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Stuart Eizenstat is senior counsel at Covington & Burling LLP. He served as U.S. Ambassador to the European Union, undersecretary of commerce for international trade; undersecretary of state for economic, business, and agricultural affairs; and deputy secretary of the treasury in the Clinton administration.
In the closing days of 2023, legislators in the European Union needlessly rushed through a little observed political agreement on a proposed law called the Product Liability Directive (PLD). However, this new legislation should give security-minded policymakers in both Brussels and Washington great pause.
Already approved by the Council of the EU and likely to be approved by the European Parliament, this directive will be transposed into national law over the next couple years.
However, not only is it poised it to blow a hole through the current European Economic Security Strategy, the PLD also threatens European economic security, intellectual property and business growth — while risking new transatlantic friction.
Typically, during litigation, certain protections exist to prevent the leak of sensitive corporate information to interested parties, ensuring the legal process can’t be used as a backdoor to steal trade secrets, intellectual property or gain strategic edge. And judges in the United States rely on such protective orders that ensure “discovery” — the exchange of information between adversaries — can proceed without threatening a firm’s competitiveness.
By contrast, the new law would allow unbounded discovery without sufficient guarantees to ensure confidential information remains within the confines of a lawsuit. And the practical impact is clear: Foreign companies or governments could fund litigation, regardless of its merit, to uncover trade secrets like manufacturing processes, computer programs or pharmaceutical test data.
This all represents a new frontier in global geoeconomic lawfare. China has already attempted to use patent litigation to advance corporate espionage in the U.S., threatening the West’s competitive advantage in high-end technologies. And the new PLD would put these efforts into overdrive by exposing Europe — as well as any other non-European company that does business there — to the exact same tactics but without the judicial protections that have developed in the U.S.
As a result, this directive risks upending the hard-earned transatlantic approach toward China, driving a wedge into the effective partnership that was built to take on emerging threats.
Moreover, the aim of Europe’s Economic Security Strategy is to minimize economic risks that arise from geopolitical tensions and technological shifts — a strategy that emerged as part of coordinated efforts with the U.S. and other like-minded partners to decrease exposure to China. And the openings created by the new PLD would not only make these protections less effective, it would potentially undermine the overall strategy itself.
For one, the strategy currently outlines the European Commission’s proposal to identify and assess “risks to the EU’s economic security that threaten its key interests,” such as risks related to “technology security and technology leakage.” But now, China and other nations could simply use litigation to force the disclosure of these sensitive technologies.
The strategy also argues that the EU has an interest in preventing European financial resources or intellectual property from being used to create military or intelligence technologies that may be used against it. But then why would Europe let the fox into the henhouse, exposing itself to China-funded litigation under the PLD, which would disclose details about high-end technologies?
Finally, the EU is actively working to improve the effectiveness and efficiency of its current export control framework, which is largely in the hands of its member countries. But yet again, this laudable measure to sustain Europe’s long-term technological edge could be undone by the new directive’s self-inflicted loopholes.
As the West “de-risks” from an increasingly provocative China, Europe shouldn’t be “re-risking” its exposure through the new PLD. The bloc can accomplish the policy objectives underlying it — balancing consumer protections and business growth in Europe — without inviting China or other adversaries into the courtroom. And as the new directive is likely to enter into force and be transposed into national law over the next couple years, the European Commission and EU members need to ensure adequate protection for the ingenuity and inventiveness that sets leading businesses apart.
As the bloc faces global economic headwinds, it’s in everyone’s interest to avoid unforced errors like those embedded in this legislation and ensure litigation doesn’t compromise the competitiveness of critical sectors.
And most importantly, as this new directive is implemented, the EU should develop further guidance, so that the text is applied reasonably, to safeguard security.
* Covington represents companies that are likely to be impacted by the Product Liability Directive.
