OVERVIEW GERMANY

I. INTRODUCTION

The term 'product liability' refers to the liability of manufacturers and suppliers for per-
sonal injury or damage to property caused by a defective product. The German law of
product liability is today based on three grounds: the law of contract, the traditional
(fault-based) law of torts and strict liability law. These regimes form, according to a
general principle of German law, concurrent legal bases and Article 13 of Directive
85/374/EEC on liability for defective products ('Product Liability Directive') 1 preserves
this juxtaposition. Liability in negligence plays the most important role amongst these
regimes. Beginning in 1968, the Bundesgerichtshof (Federal Supreme Court) has grad-
ually established a distinctive concept of 'producer liability' under general tort law
which, although in principle based on fault, effectively implements a form of enterprise
liability based on the concept of product defect.2

II. THE PRODUCT LIABILITY REGIME

A. CONTRACT

The German law on the sale of goods is covered in §§ 433 ff of the Civil Code ('BGB').
With regard to international transactions, the United Nations Convention on the Interna-
tional Sales of Goods applies.3 A fundamental reform of German contract law was en-
acted on 1 January 2002,4 which also includes implementation of Directive 1999/44/EC
on certain aspects of the sale of consumer goods and associated guarantees.

The main legal basis for damage claims in contract is § 280 BGB, which requires breach
of a contractual duty. The most relevant breach of a contractual duty with respect to
product liability is delivery of a "defective" product (§§ 434, 437 BGB).

1. Privity of contract

Breach of a contractual duty, with respect to product liability situations, in most circum-
stances requires the existence of a contract between the claimant and the defendant. Al-
though the idea of a contract conferring rights on third parties exists in German law (§
311 III BGB), it is generally not available in product liability claims by a buyer against
a manufacturer with whom he did not enter into a contract.5

1
O.J. 1985 L 210/29
2
BGHZ 51, 91 ff [Chicken Pest].
3
United Nations Convention on Contracts for the international sale of goods 1980 (BGBl. 1989 II 588; as
amended BGBl. 1990 II 1699); s. Art. 28 EGBGB.
4
Gesetz zur Modernisierung des Schuldrechts, BGBl. 2001 I p. 3183 ff.
 -2-

2. Defective product

A product is defective according to § 434 BGB if it is not in conformity with the con -
tract.6 The concept of defect is therefore primarily based upon a mutual, subjective idea
of the product's features. The agreed quality can be higher or lower than the average
quality of those products. Where the parties did not (expressly or impliedly) agree on a
certain quality, goods will be defective (1) if they are not fit for the purpose expressed
to, and recognized by, the seller, or (2) if they are unsuitable for the ordinary use to
which products of such kind are normally put.

Unlike under the previous law of sale of goods, the seller is also liable for public state-
ments on the specific characteristics of the product made by the manufacturer (or his
representative), particularly in advertising or labeling (§ 434 I 3 BGB). The seller is,
however, not liable for public statements if he did not know, or should have known, of
those statements, or if he corrects those statements before contracting, or if those state-
ments could not have influenced the decision of the buyer.

3. Fault requirement

Contractual liability for defective products, in principle, requires that the seller was at
fault as to the delivery of a defective product. § 280 I 1 BGB, however, in effect sets up
a rebuttable presumption that the seller knew, or should have known, of the defective
condition of the product. Yet in practice the seller will often be able to rebut the pre-
sumption of fault, for it is under no general obligation to check the quality of each prod -
uct. The seller only has a duty to check that a product is free of defect where such an
examination is reasonable in the circumstances. Where the seller grants an explicit
guarantee, or explicitly or implicitly assumes responsibility for the quality of the good,
he is liable even if he did not know, or should not have known, of the defect (§ 276 I 1
BGB).

4. Limitation period

The limitation period for contractual claims is generally two years from the supply of
the defective good (§ 438 BGB). This period is extended to five years if the defect con-
cerns immovable property, or chattels which are normally incorporated into a building.
Where the seller knew of the defect, the limitation period is usually three years starting
with the time at which the buyer became aware of the defect and the damage.

B. TORT
5
Note, however, that the doctrine of third party contracts has developed since it was rejected by the
Bundesgerichtshof in the Chicken-pest case (BGHZ 53, 91 ff) with respect to product liability cases. One
situation for a third party claim would be, for example, an employee of a manufacturer suing another
manufacturer who sold his employer a defective machine through which he became injured.
6
See also Article 2 of the Directive on consumer goods and associated guarantees (1999/44/EC).
 -3-

Product liability in tort comprises liability for breach of a general duty of care (Verkehr-
spflicht) under § 823 I BGB and breach of statutory duty (Schutzgesetz) under § 823 II
BGB.

1. Breach of a duty of care

Most product liability claims have, so far, been brought on the basis of a breach of a
duty of care. It is here that the case law of the Bundesgerichtshof on product liability
comes into play. The main feature of this case law is that the claimant does not have to
prove fault on behalf of the manufacturer (or his employees) but only that the product
was defective at the time of marketing. In this context, the Bundesgerichtshof has iden-
tified three types of defects: manufacturing defects, design defects and instruction de-
fects (failure to warn/provide proper product information). 7

If the claimant can prove the existence of a defect, it is for the manufacturer to show
that it did everything necessary and reasonable to discover and avoid the defect. Con-
trary to the situation under the Product Liability Directive, however, the claimant in
principle needs to prove that the product was already defective at the time of marketing.
This may be different where the manufacturer, due to intrinsic, particular risks in the
manufacturing process, is bound to ensure the safe state of the product before it leaves
the premises.8

2. Breach of statutory duty

Manufacturers are also liable for intentional or negligent breach of a statutory or regu-
latory provision meant to protect other persons. It makes no difference whether the pro-
visions are based on federal, state or EC law. Important examples of such provisions can
be found in the Appliances and Product Safety Act, the Food Act, the Drug Act, the
Medical Devices Act and the Criminal Code.9 While the claimant here needs to prove
the breach of a statutory/regulatory duty, it will usually be for the defendant to show
that this breach did not occur through fault.10

7
BGH 51, 91 ff. (Chicken Pest) manufacturing defect [LINK]; BGHZ 67, 359 (Floating Switch) design
defect [LINK]; BGHZ 116, 60 (Toddler Tea) instruction defect [LINK]; but see also BGHZ 80, 186
(Derosal) instruction defect
8
BGHZ 104, 323 (Lemonade Bottle); BGH NJW 1993, 528 (Sparkling Water Bottle I); BGH NJW 1998,
2611 [LINK]
9
Geräte und Produktsicherheitsgesetz, Lebensmittel- und Bedarfsgegenständegesetz, Arzneimittelgesetz,
Medizinproduktegesetz und Strafgesetzbuch [give full references for each].
10
BGHZ 51, 91 ff (Chicken Pest)
 -4-

3. Post-marketing duties

Post-marketing duties of producers exist as general duties of care (negligence) and stat-
utory duties. The manufacturer’s duty of care does not end with the marketing of the
product. The courts have always stated that manufacturers are obliged to monitor their
products and take appropriate measures, including warnings and recalls, if dangers be-
come apparent subsequent to their marketing. Failure to do so constitutes breach of a
duty of care and thus a potential ground for liability. 11 In a modification of its defect-fo-
cused case law in negligence (see above), the Budesgerichtshof maintains that there is
no shift in the burden of proof regarding breach of such a post-marketing duty, i.e. the
claimant needs to show that the manufacturer should have discovered the risk in ques-
tion through product monitoring and testing.12

While post-marketing duties in the past were mainly the domain of negligence, the
transposition of the revised General Product Safety Directive (2001/95/EC) will shift
the focus further towards breach of statutory duty. Under the transposition legislation,
the Appliances and Product Safety Act (Geräte- und Produktsicherheitsgesetz, GPSG),13
manufacturers are under a duty to place only safe products on the market (§ 4 GPSG).
Suppliers are required not to place products on the market which they know or should
know, given the information and experience they have, are unsafe (§ 5 II GPSG).

Manufacturers are also obliged to conduct proper market surveillance, including the tak-
ing of test-samples, and to implement appropriate measures if product risks emerge
post-marketing. This includes warning suppliers and the public of product risks, using
appropriate means. What type of warning is appropriate depends on the nature of the
product and the relationship to suppliers and customers. For example, where suppliers
and customers are known, personal letters, email and telephone may be appropriate
means of contact. In anonymous customer relationships, manufacturers may have to use
the media and the internet to effectively issue warnings. Manufacturers are further un-
der a duty to withdraw a product from suppliers, or recall a product from customers,
where the nature and seriousness of the risk requires such action (§ 5 I no. 1 c GPSG). 14
A new duty for manufacturers and suppliers is the duty to instantly notify the competent
authority if they notice that their products pose any risks to life or health of persons, or
if there is reason to believe that such risks exist (§ 5 II GPSG).15

11
BGH NJW 1981, 1606 (Benomyl); BGHZ 99, 167 (Honda).
12
BGHZ 80, 199 (Derosal).
13
Geräte- und Produktsicherheitsgesetz of 6 January 2004 (BGBl. 2004 I 2).
14
See also C. Schieble, Produktsicherheitsgesetz und europäisches Gemeinschaftsrecht (Nomos, Baden
Baden 2003) 64, 177 and 228 ff; for recalls under the general duty of care see Foerste in Westphalen (ed.)
Produkthaftungshandbuch § 24/233 ff.
15
See also C. Schieble, note 14, 65.
 -5-

Failure to comply with product safety duties can lead to a claim for breach of statutory
duty under § 823 II BGB. For example, failure to recall a product will lead to liability
where a recall would have been the “appropriate action”. Whether and what action is
appropriate is not to be judged with hindsight but in consideration of the circumstances
at the time when such action was due. However, this is an objective standard focusing
on the danger of the product, not on the capabilities of the individual manufacturer.
This invokes the difficult question of whether the element of fault, usually required un-
der German law for breach of statutory duty, is still relevant. There is reason to assume
that infringements of European product safety law must be sanctioned in an equal fash-
ion if the effet utile of this law is to be enforced, and that therefore fault in those cases
can no longer be a requirement under § 823 II BGB. The practical relevance of this
question may be diminished by the fact that, in the case of breach of statutory duty in
Germany, the manufacturer normally has to prove that it could not have identified the
breach of duty, and that in the example of a recall, such action was appropriate.

Note finally that courts in Germany are likely to accept claims for mandatory injunc-
tions of consumers with respect to warnings and even recalls.16

4. Subject of the duty

A duty of care in tort can lie on all persons who are involved in the production and mar-
keting of a product, although the characteristics of the duty may vary depending on the
role of the individual person. In contrast to the situation under the Product Liability Act
(see below), the supplier can be liable in tort, regardless of whether the 'producer' can be
identified.17 A duty of care can also rest on members of management, who thus may be
personally liable for product defects and post-marketing failures.18

C. STRICT LIABILITY

Strict liability for products in Germany includes the Product Liability Act 1989 ('PLA'),
the Drug Act 1976 (the 'Drug Act') and the Genetic Engineering Act 1990 (the 'Genetic
Engineering Act')19.

1. Product Liability Act

The PLA faithfully implements the Product Liability Directive to introduce liability for
defective products. Compared to tort law, the PLA sets stricter limits on recoverable
damages as well as on the group of liable persons; it also does not apply to post-market-
16
Compare BGH VersR 1986, 1125; critical Foerste in Westphalen (ed.) Produkthaftungshandbuch (Mu-
nich CH Beck 1997) § 39/1 ff.
17
BGHZ 139, 43 (Fireball I) and BGHZ 139, 79 (Fireball II).
18
BGH VersR 2001, 381 (Toddler Tea IV); BGH NJW 1975, 1827; BGH NJW 1987, 372.
19
Respectively, Produkthaftungsgesetz , Arzneimittelgesetz, Gentechnikgesetz.
 -6-

ing defects. Given the existence of an effective system under tort law, the PLA has
rarely been applied. However, as it is now possible to recover non-material damages un-
der strict liability regimes (as of 1 August 2002),20 this could change. The PLA applies
only to products that have been put on the market after 1 January 1990.

§ 1 I PLA sets up the basic rule by which producers are liable for personal injury or
property damage caused by defective products.

a. Product

The term 'product', as defined in § 2 PLA, refers to moveable goods and electricity. 21
Implementing Directive 1999/34/EC, the PLA with effect from 1 December 2000 no
longer excludes primary agricultural products and game from its scope.

b. Producer

The term ‘producer’ (§ 4 PLA) includes the manufacturer of the product or a compo-
nent, the producer of raw material, the 'own-brander' and the person importing into the
EU (or the European Economic Area). The supplier of the product is only liable if the
producer cannot be identified unless the supplier fails to inform the injured person
within one month of the identity of the producer (in the EU/EEA) or the supplier. The
same applies if the importer cannot be identified, even if the producer is indicated.

c. Defect

According to § 3 PLA, “a product is defective if it does not provide the safety one is en-
titled to expect, taking all circumstances into account, including:
(a) the presentation of the product;
(b) the use to which it could reasonably be expected that the product would be put;
(c) the time when the product was put into circulation.
A product shall not be considered defective for the sole reason that a better product is
subsequently put into circulation.”

Although neither the PLA nor the Product Liability Directive distinguish between dif-
ferent types of defects, German courts, through case law, have (re-)established the three
known categories of defects: manufacturing defects, design defects and instruction
(warning) defects.22 [LINK] This has far-reaching consequences for the application of
the concept of defect. In this trifurcated scheme, certain provisions only apply to certain
20
Second Act to change the rules relating to damages (Zweites Gesetz zur Änderung
schadensersatzrechtlicher Vorschriften BGBl. 2002 I, 2634 ff.)
21
An interruption of electricity supply does not trigger product liability, for in such a case no defective
product has been supplied.
22
BGH NJW 1995. 2162 (Sparkling Water Bottle II) [LINK]; OLG Düsseldorf, 20.12.2002, 14 U 99/02
(Chocolate Bar) [LINK]; OLG Hamm NJW-RR 2001, 1248 (Log Flume) [LINK].
 -7-

categories of defects.23 The most important effect of the disentangling of the concept of
defect is that strict liability only really remains for manufacturing defects.24 [LINK]

The issues underlying the question whether a product is defectively designed, or

whether the manufacturer has failed to warn consumers of product dangers, largely echo
the questions arising in negligence.25 [LINK] Where the safety of product design is in
question, courts particularly take into account any existing regulations or (non-binding)
standards.26 [LINK] A frequent but clearly mistaken view, particularly amongst
(lower) courts, is that compliance with common industry customs (or standards) will
prevent a product from being defective. This erroneous idea usually carries the label
“state of the art defence”. However, state of the art is not what everybody else does; it
is what could be done.27 A more recent and also more consistent interpretation of the
concept of design defect makes use of the notion of risk-utility analysis. The decisive
criterion for design defects is thus normally whether or not a reasonable alternative de-
sign existed for the product in question.28

In many cases it is not possible do design a product in a way that makes it completely
safe. Yet its marketing may still be appropriate, considering the product's utility, its gen-
eral benefits for society, and the fact that there is simply no safer alternative design.
Manufacturers are then under a duty to reduce such unavoidable product risks by means
of adequate product information and warnings. 29 The producer thereby not only needs
to warn of dangers present in the ordinary use of the product but also of dangers related
to any foreseeable misuse.30 The extent of the duty to warn generally depends on the
level and nature of the risk, and the probability of its manifestation. 31 The extent of the
duty to warn is limited by general consumer knowledge. That is, there is no need to

23
For example, Art 6 I c, 6 II only to design and warning defects, Art 7 b only to manufacturing defects,
Art 7 d only to design defects, Art 7 e only to design defects, Art 7 f only to design and warning defects.
24
BGH NJW 1995. 2162 (Sparkling Water Bottle II) [LINK].
25
OLG Düsseldorf, 20.12.2002, 14 U 99/02 (Chocolate Bar) [LINK]; OLG Hamm NJW-RR 2001, 1248
(Log Flume) [LINK]; OLG Cologne, 27.8.2002, 3 U 116/00 (Mountain Bike) [LINK].
26
OLG Düsseldorf, 20.12.2002, 14 U 99/02 (Chocolate Bar) [LINK]; OLG Hamm NJW-RR 2001, 1248
(Log Flume) [LINK]; OLG Frankfurt, 1.2.2001, 1 W 11/00 (Tobacco Claim) [LINK].
27
The contrary view is wrong with respect to design defects and negligence. The common standard of
care is not always the required and reasonable standard of care as the Bundesgerichtshof has made clear
(BGHZ 8, 141; 23, 290; see also BGH NJW 1965, 1075).
28
Compare § 2 US Restatement (Third) of Torts: Products Liability. Assenting MünchKomm/Wagner
ProdHaftG § 3/31.
29
BGH VersR 1972, 1161 (Estil).
30
BGH VersR 1987, 102, 103 (Zinc Spray); BGH NJW 1989, 1542 (Asthma Spray); BGHZ 116, 60, 65
(Toddler Tea I); BGH ZIP 1995, 747 (Toddler Tea III); BGH VersR 1999, 892 (Paper Shredder); OLG
Hamm NJW-RR 2001, 1248 (Log Flume) [LINK]; OLG Düsseldorf, 20/12/2002, 14 U 99/02 (Chocolate
Bar) [LINK].
31
BGHZ 80, 186, 192 (Apple Scab, Derosal).
 -8-

warn of risks which are generally known to its possible users. 32 The courts have thus
denied a duty to warn of the dangers of tobacco,33 alcohol34 and chocolate bars35.

d. Proof of defect, damage and causation

According to § 1 IV PLA, it is for the claimant to prove the damage, the defect and the
causal relationship between defect and damage. On the issues of defect and causation
German courts have on several occasions allowed the claimant to rely on prima facie
evidence. For example, a guest who contracted Hepatitis-A after having eaten in the
restaurant of the defendant could rely on evidence that the chef of the restaurant had
been infected with Hepatitis-A.36 [LINK] However, the courts are often strict about the
conditions under which the rule of prima facie applies. 37 As far as defect is concerned,
referring to the rule of prima facie is unnecessary: all the claimant has to do is to show
that the product “did not provide the safety that one is entitled to expect” (§ 3 PLA).
Safety is a complex concept. There may not always be an exact technical explanation as
to why a product is considered unsafe. If a product fails in circumstances where one is
entitled to expect that it does not fail, this in itself is proof of a defect. Generally speak-
ing, the higher the expectations of safety to which the typical consumer is entitled, the
lower the extent to which the claimant has to investigate the exact nature of events lead-
ing to the product's failure - and vice versa.38

Special problems arise where it cannot be ascertained which of several generic products
did in fact cause the damage. According to § 830 I 2 BGB, participants of a tort 39 are
jointly and severally liable "where it cannot be ascertained which of several participants
caused the damage through his conduct". It is controversial whether several individual
producers can be seen as “participants”. On a sound reading of § 830 I 2 BGB, several
manufacturers should be seen as participants if they all contributed to the risk of injury,
provided that other causes for the injury can be excluded. The rule may therefore apply
32
BGH NJW 1986, 1863, 1864; BGH NJW 1996, 2224 (Lubricating Gel); OLG Hamm NJW-RR 2001,
1248 (Log Flume) [LINK]; OLG Düsseldorf, 20/12/2002, 14 U 99/02 (Chocolate Bar) [LINK].
33
OLG Frankfurt NJW-RR 2001, 1471 [LINK].
34
OLG Hamm NJW 2001, 1654 [LINK].
35
OLG Düsseldorf 20/12/2002, 14 U 99/02 [Link].
36
OLG Frankfurt NJW 1995, 2498 (Hepatitis-A) [LINK].
37
OLG Hamm 4.10.2001 – 6 U 6/01 (Ski Accident); OLG Frankfurt NJW-RR 1994, 801 (Bicycle); LG
Kiel NJOZ 2001, 935 (Salmonella Infection).
38
S. Lenze, Proof of Defect, 9 (2002) European Product Liability Review 40 ff; Lenze, Zum Beweis des
Produktfehlers, Produkthaftpflicht International (6) 2003, 242; Lenze, Strict Liability for Manufacturing
Defects – What proof is needed, 11 (2003) European Product Liability Review. See also L Nottage,
Product Liability in Japan (forthcoming). S. also the case law of the Austrian Supreme Court [LINK].
39
Albeit seeded in tort law, this provision also applies to the law of contract as well as to strict liability
(BGH NJW 1999, 3633)
 -9-

in cases where the claimant cannot prove which of the products he had actually used in
fact caused the damage.40 However, it will not apply where he cannot even say which
products he had used, which is the typical situation where some courts in the US in cer-
tain circumstances (especially in asbestos cases) have applied the concept of market
share liability.

e. Damage

The PLA only covers damage flowing from personal injury or damage to property other
than the defective good. It does not cover:

 damage to property not ordinarily intended for private use;

 damage to the product itself;

 (other) pure economic loss;

 property damage of less than €500.

As of 1 August 2002, compensation for pain and suffering is included within the range
of recoverable damages (§ 8 sentence 2 PLA).

In the case of personal injury caused by one product, or by generic products with the
same defect, the maximum liability is €85 million (§ 10 PLA). This provision was orig-
inally included in the Product Liability Directive in order to guarantee insurability for
development risks. The implementation of both the development risks defence and
damage caps is incoherent as liability for design and instruction defects - this is where
development risks can occur - essentially parallels the issues underlying a negligence
standard. It is nevertheless applicable law in Germany.

f. Defences

§ 1 II - IV stipulate a number of defences:

 The producer is not liable if it did not put the product into circulation. A product
is put into circulation when it is passed on to the next person in the chain of sup-
ply (another manufacturer, supplier, or consumer) or made available for collec-
tion. That means, for example, a product which is stolen from the premises of
the manufacturer is not put into circulation by the manufacturer. On the other
hand, a component-product is put into circulation with delivery to the manufac-
turer of the final product. According to the European Court of Justice, a product

40
BGH NJW 1994, 932 (Toddler Tea II) [LINK]
 - 10 -

is also put into circulation when it is used during the provision of a service even
if the final consumer never comes into contact with that product.41

 The producer is not liable if “it is to be assumed” that the product was free from
defect at the time of circulation. The producer is therefore not liable for damage
caused by inappropriate storage by the supplier, and for post-marketing contami-
nation or sabotage. Although the German rules on standard of proof generally
require establishing a very high probability of the relevant facts, an autonomous
interpretation of the Product Liability Directive suggests that the manufacturer is
not liable if, on a balance of probabilities, it is more likely than not that the de-
fect came into being post-circulation.42

 The producer is not liable if the product was not manufactured for sale or for any
other form of distribution with economic purpose. This defence excludes pri-
vate non-profit activities from product liability.

 The producer is exempted from liability if the defect is due to compliance with
mandatory regulations issued by the public authorities. Contrary to what the
wording of this defence seems to suggest, its scope is very narrow. Most of the
relevant provisions (e.g. those in the Product Safety Act) only set minimum
standards, which do not release the manufacturer from its responsibility to ob-
serve stricter obligations imposed by product liability law.

 The producer is not liable if the state of scientific and technical knowledge at the
time when he put the product into circulation was not such as to enable the exis-
tence of the defect to be discovered (the so-called development risks defence).
According to the European Court of Justice, this requires proof that it was objec-
tively impossible to discover the harmful characteristics of the product, taking
into account the most advanced state of scientific and technical knowledge at the
time the product was put into circulation (i.e. not just the knowledge of a certain
industry).43 However, such knowledge must be accessible.44 The Bundes-
gerichtshof has maintained that this defence does not apply to manufacturing de-
fects.45 The consequence of this jurisprudence is that liability for manufacturing
defects is strict, whereas design defects and warnings are judged by a deperson-
alized high standard of negligence.

41
Case C-203/99, Henning Veedfald v Arhus Amtskommune, [2001] ECR-I 3569.
42
See S Lenze, Defective but not at time of circulation, 11 (2003) European Product Liability Review
35, 36.
43
Case C-300/95, Commission v UK, at para. 26; see also H.-J.Kullmann, Produkthaftungsgesetz (3rd ed.
200) § 1/5 b.
44
Commission v UK, note 29, 29.
45
BGH NJW 1995, 2162.
 - 11 -

 A producer of a component is further not liable if the defect is attributable to the

design of the product in which the component has been fitted or to the instruc-
tions given by the manufacturer of the product.

g. Limitation period

A claim under the PLA must be brought within three years of the time when the injured
consumer became aware of the damage, the defect and the potential defendant (§ 12
PLA). The limitation period is suspended by pending negotiations between the parties
(§ 203 BGB), and interrupted only by the filing of a formal action (§ 204 BGB). Corre-
spondence before any action is taken does not prevent claims from becoming statute-
barred.

The Act also states that claims expire 10 years after the product has been put in circula -
tion (§ 13 PLA). The “product” is put into circulation when the producer supplies the
actual defective product to the next person in the chain of supply, i.e. not already at the
launch of the product line.

2. Drug Act

The Drug Act is an important strict liability regime for pharmaceutical products, which
takes priority over the PLA. The Drug Act includes liability for development risks and
renders insurance compulsory. Together with new rules on causation and a special -
and in German law unusual - claim for disclosure, both of which were introduced in
2002,46 the German Drug Act is one of the strictest (statutory) product liability regime in
the EU.

a. Background

The Drug Act of 1976 was enacted against the background of the Thalidomide crisis of
the late 1950s, which had struck Germany particularly badly. This incident highlighted
the necessity of reviewing the quality, efficacy and safety of medicinal products prior to
their marketing, authorization and sale.

b. Conditions for liability

A claim under § 84 of the Drug Act requires:

 that as a result of a defective medicinal product, or of incorrect or insufficient

product information;

 a person has suffered personal injury or death;

46
See also I. Brock, German parliament passes the Second Act to change the rules relating to damages,
Lovells, European Product Liability Review, June 2002 at 16 f.; http://www.lovells.com (Publications -
Newsletters).
 - 12 -

 that the medicinal product holds a marketing authorization, or is deemed to hold

such authorization; and

 that the use of the product was appropriate, that is, in accordance with the prod-
uct information included in and on the packaging.

c. Defendant company

Under § 84 of the Drug Act, the entity named on the packaging which placed the prod-
uct on the German market is a potentially liable 'pharmaceutical enterprise’. Importing
companies are also responsible if the product is sold under their name. Even if the
product is re-imported to Germany, it is the re-importer that holds the marketing autho-
rization, and that is named on the outer packaging of the product, which is liable, not the
German producer as the German producer did not place the product on the German mar-
ket.

Where a foreign subsidiary of a German-based company imports a product into Ger-

many, the German parent-company is liable, provided that the product is placed on the
market under its name. Conversely, in the case of a parallel import, the liable party is
the importer and not the German subsidiary of the original producer. Where there is
more than one responsible party, each party is jointly and severally liable, and is entitled
to seek recourse from co-debtors (§ 93 of the Drug Act).

d. Products

Strict liability under § 84 of the Drug Act only applies to medicinal products produced
for human use that have a marketing authorization and that have been placed on the
German market. § 84 of the Drug Act is not applicable to:

 veterinary medicines, even though an animal for human consumption that is

treated with a hazardous medicinal product may indirectly cause personal injury
to consumers;

 bulk material that is not designated for sale to consumers;

 most homeopathic preparations;

 specialty products produced by pharmacies without a marketing authorization;

 medicinal products imported on a 'named patient' basis without a marketing au-

thorization;

 non-approved medicinal products used in clinical trials; and

 - 13 -

 medicinal products manufactured in Germany but exclusively earmarked for ex-

port.

Injuries suffered from these medicinal products may be covered by the Product Liability
Act and liability based on tort.

e. Defectiveness

According to § 84 II no. 1 of the Drug Act, the ‘pharmaceutical enterprise’ is liable if "a
drug, at correct use, has harmful effects which, taking into account the state of medical
knowledge, exceed a tolerable level", i.e. if the risks of the drug outweigh its benefits.

Alternatively, the distributor is liable "if the injury is caused by an instruction which
does not adequately represent the state of medical knowledge" (§ 84 II no. 2 Drug Act).
The product information must, in a clear and appropriate way, point to any product risks
and side effects known at the time of circulation, and point out any serious possibility of
such risks and side-effects, even if scientific evidence on that issue is not fully clear.
The product information must also include instructions relating to the correct use of the
drug and it must in certain circumstances also highlight the possible consequences of
foreseeable misuse.47

The pharmaceutical enterprise must also monitor the product post-marketing and if it
finds out about risks previously unknown, including a frequent misuse of the drug, up-
date product information accordingly.

f. Causation

The claimant, in principle, needs to prove a causal link between the defective drug and
the damage. Yet there are exceptions to this rule. The Bundesgerichtshof decided that
in the case of inadequate product information, it is for the defendant to prove that the
patient would have used the drug even if he or she had been correctly and fully in-
formed.48 However, this “actual assumption” is not as difficult to rebut as it may seem.

Additionally, in 2002 the German legislator, in an unprecedented fashion, changed the

rules on causation. According to the new rules, actual causation between the applica-
tion of the drug and the damage is presumed if the drug in question is, in the actual cir-
cumstances, generally capable of causing such damage (§ 84 II 1 Drug Act). This rule
does not, however, apply "if, in the actual circumstances, a different instance could have
caused the damage" (§ 84 II 3 Drug Act). However, another drug which also may have
caused the injury is not regarded as a “different instance”. This is different if this drug is

47
BGHZ 106, 273, 284 (Asthma Spray).
48
BGH NJW 1992, 560, 562 (Toddler Tea); see also OLG Frankfurt NJW-RR 1999, 27, 30.
 - 14 -

not considered defective (e.g. because its harmful effects are acceptable in the light of
the benefit-risk assessment).

Whether the new causation rules are in compliance with EC law remains to be seen.
There are sound reasons why the new rules may contravene Article 13 of the Product
Liability Directive. Article 13 allows special product liability systems to remain appli-
cable if they existed at the time when the Directive was adopted by the Council, i.e. on
25 July 1985. The German Drug dates back to 1976, yet the changes happened in 2002.
The question thus is whether Article 13 allows changes to existing systems. The Euro-
pean Court of Justice recently made clear that the Product Liability Directive seeks to
achieve maximum harmonisation within its scope. 49 That suggests a narrow reading of
Article 13, one that does not allow the German legislator to go it alone in the EU and
change the only (national) co-existing product liability regime in a way that would, after
18 years of practical symmetry with the Directive, make a real difference.

g. Damage caps

Under § 84 of the Drug Act, only compensation for personal injuries caused by defec-
tive medicinal products is recoverable. § 88 of the Drug Act limits individual claims
under § 84 to €600,000. If the claimant is awarded an annuity, the annuity must not ex -
ceed €36,000 per year. If the same medicinal product has caused injury to several per-
sons, these amounts cannot exceed €20 million in total, or €7.2 million annually. The
new § 87 sentence 2 extends liability to immaterial damages such as pain and suffering.

h. Compulsory insurance

A party placing a medicinal product on the German market must be insured against all
liability under § 84 of the Drug Act, either through a German insurance company or by
obtaining a confirmation of cover from a credit institution in Germany or within the EU.
The German insurance industry has created a 'pharma pool' through which all major in-
surance companies pool the statutory strict liability risk, thus facilitating affordable in-
surance premiums.

3. Genetic Engineering Act

The Genetic Engineering Act came into force on 1 July 1990 and aims at protecting hu-
man beings and the environment against dangers which may arise from genetic engi-
neering. It also establishes a legal framework for relevant research and development
and the exploitation and promotion of this technology. Activities conducted in genetic
laboratories are classified into four containment levels according to the degree of risk
they involve.
49
Case C-52/00, Commission v France [2002] ECR I-2553; Case C-154/00, Commission v Greece [2002]
ECR I-3879; Case C-183/00, González Sánchez v Medicina Asturiana [2002] ECR I-3901.
 - 15 -

§§ 32 ff of the Genetic Engineering Act provide for the operator's absolute liability if
damage is caused to third parties as a result of properties of a genetically modified or-
ganism. Liability is limited to a maximum amount of €85 million. The Act also in-
cludes liability for development risks (i.e. there is no development risks defence).50 Lia-
bility based on the Genetic Engineering Act covers material as well as immaterial dam-
ages (the latter as of August 2002). In so far as the Genetic Engineering Act derogates
from the Product Liability Directive,51 one could query its compliance with Article 13 of
the Directive (see above).

D. State compensation schemes

State compensation schemes play a significant role in German product liability law.
Thalidomide victims have a right to benefits provided by a public foundation estab-
lished in 1971.52 Another public foundation has been set up to help patients who were
infected with HIV through contaminated blood products before 1 January 1988. 53 In
both cases, the endowments are shared by the state and the relevant pharmaceutical
companies. There is also financial aid available for a specific group of people who have
been infected with the Hepatitis-C-Virus through particular batches of vaccine. 54

Most notably, however, there is special compensation scheme for accidents at the work
place and occupational diseases.55 A large part of asbestos litigation, for example, is for
this reason redirected to social security system.

III. PRACTICE AND PROCEDURE

A. PRE-TRIAL OR PRE-ACTION DISCOVERY

German law has traditionally been fairly restrictive regarding pre-trial discovery and
document disclosure in particular. There is no pre-trial discovery procedure and no gen-
eral claim for disclosure that would help the claimant establish liability. Recent reforms
of the Code of Civil Procedure (CCP) 56 and the Drug Act, however, have introduced
tighter rules for the disclosure of documents.

50
§ 37 II GentechnikG.
51
That is, particularly with regard to products without marketing approval (compare § 37 II Gentech-
nikG).
52
Gesetz über die Errichtung einer Stiftung 'Hilfswerk für behinderte Kinder', BGBl. I 1971, 2018 ff.
53
Gesetz über die humanitäre Hilfe für durch Blutprodukte HIV-infizierte Personen, BGBl. I 1995, 972
ff.
54
See I. Brock, State Compensation for HCV Infections in the Federal Republic of Germany, Lovells,
European Product Liability Review Dec 2000 at 16 f., also at http://www.lovells.com (Publications -
Newsletters).
55
The competent institutions are the Bundesberufsgenossenschaften.
56
Gesetz zur Reform des Zivilprozesses vom 27.7.2001, BGBl I, 1887 ff.
 - 16 -

Under § 84a of the Drug Act, the injured person can now request that the manufacturer
(and the relevant authority) provide information on known effects, side effects and in-
teractions of a drug. Procedural law now gives the court power to order the disclosure
of documents in the possession of a party (or a third person) if a party makes substanti-
ated reference to the content and implications of those documents (142 CCP). However,
this does not mean a change of heart from the generally restrictive approach to the dis-
closure of documents in German law.57

B. EXPERT OPINIONS

Many product liability cases deal with issues which are highly technical in nature.
These cases always require the opinion of experts. According to German procedural
law, it is the duty of the judge to instruct experts for the purpose of giving expert evi -
dence in court. Counsel for the claimant and the defendant file their briefs prior to the
trial, presenting the facts and legal issues relevant to the case. The judge then - usually
after a preparatory hearing - formally orders the hearing of evidence and instructs the
experts. The parties have a right to obtain their own expert opinions (in addition to the
reports delivered by court-appointed experts) on the questions at issue. However, such
private expert opinions are normally not of equal value to reports by court-appointed ex-
perts.

C. TRIAL ON PRELIMINARY ISSUES

There is no trial on preliminary issues in the German law of civil procedure. For ex-
ample, at no time does the court decide on the admissibility of scientific evidence, for it
appoints the experts itself. Furthermore, the court cannot split the trial to decide on cer-
tain preliminary issues (e.g. causation) first. What the court can do, however, is focus
on certain issues (e.g. causation) first, take evidence on them - and then 'discuss' the out-
come with the parties. Courts may also initially take a decision on the merits, while re-
serving the assessment of damages until later (§ 304 CCP).

Each party may in certain circumstances prior to the trial request that the court appoint
an expert to give an opinion on the cause of injury or defect 58 (§ 485 II CCP). This may,
depending on the opinion, prompt the claimant to withdraw the claim or it may lead to a
settlement. The claim for disclosure under the Drug Act can be litigated separately,
prior to the damage action.

57
See further I. Brock, Does discovery find its way into the German rules on civil procedure?, Lovells,
European Product Liability Review, December 2002 at 28 f., also at http://www.lovells.com (Publications
- Newsletters)
58
Defect here, in the strict sense, refers to contract law, but there seems to be no reason why it should not
apply to 'product liability defects' as well.
 - 17 -

D. FEE ARRANGEMENTS AND LEGAL COSTS

Lawyers in Germany are not allowed to work on a 'no win - no fee' basis or to agree on
contingency fees.

The losing party must generally reimburse the winner's legal fees and court costs. Fees
and costs are calculated on the basis of the amount of damages claimed. To cover the
costs of litigation, legal insurance is available. An uninsured claimant sues at his own
risk, which increases proportionally to the amount claimed. This may prevent some
claimants from claiming unrealistically high compensation amounts simply to improve
their position in settlement negotiations. However, with legal insurance becoming in-
creasingly common in Germany, this effect loses significance.

More recently companies which offer financing of claims have been emerging in Ger-
many. This effectively operates similarly to contingency fee arrangements. The com-
pany guarantees coverage of the costs of litigation in return for a 20% to 30% share of
the amount of compensation realized. These companies will consider the amount of
money in dispute and the claimant’s prospects of success.

E. CLASS OR REPRESENTATIVE ACTIONS

Class actions or similar means of bundling mass tort actions are not available under
German law. In cases of serial damages, however, it is possible for one particular
lawyer or firm to coordinate litigation. Mass tort actions are thus often settled out of
court. Companies financing litigation have recently tried to set up a fund for group or
mass tort cases to pursue the claims assigned to it.

Representative actions too are not available in the areas of product liability and product
safety. Although the Injunction Act 2002 (Unterlassungsklagegesetz) gives certain bod-
ies the right of representative action where (any) 'consumer protection laws' are being
infringed, this Act does not apply to provisions related to product risks such as, for ex -
ample, the Product Safety Act. 'Consumer protection' in this context refers to business-
to-consumer practices only.59

59
See the legislative intention to the Act, BT-Drucks. 14/2658 at 52 - 53 and Directive 98/27/EC on in -
junctions for the protection of consumers' interests.