Merchants Warranty of Non-Infringement

Section 2-312 of the Uniform Commercial Code (UCC) discusses warranties of title against infringers. Unless disclaimed, a “merchant regularly dealing in goods of the kinds” automatically warrants to the buyer that the goods being sold are “free of the rightful claim of any third person by way of infringement or the like.” The accompanying notes make clear that when goods are sold out of the seller’s normal stock (rather than special ordered) “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.” On the other hand, if the buyer makes a special order with its own specifications, any patent liability “will run from buyer to seller” and “the buyer is under an obligation in good faith to indemnify the seller for any loss suffered.”

In the 2008 case of Pacific Sunware of California, Inc. v. Olaes Enterprises, Inc, the California Court of Appeals interpreted the parallel provision in the California Uniform Commercial Code. The court there -HISTORY focused on the phrase “rightful claim” and held that a “rightful claim” is not limited to winning claims. Rather, the seller is liable to defend the buyer against any “nonfrivolous claim of infringement that has any significant and adverse effect on the buyer’s ability to make use of the purchased goods.” (Reversing the lower court ruling).

In its analysis, the court relied upon Professor Hricik’s 1997 Texas Tech Law Review article on how to “shift liability” for patent infringement. [link]

At this point, I will note that Patently-O hereby disclaims all warrantees – especially this one.

8 thoughts on “Merchants Warranty of Non-Infringement

  1. West Coast Guy,

    Be careful in suggesting that the Pacific Sunware case interpretation of “rightful claim” is applicable only to trademark infringement. While it’s true this case deals with a trademark infringement as a “rightful claim,” the discussion in this case (including other court cases and the commentaries to this UCC provision) suggest it is also applicable to patent infringement as a “rightful claim” under this UCC provision. What’s interesting is there’s no mention that I could see of copyright infringement as being a “rightful claim” but I don’t see why it shouldn’t be.

  2. West Coast Guy said:
    “In my opinion, the UCC would not apply to patent agents/attorneys because we are not ‘merchants’ who deal in “goods.” We provide ‘services’ — a hugely important distinction.”

    True, but if your client is a merchant, you might have a duty to inform it/him/her of the possibility of disclaiming liability, or at least making intelligent assessments of risk allocation with their customer(s) (especially when the customer also is a merchant). And your financial well-being depends ultimately on the financial well-being of your clients, so I think we have an indirect interest in the topic.

  3. In my opinion, the UCC would not apply to patent agents/attorneys because we are not “merchants” who deal in “goods.” We provide “services” — a hugely important distinction.

    The Pacific Sunware case does not involve patent infringement; rather, it is a trademark infringement action involving the sale of trademarked T-shirts between merchants. The UCC would be applicable in this case because “T-shirts” may be considered as “goods.”

  4. Dennis,

    You really need to disclaim this warranty.

    Someone out there must have filed a business method application “Method of Creating a Blog to Discuss Patent Issues” by now.

  5. Re: “At this point, I will note that Patently-O hereby disclaims all warrantees – especially this one.”

    Me too.

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