EU Directive on Representative Actions: A Future Concern for Digital Health Providers

EU Directive 2020/1828 on representative actions for the protection of the collective interests of consumers (Directive on representative actions) was published in the Official Journal on 4 December 2020. Once it comes into effect, it will harmonise the regime for collective actions to be brought on behalf of EU consumers. It also aims to balance the availability of the mechanism across Member States while providing safeguards to prevent frivolous claims against traders.

Qualified entities

The Directive on representative actions will require each Member State to designate at least one “qualified entity” to bring actions on behalf of consumers. A list of qualified entities will be maintained by the European Commission. Qualified entities such as consumer organisations will be empowered to bring collective action cases on behalf of consumers for breaches of a wide range of EU directives and regulations. Member States will have a high level of discretion in selecting the criteria that qualified entities must meet for the purpose of bringing domestic representative actions.

In order to bring a cross-border representative action, the qualified entity will have to meet certain criteria:

• Be a non-profit organisation in the area of consumer protection

• Be independent, and

• Have a legitimate interest in ensuring the provisions of the Directive are complied with

The Competition and Consumer Protection Commission is likely to be a qualified entity in Ireland.

The Irish position

At present, there is no mechanism under Irish law for collective redress or class actions to be brought on behalf of consumers. Once implemented, the Directive on representative actions will require Ireland to introduce at least one representative action procedure for injunction and redress actions which can be brought by qualified entities.

Impact on the digital health sector

The infringement by traders must be related to a limited set of European directives and regulations specified in Annex I to the Directive, along with their national implementing measures. Of particular interest for the digital health sector is that the following areas are covered:

• The General Product Safety Directive

• The Digital Content Directive

• The Sale of Goods Directive

• The GDPR

• The Directive on liability for defective products

• Medical Devices Regulations, and

• EU Regulations on medicinal products for human use

Current opportunities for consumers to bring proceedings against digital health providers are limited, expensive and time-consuming with limited potential benefit in terms of compensation by the end of the process. However, once Member States have applied the measures of the Directive on representative actions, this is likely to greatly increase the enforcement of consumer rights across the EU. For example, if a wearable product has safety issues under the General Product Safety Directive 2001/95/EC (GPSD) and a large number of consumers complain to a qualified entity, it will be able to bring a collective action against the manufacturer for alleged infringements of the GPSD. In some instances, qualified entities will be able to bring a joint representative action along with consumer protection groups and NGOs from other Member States if there is an EU-wide issue.

Injunctions and consumer redress

Qualified entities will also be able to apply for injunctive relief and other redress with injunctions potentially being granted on a preventative or prohibitive basis. In addition, qualified entities may seek redress on behalf of consumers in the form of compensation, repair, replacement, price reduction, contract termination or reimbursement. The redress awarded could vary among consumers in the group or could be the same for all consumers involved in the action. Member States will be given some flexibility as to how this will operate and be able to decide to:

• Opt-in, i.e. consumers actively opt-in to being represented, or

• Opt-out, i.e. a consumer must express their desire not to be represented by a qualified entity, mechanism

For cross-border actions, only the opt-in basis will be available.

Safeguards

One of the important features of the Directive on representative actions are the safeguards which were introduced in order to ensure the system does not encourage frivolous lawsuits. These include:

• Loser pays principle: The costs of the proceedings should be borne by the unsuccessful party

• Dismissal of manifestly unfounded cases: Courts will also be willing to dismiss manifestly unfounded cases at the earliest possible stage of the proceedings

• Potential for settlement: There is also the possibility that a claim can be settled. However, such a settlement requires the approval of the court

• Third party funding: A qualified entity will be required to publicly disclose information about its sources of funding for the representative actions it brings. At present, third party funding in Ireland is prohibited

• Multiple claims by individual consumers: Member States will be required to lay down rules preventing consumers from bringing an individual action or being involved in another collective action against the same trader for the same infringement. Furthermore, Member States must ensure that consumers do not receive compensation more than once for the same cause of action against the same trader

The way forward

Member States will be required to adopt implementing measures by 25 December 2022 and the measures will apply from 25 June 2023. While it remains to be seen how it will be implemented in practice, Digital Health businesses should begin to prepare for an inevitable increase in litigation and the introduction of cross-border collective actions will be a particular interest for businesses with a presence in multiple Member States.

For more information contact a member of our Product Regulation & Consumer Law team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.