defining liability cases.

Author: Federico Toscani

 

Intellectual Property

Plagiarism of cinematographic work: Rome Court of Appeals sheds light on the concept of creativity

The Court of Appeals of Rome recently ruled on the issue of plagiarism of cinematographic work, rebanding some important principles on the concept of creative elaboration.

The first instance

By a writ of summons served on 4 July 2017, a film company sued a major television broadcaster, accusing it of plagiarizing a documentary on the life of Felicia Impastato and claiming compensation of EUR200,000.

According to the plaintiff company, in the film produced by the defendant there was an exact repetition, qualifying as true copying, of numerous scenes previously made by the author and director commissioned by the plaintiff company, as well as the full usurpation of other scenes. The defendant’s defence pointed out that the two works, although having the same subject matter, differed in nature, structure and narrative mode, and that the episodes depicted were in the public domain and not subject to monopoly.

The Tribunal, to assess the issue, ordered a technical expert opinion, which concluded there was no full plagiarism, but assumed partial plagiarism. However, the Collegium, after reviewing the consultancy and comparing the scenes, found the arguments insufficient and contradictory, reiterating the principle that in relation to the representation of historical and/or biographical facts, when two works being compared have the same historical matrix and refer to events that actually occurred, authorial protection doesn’t pertain to the content, but only to the manner in which the event is treated. Accordingly, it ruled out the existence of plagiarism and dismissed the plaintiff company’s claim.

The Court of Appeals decision

The first instance ruling was appealed by the plaintiff, who lost in the first instance.

The plaintiff argued that the court of first instance had mistakenly agreed with the conclusion of the court-appointed technical consultant (CTU) that there were structural differences between the two works (the narrative of the documentary was defined as “linear” and that of the fiction as “circular” with the use of flashbacks). According to the appellant, such structural differences would be irrelevant, given that the copyright law would recognize the existence of plagiarism not only and not so much as to the structural aspect of the works being compared, but as to creative originality and novelty from a qualitative standpoint.

The court stated that the court had correctly taken into consideration the diversity of the structure of the works, which made it possible to also evaluate the individual disputed scenes as placed in the various contexts. It pointed out that “it is common ground that on the subject of copyright, the legal concept of creativity does not coincide with that of creation, originality and absolute novelty, referring, on the contrary, to the personal and individual expression of an objectivity (...) so that an original work receives protection provided that a creative act, albeit minimal, is detectable in it (as was not the case in the case under consideration), which is in any case a manifestation in the external world”.

Again, the court reiterated, as supported by constant case law, that “the same idea can underlie different works that are and can be different because of the subjective creativity that each of the authors expends and that, as such, is relevant for the purposes of protection”.

In other words, creative elaboration, on the basis of which it’s necessary to ascertain whether the individual scenes that are the subject of the case can be said to be creative and, therefore, the subject of protection, must be identified in a recognizable creative contribution to be evaluated on the merits on the point of fact.

On the basis of these assumptions, in the court’s view, the assessment made by the Tribunal was carried out exhaustively, even allowing the CTU to examine the works in their entirety.

Finally, the court pointed out that “in the case of biographical works of well-known personalities, the facts and events concerning them, which are not, in themselves, independently monopolizable, belong to the common heritage. Instead, authorial protection falls on the formal choices, stylistic and editorial techniques, through which the author conveys them”. Consequently, the disputed scenes appear, according to the court, not only as differently organized in the two works, but also placed in structurally different works and they represent objectively verified facts so they’re not monopolizable.

Conclusion and proof of plagiarism

Proof of plagiarism requires demonstrating relevant similarity in stylistic choices and expressive techniques between the works: in other words, in the author’s point of view. This is particularly difficult in the case of biopics or works that are based on real events, as historical facts and stories of public figures are part of the common heritage and not subject to exclusivity.

Author: Lara Mastrangelo

UPC: First decision on the merits of the Milan Local Division

On 4 November, the Milan Local Division of the UPC issued its first decision on the merits. The judgement came at the end of an infringement proceedings started in July 2023 by a German company operating in the textile industry against an Indian competitor.

The court analysed several issues.

The first one concerns the admissibility and merits of a request of the defendant pursuant to Rule295 (m) RoP, according to which the court can stay the proceedings where the proper administration of justice so requires. According to the defendant, the stay would have been appropriate because of the existence of a parallel proceedings brought by the plaintiff before the Local Division of Milan against a different defendant, in the context of which a counterclaim for invalidity of the patent had been raised.

The court held that the application was admissible, although it was only made during the oral hearing, but rejected it. The defendant hadn’t challenged the validity of the patent and the interference with it of its own products, but rather focused its defence on the non-existence of the challenged conducts in the territories covered by the patent. Nor had the defendant intervened in the parallel proceeding to support the invalidity claim brought by others.

As to the merits of the case, having established the offer to the public of the machinery at issue and noting the defendant’s failure to challenge both the validity of the patent and its interference with its own products, the court concluded that the offence existed by virtue of the principle established by Rule171(2) RoP. According to this rule, a statement of fact that’s not specifically contested by any party will be held to be true as between the parties.

Turning to the further plaintiff’s claim, the court clarified that the permanent injunction order covered by Article 63(1) UPCA doesn’t automatically follow a declaration of non-infringement, but it is discretionary and entails the risk of the infringing conduct being committed or repeated.

With regard to the conducts that have already been carried out and ascertained during the proceeding, it’s not for the plaintiff to prove the risk of their repetition, but for the defendant to eliminate the related presumption. According to the court, the defendant’s commitment – manifested during the proceedings – not to repeat the conduct in the future is not even sufficient, since the plaintiff’s interest in obtaining a court injunction offering greater guarantees must prevail.

On the other hand, regarding conducts that have not been ascertained but which, according to the plaintiff, could be committed in the future, it’s up to the plaintiff to offer elements, such as the unambiguousness of the preparatory acts, that make it possible to consider the risk of the commission of the offence as likely.

The judges granted the requested injunction, extending it to future commercial acts, the risk of which was found to be concrete.

The court then considered the requirements for the provision of a under Article 63(2) UPCA. According to the court, the amount of the penalty must be determined taking into account the principle of proportionality, assessing the nature of the ascertained infringement, the value of the infringing products and the royaltiesusually applied in the relevant sector for a license.

With regard to damages, the determination of which is left to a separate proceeding, the court accepted the request for an interim award of damagesin favour of the plaintiff. This, limited to the reputational damage suffered, deemed recoverable pursuant to Article 68 UPCA and determined at EUR15,000, taking into account the importance of the fair during which the infringing products were promoted.

Finally, ruling on the costs of the litigation, the court didn’t limit itself to consider the defendant’s loss. It is not negligible, according to the judges, that during the written procedurethe defendant had expressed its willingness to settle the dispute and that it was, on the contrary, the plaintiff that had gradually tightened its position in the course of the negotiations, making an amicable settlement difficult to reach. The court partially offset the litigation costs, ordering the defendant to refund 80% of them to the plaintiff.

Author: Massimiliano Tiberio

Voucher 31 – Invest in Innovation: Applications open from 10 December 2024

On 19 November, the Ministry of Enterprise and Made in Italy, by a director’s decree, established the terms and methods for applying for “Voucher 31 – Invest in Innovation”, which already regulated by the interministerial decree of 8 August 2024.

The measure will allow innovative micro-enterprises and startups to access important incentives related to patenting and innovation through specific consulting services.

These services include:

• prior art analysis and verification of the patentability of the invention;
• support in the drafting of the patent application and filing at the UIBM; and
• for filing a patent application abroad that claims priority to a previous national patent application.

The services can only be provided by intellectual property consultants and lawyers, registered in the appropriate lists prepared and managed by the Order of Industrial Property Consultants and the National Bar Council.

The funds allocated for the initiative, already provided by Article 6 of Law no. 206 of 27 December 2023, amount to a total of EUR9 million. A breakdown of the contribution in relation to each of the services is available here.

Applications can be submitted exclusively using the telematic procedure available at invitalia from 12:00 noon on 10 December 2024 and from 09:00 to 18:00 on the following working days, until the available resources are exhausted.

Applications, to be made on the appropriate form published within 20 days before the window opens, must be accompanied by a description of the service the company is applying for, the name of the service provider and a number of attachments. For a full list of attachments, refer to the decree.

Applicants will need to have a digital identity, a digital signature, a certified email address and access the reserved area. Once the application has been submitted, the micro-enterprise or startup will be assigned a “Unique project code”. Invitalia will verify the applications in chronological order.

Professional service providers will have to complete the assignment within 120 days from the notification of the voucher and will be reimbursed for its services directly by Invitalia, against a report countersigned by the beneficiary. To certify the consultancy service, the beneficiary must send Invitalia a detailed report on the activity carried out, signed by the supplier and the company.

Author: Noemi Canova

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Innovation Law Insights is compiled by DLA Piper lawyers, coordinated by Edoardo Bardelli, Carolina Battistella, Carlotta Busani, Giorgia Carneri, Noemi Canova, Gabriele Cattaneo, Maria Rita Cormaci, Camila Crisci, Cristina Criscuoli, Tamara D’Angeli, Chiara D’Onofrio, Federico Maria Di Vizio, Nadia Feola, Laura Gastaldi, Vincenzo Giuffré, Nicola Landolfi, Giacomo Lusardi, Valentina Mazza, Lara Mastrangelo, Maria Chiara Meneghetti, Deborah Paracchini, Maria Vittoria Pessina, Marianna Riedo, Tommaso Ricci, Rebecca Rossi, Roxana Smeria, Massimiliano Tiberio, Federico Toscani,  Federico Toscani, Giulia Zappaterra.

Articles concerning Telecommunications are curated by Massimo D’Andrea, Flaminia Perna and Matilde Losa.

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