[For more current case annotated texts by this author, see Bernstein & Lookofsky, Understanding the CISG in Europe, 2d ed. (2003) and Lookofsky, Understanding the CISG in the USA, 2d ed. (2004).]
200. Under the general rule set forth in Article 41, the seller must deliver goods which are free from any third party right or claim. However, if such right or claim is based on industrial property or other intellectual property, the seller's obligation is governed by Article 42. As regards such rights and claims (based on patents, copyrights or trademarks), paragraph (1) of Article 42 provides:
201. Clearly, a seller who sells goods (which she knowns are) encumbered by third-party patent, copyright or trademark rights commits a breach of the implied Convention obligation set forth in Article 42.
Beyond this, Article 42 protects the buyer against third party claims, in that the mere assertion of such a claim constitutes a breach by the seller and entitles the buyer to exercise the remedies which the Convention provides. If the claim is frivolous, and/or if seller quickly and effectively disposes of an asserted claim, the buyer who suffers no substantial detriment will be unable to avoid the contract by virtue of a fundamental breach. On the other hand, depending on the forum jurisdiction concerned, the buyer may be able to require that the seller actually remedy his failure to supply claim-free goods by taking appropriate legal action (instituting or defending a lawsuit). Damages for breach will be available in either event.
4. Seller's Knowledge of Third Party Right or Claim
202. Unlike the corresponding rule in Article 41, the seller's knowledge regarding a third party right or claim at the time of contracting may be relevant when industrial or intellectual property rights are involved. In the international context, where an (alleged) infringement will usually take place outside the seller's territory, the Convention limits the implied obligation of the seller to deliver unencumbered goods.
First, the seller's Article 42 obligation is limited to cases where the seller, at the time of contracting, 'knew or could not have been unaware' of the right or claim concerned. It has been suggested that the seller 'could not have been unaware' of a third-party claim based on a patent application or grant which had been published in the country in question, inter alia, outside seller's own territory.[l]
Second, the obligation is limited by the specification of which State's industrial or intellectual property laws are relevant in this regard: (a) the State of resale or use, if contemplated by the parties at the conclusion of the contract; in other cases (b) the buyer's State of business.
5. Buyer's Risk
203. Paragraph (2) of Article 42 places a further limit on the seller's obligation in two situations where the buyer clearly ought to bear the risk of a conflicting right or claim: (a) where the buyer contracts with knowledge of the risk and (b) where the buyer himself provides the specifications, etc., which created the conflict with the third-party right or claim concerned.[l] [page 112]