1.

Prior Debates in Korea

Whether data and software qualify as a “product” under the Act has been an ongoing debate. Some have argued yes, on the grounds that software is essentially electricity, a form of natural forces that can be controlled. However, the more prevalent view has been that software is not a “product” because it is not a tangible object. Accordingly, it has been viewed that software fixed on a storage medium, such as a flash drive or a semiconductor chip, is a “product” as part of that medium, and the manufacturer of the medium should be liable for any damages caused by a defect in the embedded software, not the software developer.

In a case against Microsoft involving its operating system software for servers, the Seoul Central District Court held that “products” under the Act can reasonably be understood to mean “movables” as defined under the Civil Act. The court ruled that Microsoft’s operating system software constituted a “product” under the Act for the following reasons: (i) if a software is fixed in a uniform storage medium (e.g., CD-ROM) for distribution to consumers, the storage medium and software become a unified, tangible product, (ii) if a software is only available through online distribution, the downloaded software must be stored in a hard drive or some other tangible medium to be a “product,” and (iii) given the legislative intent of the Act, it is reasonable to consider the software at issue, which was produced and distributed in bulk, as a “product” (Seoul Central District Court Decision 2003Gahap32082, November 3, 2006). However, the court found that the product was not defective, and there has been no High Court or Supreme Court decision that treated software as a product for purposes of product liability.

In 2017, the Korean National Assembly introduced a bill to amend the Act to explicitly define software as a “product,” in anticipation of disputes concerning damages caused by defective software. However, the bill encountered opposition due to concerns of impeding the software industry and lack of similar laws at the time in other countries, and ultimately expired without a vote.
 

2.

Survey of Overseas Legislations, Precedents and Trends
 
We summarize below the current state of software/AI liability in key overseas jurisdictions which are likely to influence whether and how Korea amends the Act.
 

(1)

United States

The US remains without a consensus on whether software is a “product” subject to strict liability. For many years, the only court decision on point was a Ninth Circuit decision that declined to expand product liability law to ideas and expression in a book (Winter v. G.P. Putnam’s Sons, 938 F.2d 1033 (9th Cir. 1991)). No case explicitly considered whether software can be considered a “product” until 2007, when a Louisiana District Court held that the software at issue – used by the defendant insurance company to calculate the plaintiffs’ losses from Hurricane Katrina – can be a “product” in light of the legislative intent of the Product Liability Act of Louisiana (Schafer v. State Farm Fire & Cas. Co., 507 F.Supp.2d 587 (E.D. La. 2007)).
 

(2)

Japan

The Product Liability Act of Japan defines “product” as “manufactured or processed movable property,” limiting it to tangible goods. Some scholars believe that a software that is integrated into a product can itself be considered a product under the Product Liability Act. However, the prevailing view is that a tangible good as a whole constitutes a product under the Product Liability Act, and software alone is not a tangible good and not subject to the Product Liability Act.
 

(3)

European Union

Under the current EU Product Liability Directive (85/374/EEC), a “product” is defined as any tangible movable item, including those incorporated in other movable or immovable items. Electricity is also specifically included within the definition of a product.

On March 12, 2024, the European Parliament approved the new Product Liability Directive to be adopted by the Member States. Among other things, the new Directive expands the product scope to cover software, including AI systems and AI-operated products.
 
Regarding AI specifically, in September 2022, the EU Commission tabled a proposal for an AI Liability Directive, to complement the Product Liability Directive and provide protection to individuals harmed by AI systems. Under the proposal, causation between the alleged damage and the AI system will be presumed if certain conditions are met, so that the plaintiff does not bear the burden of proof explaining inner workings of the AI system. Also, the proposal allows claimants against “high-risk AI system” manufacturers access to relevant evidence that may not be available under the existing legal regime.
 

3.

Outlook on Software and AI Product Liability in Korea

There have been calls to modernize the Act to ensure the quality and safety of software and AI products. Past legislative efforts to that end were hampered by concerns about the lack of similar rules and precedents in other jurisdictions, but now with the above recent developments in Europe, we expect a renewed effort to update the Act to adapt to the product liability issues arising from the integration of software and AI in all corners of society. We also expect to see discussions on expanding the range of compensable harms and making it easier to prove defects in software and AI products, as well as pursuing a balanced approach to avoid discouraging innovation in the software industry.

With the EU taking a leading role in shaping the legal framework for software and AI related product liability, we recommend monitoring future developments in Europe and reviewing their impact on the Korean legislative environment.