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Published in J. Herbots editor / R. Blanpain general editor, International Encyclopaedia of Laws - Contracts, Suppl. 29 (December 2000) 1-192. Reproduced with permission of the publisher Kluwer Law International, The Hague.

[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).]

excerpt from

The 1980 United Nations Convention on Contracts
for the International Sale of Goods

Joseph Lookofsky

Article 42
Claims Based on Industrial or Intellectual Property
Seller’s Knowledge of Third Party Right or Claim & Buyer’s Risk

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.[1] As regards such rights and claims (based on patents, copyrights or trademarks), paragraph (1) of Article 42 provides:

'The seller must deliver goods which are free from any right or claim of a third party based on industrial property or other intellectual property, of which at the time of the conclusion of the contract the seller knew or could not have been unaware, provided that the right or claim is based on industrial property or other intellectual property:
a) under the law of the State where the goods will be resold or otherwise used, if it was contemplated by the parties at the time of the conclusion of the contract that the goods would be resold or otherwise used in that State; or
b) in any other case, under the law of the State where the buyer has his place of business.'

1. See Article 41, second sentence.

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.[1] 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.[2] 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).[3] Damages for breach will be available in either event.[4]

1. Regarding the similar rule in Article 41, see supra No. 198. Regarding the remedies set forth in Articles 45-52 see infra No. 208 et seq.
2. Regarding the similar rule in Article 41, see supra No. 198. Regarding Article 49, see infra No. 224 et seq.
3. Regarding specific performance, see Article 46 (infra No. 213 et seq.) and 28 (supra No. 140 et seq.).
4. Assuming a loss suffered in consequence. Regarding Articles 74 et seq., see infra No. 289 et seq.
[page 111]

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.

1. See A/CONF./97/5, Secretariat's Commentary No. 6 to Article 40 of the 1978 Draft Convention and Schlechtriem, P., Uniform Sales Law (Vienna 1986) at p. 74 [available at <http://www.cisg.law.pace.edu/cisg/biblio/schlechtriem.html>]. But Professor Honnold (Uniform Law at p. 295 [available at <http://www.cisg.law.pace.edu/cisg/biblio/honnold.html>]) doubts whether the Article 42 standard ('close to actual knowledge') is really that strict. See also Schwenzer in Schlechtriem, Commentary (1998) at 339-340.

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]

1. According to Article 42(2), the obligation of the seller under the Article 42(1) does not extend to cases where: (a) at the time of the conclusion of the contract the buyer knew or could not have been unaware of the right or claim; or (b) the right or claim results from the seller's compliance with technical drawings, designs, formulae or other such specifications furnished by the buyer.


Pace Law School Institute of International Commercial Law - Last updated April 5, 2005
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