Merchant’s warranty of non-infringement: Can I get
sued for selling this?
By: Robert J. Diaz, Esq.
The law ordinarily presumes that a merchant who regularly deals in a particular type of goods is in the best position to
determine whether those goods infringe the intellectual property (IP) rights of another party. Accordingly, in most places a
contract for the sale of goods includes a warranty from the seller stating that the goods are free from infringement
claims and “shall not unreasonably expose the buyer to litigation because of any colorable claim to or interest in the
goods” 1. More specifically, Article 2, §312(2) of the Uniform Commercial Code (U.C.C.) states that:
“Unless otherwise agreed a seller who is a merchant regularly dealing in goods of the kind warrants that
the goods shall be delivered free of the rightful claim of any third person by way of infringement or the
like . . .” 2.
This provision, which has been adopted in some form by most states, provides a warranty against infringement if several
criteria are met. First, this provision is not intended to apply to casual sellers, but to “merchant[s] regularly dealing in
goods of the kind;” in a word, dealers. The Official Comment to U.C.C. §2-312 explains that “[w]hen the goods are part
of the seller's normal stock, and are sold in the normal course of business, it is the seller's duty to see that no claim of
infringement of a patent or trademark by a third party will impair the buyer's title” 3. However, the Official Comment also
makes clear that “[a] sale by a person other than a dealer... raises no implication in its circumstances of the warranty. “
Id.
Second, the provision warrants only that the goods be delivered “free of the rightful claim of any third person” (U.C.C.
§2-312(2) [2003]). In a recent case interpreting this provision, a California Court of Appeals found that the term “rightful
claim” as used in U.C.C. §2-312(2) (2003) was “intended to broadly encompass any nonfrivolous claim of infringement
that significantly interferes with the buyers use of the purchased good” 4,5,6.
There is no requirement that the goods actually be found to be infringing for the warranty to apply. Third, Article 2 of the
U.C.C. applies only to the sale of goods. Accordingly, the seller only warrants that the goods are noninfringing, not that
the buyer will not use the goods in some manner that will result in an infringement 7.
Interestingly, just as a warranty is imposed upon the seller based upon the premise that it is the seller who is in the best
position to determine whether the goods being sold infringed, U.C.C. §2-312 also requires that “a buyer that furnishes
specifications to the seller must hold the seller harmless against any such claim that arises out of compliance with the
specifications.” This is appropriate because in situations where the specifications are being provided by the buyer, it is
the buyer, not the seller, who is in the best position to know if the goods in question are infringing and it would be unfair
under these circumstances to impose a warranty on the seller.
A warranty under U.C.C. §2-312 can be disclaimed or modified in one of two ways. First, it can be disclaimed or modified
by “specific language” in the sales contract. Second, it can be modified by circumstances “that give the buyer reason to
know that the seller does not claim title, that the seller is purporting to sell only the right or title as the seller or a third
person may have, or that the seller is selling subject to any claims of infringement or the like.”
Merchant’s warranty of non-infringement: Can I get
sued for selling this?
The warranty provisions of U.C.C. §2-312 are important to remember in the IP context because, in addition to ordinary
contract remedies such as rescinding the contract and revoking acceptance of the goods, a buyer can recover from the
seller/dealer its costs and fees from any infringement litigation over the goods 8.
Copyright 2009 Hahn Loeser & Parks LLP
1
U.C.C. §2-312 [2003]
2
U.C.C. §2-312(3) [2003]
3
U.C.C. §2-312(2), Official Comments [2003]
4
Pacific Sunwear of California, Inc. v. Olaes Enterprises, Inc., 167 Cal. App. 4th 466, 475; 84 Cal. Rptr. 3rd 182; 2008 Cal. App. LEXIS
1573 [Cal. App. 4th Dist. Oct. 9, 2008]
5
See also, C.F. Sales, Inc. v. Amfert, 344 N.W.2d 543 [Iowa 1983] (“The claim must be reasonable and colorable “).
6
“The mere casting of a substantial shadow over the buyer's title, regardless of the ultimate outcome, violates the warranty of good
title” (U.C.C. §2-312(2), Official Comments [2003]), citing, American Container Corp. v. Hanley Trucking Corp., 111 N.J. Super. 322,
268 A.2d 313, 318 [1970].
7
Chemtron, Inc. v. Aqua Products, Inc., 830 F. Supp 314; 21 U.C.C. Re. Serv. 2d 550 [E.D. Va. 1993]
8
See Chere Amie, Inc. v. Windstar Apparel Corp., 2003 WL 22056935, 51 UCC2d 969 [S.D.N.Y. 2003]