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Reproduced with permission of Camilla B. Andersen & Ulrich G. Schroeter eds., Sharing International Commercial Law across National Boundaries: Festschrift for Albert H. Kritzer on the Occasion of his Eightieth Birthday, Wildy, Simmonds & Hill Publishing (2008) 203-231

The Seller's Responsibility for Third Party Intellectual
Property Rights under the Vienna Sales Convention

Ruth M Janal [*]

A PERSONAL REMARK

Article 7(1) of the United Nations Convention on Contracts for the International Sale of Goods requires that 'in the interpretation of this Convention, regard is to be had to its international character and to the need to promote uniformity in its application'. While the principle is easy enough to understand and endorse, putting theory into practice is met by a number of oft-described obstacles,[1] among which poor accessibility of foreign sources and language problems are the most prominent. By launching the 'Taming the Dragons of Uniform Law Case Law' project,[2] which sets out to collect and translate case law on the CISG, Al Kritzer made the single most important contribution to overcome the impediments to a uniform interpretation of the Convention. I had the privilege of working with him on this project, and, in the course of doing so, fought with numerous snake-like, multiple-headed, fire-breathing German and Austrian 'dragons'. The aim, in each case, was not to slay the dragon, as St. George did, but to tame it and render it comprehensible to the English speaking world. In preparing this contribution for Al Kritzer's birthday, it occurred to me that Al himself is a dragon according to the Chinese zodiac (incidentally the Convention, which entered into force on I January 1988, missed that fate by a mere 16 days). Putting the lawyer's [page 203] scepticism for astrology aside and looking at Al Kritzer's character, I should certainly concur with the analysis that 'The dragon person has an active mind and shows an unfeigned interest in the world around him'[3] and that 'when dragons do something, you can be certain their deeds do not go unnoticed.'[4]

THE SHOWING OF A RECLUSIVE DRAGON

Uniform law dragons come in a variety of shapes and forms, and one of the rarer species are decisions which concern themselves with Article 42 CISG, i.e. the seller's liability for third-party claims based on intellectual property. There are only seven reported judicial disputes and one ULIS case referring to Article 42 CISG.[5] I shall use one of those reclusive creatures, a decision by the Austrian Supreme Court (Oberster Gerichtshof- OGH), which has been dubbed the CD media case by the Pace database,[6] as a starting point for this contribution.

A German seller and an Austrian buyer repeatedly contracted for the purchase of CD-R and CD-RW shipments over a period of several years. The seller acquired the media from its mother company with seat in Taiwan who manufactured the goods. The buyer itself was a manufacturer of CDs who purchased media to supplement its own production. In 1997, seller's mother company had entered into a licensing contract with a Taiwanese licensor, which allowed her to use a processing patent for the production and the ensuing worldwide distribution of CR-R and CD-RW. During the judicial proceedings, it was established that the licensor possessed a corresponding European Processing Patent which entered into effect in Germany, but it could not be determined whether the patent applied to Austria as well. Differences between seller's mother company and the licensor regarding the appropriateness of the licensing fee at some point in time led seller's mother company to cease payment of the fee. The licensor reacted by terminating the licensing contract as of March 2000. In December of that year, the buyer became aware of respective litigation between the seller's mother and the [page 204] licensor before the Dutch courts. In the following, the buyer withheld the purchase price from the seller. It was disputed between the parties whether the seller thereupon issued a declaration in which it engaged itself in order to indemnify the buyer from all possible recourse claims filed by licensor from non-payment of license fees. When the liquidator of seller's assets eventually raised an action for payment of the purchase price, the buyer had sold the entire shipments in question to resellers in Austria, Germany and Switzerland.

The Court of First Instance dismissed the claim on the basis of Article 42 CISG. The Appellate Court, while acknowledging the seller's liability under Article 42 CISG, granted the claim since the Court opinioned that the buyer did not possess a permanent right to withhold performance. The OGH referred the case back to the previous instance for three reasons: Firstly, the Court was of the opinion that the burden of proof regarding the extent of the licensor's supposed patent was on the buyer being the party relying on the alleged breach. Secondly, the Court held that the previous instance had not satisfied the parties' right to be heard when it decided that the parties had contemplated the resale of the goods in Germany at the time of the conclusion of the contract. Finally, the OGH granted the buyer a permanent right to withhold performance which would lead to a dismissal of the claim, should the Appellate Court determine that a liability under Article 42 CISG existed.

CONTENT AND PURPOSE OF ARTICLE 42 CISG

At first sight, the purpose of Article 42 CISG is to spell out one of the seller's obligations, namely to deliver goods which are free from any right or claim based upon intellectual property. A closer look reveals that the true function of the provision is to limit the seller's liability compared to the strict liability imposed by Article 41 CISG.[7] Since intellectual property rights are territorial in nature, it would constitute a disproportionate and unnecessary obligation [page 205] upon the seller to warrant the worldwide absence of intellectual property rights which might limit the use of the goods:[8] Disproportionate, as it is next to impossible and very costly to identify intellectual property rights existing in each and every country of the world; unnecessary, since the buyer is usually only interested in selling or using the products in particular markets and will only be willing to pay a price which reflects the licensing fees required for such use.

Article 42 CISG accounts for the parties' interests by limiting the seller's liability to third party rights or claims of which at the time of the conclusion of the contract the seller knew or could not have been unaware, if such rights or claims are based on intellectual property under the law of the state where the goods are destined to be resold or otherwise used, provided that the resale or use of the goods in that state was contemplated by the parties at the time of the conclusion of the contract. In contrast to the seller's liability for non-conformities (Article 35 CISG) or general third party rights (Article 41 CISG), the liability thus only arises if there is a certain element of fault on the part of the seller.[9] This is owed to the fact that both a lack of conformity and the existence of general third party rights find their root in events prior to the delivery and in the seller's sphere.[10] In contrast, intellectual property rights result from domestic public law in the state the goods are eventually destined [page 206] for [11] and are consequently difficult to foresee and not open to change on the part of seller.

RIGHTS OR CLAIMS BASED UPON INTELLECTUAL PROPERTY

Intellectual Property

There is a broad consensus that the scope of the term 'intellectual property' may be inferred from the relevant international conventions in this field.[12] An apt summary is given by Article 2(viii) of the WIPO Convention,[13] which describes intellectual property as 'all [...] rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields.' This encompasses copyright and all industrial rights, such as patents, trademarks, industrial [page 207] designs, geographic indications of source, irrespective of their registrability and the technique by which their protection is achieved under the law in question.[14]

Third Party Rights or Claims

Article 42 CISG establishes the seller's liability for both rights and claims based upon intellectual property. Two consequences follow: Firstly, it is sufficient if a third party holds a right based upon intellectual property which affects the goods, without the third party having to assert its right for Article 42 CISG to be relevant.[15] If the third party decides not to enforce its IP right, this will only be of relevance for the remedies open to the buyer, which I will address at a later point in time. The buyer does not need to run the risk of re-selling or using infringing goods or need to sit pretty until the IP holder decides to enforce its rights. Secondly, the seller is in principle also responsible for redeeming the buyer in the case of an unfounded third party claim. Corresponding to Article 4l CISG, the general provision regarding defects of title, the purpose of this rule is to 'protect the normal expectation of a buyer that he is not purchasing a lawsuit'.[16]

Frivolous and Bad Faith Claims

There has been some debate as to whether the seller's obligation to deliver the goods free from third party claims extends to frivolous claims:[17] [page 208]

Example:

Seller delivers to buyer an oxygen resuscitation apparatus with the name Venti-O2 (O2 being the chemical symbol for unbound oxygen). A mobile network operator in buyer's country by the name of O2 objects to buyer selling the respirator under this name as an alleged infringement of the O2 trademark.[18] The third party's claim in this example might be considered frivolous in various legal orders in two respects: (a) The product category of respirators is decidedly not related to the provision of mobile phone services, and (b) the term O2 indicates the intended purpose of the respirators.

In my view, the meaning of the word 'claim' in Article 42 CISG should not be limited to non-frivolous claims, as distinctions between frivolous claims and claims which are 'solely' unfounded lie in the eye of the beholder.[19] A requirement that any relevant third party claim be made in good faith (in order to avoid the buyer from convincing someone else to raise a meritless claim) [20] is also not suited to limit the seller's liability, both due to the vagueness of the concept of bad faith and the difficulty of proving such. Since frivolous as well as bad faith claims will generally not be foreseeable to the seller, the seller's liability risk is negligible, unless the seller was actually aware of the frivolous claim at the time of the conclusion of the contract. For instance, if the seller in the above example had known of an existing O2 practice to advance against persons marketing respirators under a description including the term O2, it could have been expected to inform the buyer of such a practice, thereby excluding its liability by virtue of Article 42(2)(b) CISG.[21] [page 209]

Rights or Claims Coming into Existence

Article 42 CISG requires the seller to deliver the goods free from any third party right or claim, which seemingly implies that the decisive moment of assessment is the time of delivery. However, due to the territorial nature of intellectual property, rights based upon intellectual property will only enter into existence after the goods cross the border to the contemplated market,[22] which may often be after delivery has been effected (cf Article 31 CISG). Further, any contested third party claim is bound to be raised only after the buyer has taken over the goods.[23] The scope of seller's warranty must therefore include rights or claims coming into existence after delivery, provided that a particular basis for the right or claim was already present at the time of delivery.[24] With respect to goods delivered before they reach the target market, the decisive factor is the existence of a right or claim at that point in time under the hypothesis that the delivery had taken place in the market of the contemplated use. With respect to contested third party claims, the third party's assertion that the IP rights existed at the time of delivery is sufficient.[25]

Apart from the cases mentioned, this also relates to intellectual proper entitlements entering into existence after the time of delivery. There is no reason why the seller should have to warrant an indefinite absence of the party intellectual property rights.[26] However, if the basis of the intellect property was present at the time of delivery, specifically if the third party had already applied for a registered right [27] and it was only a matter of time until the intellectual property entered into existence, the purpose of Article 42 CISG to protect the buyer from the detrimental effects of litigation requires [page 210] the seller's liability.[28] Since the rights conferred to an intellectual property application vary from state to state,[29] this interpretation has the benefit of leading to a uniform application of Article 42 CISG. More often than not, the seller's liability will nevertheless fail since it could not have been aware of the application at the time of the conclusion of contract.

Uncertainty Regarding the Existence of a Right or Claim

Despite the fact that Article 42 CISG seeks to accommodate the buyer's interests by protecting it from both third party rights and contested claims, the buyer may find itself in a difficult position if the third party alleges the existence of an intellectual property right without actually raising a claim against the buyer. In the CD media case, the licensor had not approached the buyer or buyer's customers up until the time when the case was tried before the OGH. However, the litigation between the licensor and the seller's mother company related to the existence of a valid licensing chain between the licensor and the buyer, and the buyer alleged that the licensor was generally quite vehement in prosecuting patent right violations.

The buyer may thus be aware of the fact that it is possibly infringing a third party's intellectual property and that the third party might raise a claim at a later point in time, while being legitimately in doubt regarding the existence of the third party's right. As the OGH was right in pointing out, it is upon the buyer to prove the existence of the breach, i.e. the third party's intellectual property right in the absence of a third party claim.[30] This may be quite an onerous task for the standard buyer, since it is neither informed about the details of the licensing contracts nor does it possess an insight in the manufacturing process. In the CD media case the buyer, herself a manufacturer of CDs, was most likely in a position to assess the patent situation, but other buyers may not be as privileged. Principles of equity will thus require a shifting of the burden of proof where the evidence rests within the [page 211] seller's sphere.[31] In the CD media case, it was up to the buyer to prove the existence of licensor's patent and to show that the CDs sold were produced by means of the patented process. It would then have been up to the seller to show that a valid licensing agreement allowed him to produce and distribute the goods.[32]

As long as the alleged holder of an intellectual property does not raise a claim, the buyer may be left in limbo regarding its rights against the seller, unless it is able to prove the third party's right. Article 71 CISG, which allows for a suspension of performance on a basis of a prognosis of a future breach,[33] was not set up to deal with these particular difficulties of assessment. Nonetheless, Article 42 CISG does provide the right balance between the buyer's and the seller's position. As long as the third party does not assert its rights directly against the buyer, the seller would be overly burdened if it had to warrant not only against the absence of third party rights and claims, but also against mere suspicions that the goods are encumbered by third party rights. After all, it should be recalled that the buyer may be equally faced with difficulties regarding the assessment of a breach of contract with respect to supposedly defective goods or the gravity of a breach (Article 25 CISG).

CULPABLE CONDUCT AS A REQUIREMENT FOR LIABILITY

Liability under Article 42 CISG is dependant upon a certain degree of diligence, the lack of such on the part of the seller and the existence of which on the part of the buyer. The liability only arises if the seller, at the time of the conclusion of the contract, knew or could not have been unaware of the right or claim based upon intellectual property. On the other hand, the seller is exempt from liability if the buyer, at the time of the conclusion of the contract, knew or could not have been unaware of the right or claim. The rule is not as bewildering as it might first seem,[34] since the facts before the parties may diverge considerably: Whereas the seller may have a complete picture of the goods it is selling (i.e. regarding a patent restricting the sale of [page 212] the goods), the buyer may be more familiar with the existing IP rights on the target market.[35]

Nonetheless, two interesting matters are up for debate:

   (1)    Are the standards of diligence required from the seller and the buyer respectively actually identical?
 
   (2)    Which factors allow an inference that the parties ought to have been aware of the right or claim based on intellectual property at the time of the conclusion of the contract?

Is the Seller under a Duty to Investigate Intellectual Property?

Both matters culminate in the question whether the seller -- as opposed to the buyer -- is held to investigate intellectual property rights in the country the goods are destined for. There is a strong current among authorities arguing that the seller could not have been unaware of the right or claim and is therefore liable under Article 42 CISG, if the intellectual property entitlement was published in said country, whereas the buyer is generally not deemed to be obliged to investigate public registers.[36] While this interpretation may rely on a respective assertion regarding patents in the Secretariat Commentary,[37] its persuasiveness is far from compelling.

First, the ICC in its comment on the Draft Convention strongly opposed the Secretariat Commentary's suggestion regarding the effect of a publication of patents on the seller's awareness of the intellectual property,[38] and the result of the discussion at the Plenary Conference is not reported. Secondly, the wording of Article 42(1) CISG does not indicate an obligation on the part [page 213] of the seller to investigate published intellectual property. As Honnold correctly points out, the words 'could not have been unaware' indicate a standard close to actual knowledge, referring to instances in which a party more or less closes its eyes to the facts before its face [39] but not to an obligation to investigate. The same is true for the French 'ne pouvait ignorer' and the Spanish 'no hubiera podido ignorar'. Thirdly, the wording of Article 42(2) (a) CISG implies that seller and buyer are subject to an identical standard of diligence, meaning that if the seller is held to research intellectual property in the target market, so is the buyer, and a failure by both of them to live up to this standard will preclude liability under Article 42 CISG.

The best way forward therefore seems to find a solution by identifying the adequate allocation of the contractual risk between the parties. There are two main reasons why authorities contend that the obligation to research published rights should rest with the seller: One argument is that such an obligation compensates for the fact that the seller's liability under Article 42 CISG is a priori limited to rights based on intellectual property under the law of specific states.[40] However, as I have argued above, the limitation regarding particular states also accommodates the interest of the buyer, since worldwide licensing fees might considerably drive up prices. The second argument is that the seller generally possesses superior knowledge regarding the product sold and will therefore be in a better position to foresee possible infringements.[41] This assumption for one is incorrect with respect to most trademark disputes,[42] as long as the buyer was aware of the trademark attached to the purchased goods at the time of the conclusion of the contract. Further, the CD media dispute is a case in point that such an assumption is not necessarily true with respect to rights based upon technical inventions either, since the buyer itself was a producer of blank CD media who made the purchases to supplement its own production, and was therefore [page 214] fully informed regarding the product bought. In truth, sellers who are not manufacturers will oftentimes not possess any superior knowledge regarding intellectual property affecting the goods sold.[43] It is an illusion that the common car dealer will be aware of both the patented features of the car sold and the patented processes employed to manufacture the car. Finally, it has been argued that if the seller was not under an obligation to investigate published rights, a liability under Article 42 CISG would hardly ever arise.[44] But this argument may easily be turned around: if the seller was always held to fully investigate published rights, a limitation of this liability -- the true purpose of Article 42 CISG -- would never be achieved.

It follows that a duty to investigate should not be considered a general requirement, but should depend upon specific criteria.

      (1) In my view, the distinction between registered and unregistered intellectual property, which is oftentimes drawn,[45] is too rough.[46] For one thing, copyright is an intellectual property whose entry into existence is not dependent on registration, but whose existence may in some instances nonetheless be quite easy to research, provided that the state the goods are destined for is party to a relevant international convention, i.e. the Berne Convention,[47] or is a member of the World Trade Organization.[48] Also, an unregistered design under Article 11 of the EC Regulation on Community Designs [49] will have effect not only in one, but all member states of the European Union. On the other hand, research of registered trademarks and patents can be quite difficult. [page 215] Obviously, the availability of respective databases online [50] has facilitated the search for word trademarks in particular, but the search for graphic elements, not to speak of non-conventional signs,[51] such as colour trademarks, shapes, sounds, smells, moving images etc will be out of the reach of the standard seller. The same may be true for patent researches.

      (2) If the seller offers goods affected by intellectual property to the public in the state the goods are destined for, the seller itself is infringing intellectual property under most legal orders.[52] It may be expected of any seller in such a position to be aware of third party rights based upon intellectual property.[53]

      (3) The matter is more difficult if the seller either offers the goods for sale in the buyer's country and the buyer intends to export them to a third country or if it is the buyer who approaches the seller with a request for sale. It should be borne in mind that the buyer's request whether the seller is able to furnish it with particular goods will more often than not constitute an invitation to treat, and the seller's answer will most likely constitute an offer open for acceptance on the part of the buyer. In this situation, there is not much of an incentive for a reasonable seller to research the state of intellectual property, since: a) this will be time consuming and may lead the [page 216] prospective client to contract with someone else, and b) the investigation of intellectual property in a different country produces costs of which the seller at that point in time cannot be confident that they will be amortized in the course of an eventual sales contract. Thus, requiring the seller to research intellectual property rights in another country without any indication for the existence of such third party rights would be too demanding.[54] However, if the seller is aware or ought to be aware of the fact that the goods sold are affected by an intellectual property right in the country of seller's own place of business -- be it a registered or an unregistered right -- seller ought to be on its guard that an equivalent right might exist in the country the goods are destined for.[55] An important criterion in this respect is the seller's proximity to the manufacturing process.[56] In such instances, it can be expected of the seller to either investigate the intellectual property situation or to draw the buyer's attention to this fact and provide for a contractual assignment of the associated risk.

Awareness as Foreseeability

It goes without saying that what is required on the part of the seller is not an awareness of the exact nature of the third party's right or claim,[57] since their form will depend upon both how the third party decides to assert its rights and the exact embodiment of IP rules in the target market. On the other hand, knowledge of the existence of intellectual property alone does not suffice. Rather, it is decisive that seller is aware or could not have been unaware of the fact that the use of the goods might be affected by third party rights or claims based upon intellectual property.[58] Consequently, the term 'awareness' relates both to a knowledge of the facts as well as the wakefulness of the risk that a third party may assert rights based on the intellectual property. [page 217] In the end, awareness translates to a reasonable foreseeability of the third party's intellectual property claim at the time of the conclusion of contract.

It is here that we need to revisit the matter of 'frivolous claims'. In the respirator example given above, the seller might very well have been known the existence of the intellectual property (the O2 trademark), but the claim raised by O2 seems too far-flung for the seller to have reasonably foreseen such a risk. To give a counter-example: Any party selling apparel or sports equipment adorned with two or four stripes ought to be aware of the risk of a potential claim by the 'brand with the three stripes'. This inference may be drawn either from the copious litigation history regarding the Adidas trademark [59] or from the similarity of embellishment and trademark on the one hand and the marketed goods on the other hand, irrespective of whether a likelihood of confusion is eventually established by the courts in the particular case.

The Problem with Licenses

The CD media case draws our attention to another matter regarding the seller's diligence: When the first of a number of contracts was signed, a licensing agreement between the licensor and the seller's proprietary company existed, entitling the latter to worldwide distribution of the CD media. It was only at a later point in time that seller's mother company ceased payment of the fee and the licensor terminated the contract. In the particular dispute, this was of little relevance since the sales contract in question had been entered into after the termination of the licensing agreement and seller's knowledge thereof. Nonetheless, the situation sheds light on the fact that Article 42 CISG might not adequately provide for cases in which the seller (erroneously) believes to have secured a license allowing the buyer to market the goods before entering into the sales contract. In those instances, the seller is aware of the intellectual [page 218] property at the time of the conclusion of the contract, but in the dark about any defect regarding the licensing chain which eventually gives rise to the third party's right or claim.

Assessing the seller's liability on the basis of its culpability does not seem appropriate in such circumstances. Even the most diligent of sellers will not be able to foresee at the time of the conclusion of contract that the main licensee breaches -- or is merely accused of breaching -- the licensing agreement at some later point in time. This notwithstanding, there is nothing in the legislative history of Article 42 CISG to suggest that the seller should be given an opportunity to exonerate itself in such instances. As has been argued above, the element of fault required by Article 42 CISG may be attributed to the fact that intellectual property rights or claims result from domestic public law of the target state are difficult to foresee and cannot be influenced by the seller. Defects in the licensing chain are quite a different matter. They resemble non-conforming goods (Article 35 CISG) or defects in title (Article 41 CISG) in that they are rooted in the seller's sphere and are to some extent subject to the seller's control. Further, the seller will generally be able to seek redress from its supplier or the main licensor. It is my proposition that seller's liability in those instances arises irrespective of the seller's culpability, and the seller's ability to exonerate itself is dependent on Article 79 CISG alone.

The Diligence to be Expected of the Buyer

Following Article 42(2)(a) CISG, the seller's liability does not arise if the buyer knew or could not have been unaware of the claim at the time of the conclusion of the contract. Corresponding to what has been said regarding the seller's diligence, the buyer is not held to research the intellectual property situation apart from particular circumstances, i.e. if the buyer holds specific information which the seller is not party to or if the parties have agreed that the buyer will investigate the legal situation in the target market.[60] Language skills are of no importance in this context.[61] While the buyer may generally [page 219] trust the seller not to provide him with counterfeit goods, strong indications to the contrary must be followed up.[62]

Again, foreseeability of the third party's claim at the time of the conclusion of contract is decisive. Returning to the question posed at the outset, it may be therefore be said that the standard of diligence is in fact identical for both the seller and the buyer,[63] even if the requirements in each individual case may diverge due to the information available to the respective party. The most likely application for Article 42(2)(a) CISG are notorious trademarks or trademarks generally known in the buyer's industry.[64]

THE CONTEMPLATED STATE OF RESALE OR USE

Since the seller's warranty regarding the absence of third party IP rights is limited to a specific territory, it is necessary to determine the relevant area. Article 42(1)(a) CISG tells us that the warranty extends to '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'. Failing a corresponding contemplation, the relevant territory is the state of the buyer's place of business.

Even though the wording of Article 42 CISG refers to the 'contemplated State' as singular, it follows from the principle of party autonomy (Article 6 CISG) that the parties are free to contemplate a number of states as the territory of use or resale.[65] In particular, an understanding between the parties that the goods will be resold in one country and used in the other will extend the [page 220] seller's warranty to both of those states.[66] The tricky matter is to define the essential elements of contemplation by the parties. It seems helpful to juxtapose the wording of Article 42(1)(a) CISG with the definition of conformity under Article 35(2)(b) CISG which solely requires that the particular purpose of the goods is 'expressly or impliedly made known to the seller at the time of the conclusion of the contract'. A 'contemplation by the parties' is obviously something more, i.e. a tacit understanding between them,[67] requiring an indication by the seller that it accepts the buyer's contemplated use. The statements and conduct of the parties are of course subject to an interpretation under Article 8 CISG. If the parties agree upon shipment to a country other than the buyer's place of business at the time of the conclusion of the contract, an understanding that the goods will resold or used in this country may be inferred,[68] in the absence of indications to the contrary. A change of destination after the formation of contract is irrelevant, even if the seller agrees to ship the goods somewhere else.[69] If a mutual contemplation cannot be established, the applicable intellectual property laws are the ones of the buyer's place of business, Article 42(1)(b) CISG.

In the CD media case,[70] the buyer distributed CDs on a grand scale to retailers in Austria, Germany and Switzerland. The buyer was able to prove that the licensor held a European processing patent in Germany, whereas the existence of a corresponding right in Austria or Switzerland was not established (note: A European patent may be requested for one or more of the Contracting States to the EPC).[71] Following the findings of the Court of First [page 221] Instance, the parties' agreement stipulated that the goods were to be delivered to the buyer's works in Austria. Nonetheless, the Appellate Court held that since both the buyer and the seller were selling to retailers on the German market, the seller could not have been unaware of the fact that buyer would resell the CDs inter alia in Germany. In the Court's opinion, this was corroborated by the fact that the seller had delivered some of the shipments to Germany (as could be established from the invoices). Since the parties had not been heard regarding those inferences, the OGH referred the decision back to the Appellate Court, without giving any indication whether it concurred with the legal assessment.

The Appellate Court's decision is to be criticized for two aspects: Apparently, only a part of the goods was actually sold in Germany,[72] whereas the buyer failed to prove that the patent existed in the state where the other goods would be sold. And neither the common presence on the German market, nor the delivery of the goods to Germany constitutes sufficient ground to conclude that the parties contemplated the resale of the goods in Germany at the time of the conclusion of the contract. As has been argued above, it is not sufficient if the buyer solely reports its intentions to the seller, and it follows a minore ad maiorem that the seller's awareness of buyer's presence on several markets does not necessarily include the seller's tacit understanding that the goods will be resold or used on any of those markets. While a contractual agreement to ship goods to a particular state will generally suffice to presume a mutual contemplation of this state, the fact that the goods were shipped to a particular country does not per se allow the inference that the shipment was agreed upon at the time of the conclusion of the contract. Nonetheless, the Appellate Court's decision may still prove to be correct if the facts show that previous shipments by the seller were made to Austria and Germany alike and that the seller's conduct in concluding the subsequent sales contracts constitutes an acceptance of the resale or use in both countries. [page 222]

FACTORS EXCLUDING THE SELLER'S LIABILTY

Compliance with the Buyer's Specifications

Article 80 CISG spells out the principle that a party cannot rely on another party's breach to the extent that this breach was caused by the first party's act or omission. Article 42(2)(b) CISG specifies this principle in stating that the seller is not responsible for the (alleged) infringement of the third party's IP rights if it resulted from a compliance with the buyer's technical drawings, designs, formulae or other such specifications. A classic example is the ULIS case Eximin v. Textile and Footwear,[73] in which the buyer instructed the seller to affix the 'LEVI'S' trademark to the boots purchased.[74] Fault on the part of the buyer is not required [75] -- otherwise this category of exemption would be superfluous next to Article 42(2)(a) CISG. Since the right or claim must result from the buyer's specifications, general instructions which give the seller several options for implementation will not suffice to exclude the seller's liability.[76]

Failure to Give Notice of the Third Party Right or Claim

Corresponding to the notice of non-conformity laid down by Article 39 CISG, Article 43(1) CISG requires the buyer to notify the seller of any third party right or claim based upon intellectual property after the buyer has become aware or ought to have become aware of such right or claim. Failure to [page 223] adhere to this provision will be irrelevant if the seller knew of the third party right or claim, Article 43(2) CISG. Due to the interplay with the cognitive prerequisites for liability under Article 42 CISG, the scope of Article 43(1) CISG with respect to third party intellectual property rights is very limited. The provision only takes effect in cases in which the buyer became or ought to have become aware of the third party right after the conclusion of contract, while the seller does not possess any knowledge of the right or claim, but ought to have been aware of it at the time of the conclusion of the contract.

Both the specificity of and the time period for giving notice must be deduced from the purpose of Article 43 CISG, namely to enable the seller to counter the third party's allegations.[77] The 'reasonable period of time' will thus rather depend on the state of the dispute between the buyer and the asserted IP holder than on the nature of the goods themselves. The notice should refer to the third party's identity, the nature of the claim and the steps already undertaken by the third party.[78] If the buyer seeks to establish a breach of contract on the basis of a third party right where no third party claim has of yet been made, the buyer must be expected to provide a close definition of the alleged right, i.e. by stating the registration number.

REMEDIES

The Distinction between Conformity of the Goods and Third Party Claims

As with any other failure by the seller to perform its obligations under the contract or the Convention, the buyer's rights in case of the goods being encumbered by third party intellectual property rights follow from Articles 46 to 52 and 74 to 77 CISG. Some disagreement on the application of these provisions to a seller's breach of contract under Article 42 CISG results from the fact that the wording of Article 46 CISG et seq in various respects refers to a 'lack of conformity' or to goods which 'do not conform with the contract': [page 224]

The buyer's right to reduce the price in accordance with Article 50 CISG and its right to declare the contract avoided in the situations envisaged by Article 81(2)(c) CISG exists only if the goods do not conform with the contract, whereas under Article 46(1), (2) and Article 51 CISG the buyer's remedies are contingent upon additional qualifications in case of a non-conformity of the goods. The question is whether the lack of conformity in these provisions is to include third party rights based upon intellectual property or relates to defects in goods alone.

An analysis of the wording, scheme and legislative history of the Convention leaves us with a mixed bag of results: Certainly, the heading of section II distinguishes between conformity of the goods and third party claims, which implies that defects in title cannot be considered a lack of conformity. This interpretation is supported by the Secretariat's Commentary [79] and by Article 46(2) and (3) CISG, which only refer to the notice in case of defective goods required under Article 39 CISG and do not include a reference to Article 43 CISG (the requirement to notify the seller in case of third party rights or claims). On the other hand, the wording of Article 51 CISG refers to partial delivery and partially non-conforming goods only, but seems to have been intended by the drafters to apply generally to 'the buyer's remedies when the seller fails to perform only a part of his obligations'.[80] Further, by alluding to Article 43 CISG, Article 44 CISG seems to presuppose that the buyer may reduce the price in case of third party claims, even though Article 50 CISG provides for a reduction in price only in case of a lack of conformity of the goods.[81]

Some authors argue that the liability for third party intellectual property rights is closer to the liability for defective goods (Article 35 CISG) than to the general liability for defects in title (Article 41 CISG),[82] which might lead to the conclusion that remedies for non-conforming goods and third-party [page 225] intellectual property rights should be identical.[83] Others voice concerns that such a liberal interpretation of Article 46 CISG et seq may fail to find sufficient supporters in the various Contracting States and will hinder a uniform interpretation of the Convention.[84] While these concerns are certainly warranted, they should not stand in the way of an interpretation which carries the spirit of the Convention and accomplishes an appropriate balance of interest of the parties to a sales contract -- particularly since there is no guarantee that all courts will prefer a formalistic interpretation. As with other difficulties regarding the interpretation of the Convention, there should be a reliance upon the efforts of courts throughout the world, supported by the help of the Pace CISG Database and other CISG websites [85] as well as the opinions of the CISG Advisory Council.[86] Consequently, the appropriate interpretation should be sought with respect to each of the buyer's remedies.

Requiring Performance

Subject to Article 28 CISG, the buyer may require performance by the seller, that is the delivery of goods not encumbered by third party intellectual property rights or claims. Performance may be rendered in a number of styles, i.e. by subsequently acquiring a license allowing the resale or use of the goods, by fighting off the infringement claim (if the law of the forum so provides) or issuing a declaration of indemnity, by delivering substitute goods which do not infringe the third party's intellectual property or exchanging objectionable components with other parts. As has already been indicated, it is contended whether any request for cure is only available to the seller under the [page 226] limitations of Article 46(2) and (3) CISG. Article 46(2) CISG accounts for the fact that the cost of a substitute delivery in international trade may oftentimes be greater than the buyer's loss resulting from the delivery of non-conforming goods and thus limits this remedy to cases of a fundamental breach. Along the same lines, Article 46(3) CISG places the request for repair under the condition that repair is reasonable in the circumstances. Both paragraphs aim to provide clarity for the seller by requiring that the buyer exercise his right within reasonable time. All of these considerations apply equally to the delivery of goods encumbered by third party intellectual property rights.[87] It is true that Article 46(1) and (2) CISG refer to Article 39 CISG only and do not mention Article 43 CISG. However, since the reference to Article 39 CISG serves the sole purpose of giving an example of the reasonable time within which the buyer is to exercise its rights, interpreting Article 46(2) and (3) CISG as including the liability for third party intellectual property rights would not explicitly contravene the provisions of the Convention.

Reduction of the Purchase Price and Damages

With respect to the remedy of reduction of purchase price, the wording of the Convention is ambiguous: On the one hand, Article 50 CISG provides the remedy for goods which do not conform with the contract, whereas Article 44 CISG (which was inserted at the Diplomatic Conference) seems to indicate that the buyer is entitled to a reduction of the purchase price in case of a liability for third party rights. The question whether Article 44 CISG is to be interpreted restrictively [88] or Article 50 CISG is to be construed [page 227] extensively [89] is generally a moot point, since the buyer may attain the same effect by claiming damages under Articles 45(1)(b), 74 CISG and an exoneration under Article 79 CISG seems difficult to construe with regard to the liability under Article 42 CISG.[90]

Under Article 74 of the Convention, damages for breach of contract extend to both the actual losses sustained and to loss of profit. Apart from the inferior value of the goods, damages in the case of third party intellectual property claims may include the cost of acquiring a license as well as damages for infringement owed to holder of the intellectual property or the cost of defending a claim brought by a third party.[91] However, in instances in which the holder of the intellectual property has so far not approached the buyer with an infringement claim, the buyer will be unable to show losses sustained, and the demand for damages may not constitute an appropriate remedy.

Due to the cognitive prerequisites for liability under Article 42 CISG, the requirement of foreseeability under Article 74 sentence 2 CISG will generally not be of significance. However, the buyer may be required to take reasonable steps to mitigate its losses by acquiring a license or reselling the goods in a different country than originally anticipated.

Avoidance of Contract

The Convention grants the buyer a right to declare the contract avoided only in instances in which the third party's right or claim amounts to a fundamental breach of contract, that is if the buyer is substantially deprived of what it [page 228] is entitled to expect under the contract. Whether the breach is so profound will depend on a number of factors: If it is reasonable on the part of the buyer to require the seller to acquire a license, to discharge the third party's right itself or to use the goods in a different country than initially contemplated, the breach will not be substantial enough to declare the contract avoided and restitute the goods. However, it should be noted that a resale in a different country will oftentimes not be feasible for a buyer who is unacquainted with the market and would have to investigate the intellectual property situation there first. Also, whereas with a defectiveness of the goods themselves, the buyer can often be referred to sell the inferior goods at a lower price and reclaim the difference from the seller by virtue of Article 50 CISG or Article 74 CISG, selling goods encumbered by an intellectual property right would make the buyer liable for infringement, potentially causing damages which exceed the value of the goods by far. More often than not, a breach of contract under Article 42 CISG will therefore constitute a fundamental breach, unless a license can be acquired.

If the buyer has resold the goods or part of the goods in the normal course of business before becoming aware of the third party's right or claim, the question arises whether the buyer is barred from declaring the contract avoided under Article 82(1) CISG due to its inability to make a restitution, or whether the exception of Article 82(2)(c) CISG applies. While the wording of Article 82(2)(c) CISG again refers to a 'lack of conformity', there is no apparent reason why the buyer of defective goods should be allowed to declare the contract avoided despite its inability to restitute them, whereas the buyer of goods encumbered by an intellectual property right should be denied to right of avoidance.[92]

The Existence of a General Right of Retention

In the CD media case, the OGH reversed the decision of the Appellate Court [page 229] and accorded the buyer a permanent right to refuse payment,[93] thereby relying on an earlier decision in which the Court held (in accordance with the predominant view in the German-speaking literature) that such a right of retention flows from the underlying principle of the Convention of simultaneous exchange of performances.[94] In my view, however, the dispute is a case in point that any such right to withhold performance should only be granted temporarily until the respective party could reasonably have been expected to come to a decision as to which legal remedy to apply.[95] The Convention stresses in a number of provisions that the fate of the contract be clarified to the seller within reasonable time [96] and it releases the buyer of the obligation to pay the price only if the contract is avoided. Avoidance of contract is contingent upon a number of requirements, amongst them the existence of a fundamental breach of contract, the declaration of avoidance within reasonable time and an ability to make restitution of the goods within reasonable time.

In the CD media case, the existence of a fundamental breach of contract was doubtful for two reasons: Since the buyer was regularly reselling CDs in Austria and the existence of licensor's patent in Austria had not been established, a resale of the shipments in question in Austria may have been feasible in the circumstances. And secondly, it was not determined whether the buyer might have entered into a licensing agreement with the licensor, allowing for the resale even in Germany. Further, since the buyer had resold the shipments, it may have lost its supposed right to declare the contract avoided by virtue of Article 82 CISG, depending on whether it was aware of the breach at the time of resale.[97] By granting the buyer a permanent right of retention, the OGH bypassed the system of remedies under the Convention [page 230] and the provisions providing for restitution and the equalization of benefits following Article 81 CISG et seq.

CONCLUSION

The care for rare species can be difficult as their requirements and preferences are often not known. Similarly, the interpretation of provisions of the UN Sales Convention is complicated by the lack of case law dealing with such rules. The purpose of this contribution was to shed some light upon the interpretation of one of the provisions of the Convention which is rarely applied, in the hope that Al Kritzer's tireless commitment to the world of Uniform Sales Law will provide us with access to yet more sources upon the topic in the time to come. [page 231]


FOOTNOTES

* Dr. iur. (Albert-Ludwigs-Universitat Freiburg), LL.M. (University of New South Wales), Assistant Professor, Freie Universitat Berlin (Germany).

1. Cf. Ferrari, F in Schlechtriem, P and Schwenzer, I (eds) (2004) Kommentar zum Einheitlichen UN-Kaufrecht (4th ed) C.H. Beck at Art 7 para 18; Kritzer, AH and Rogers, VM 'A Uniform International Sales Law Terminology' in Schwenzer, I and Hager, G (eds) (2003) Festschrift für Peter Schlechtriem zum 70. Geburtstag J.B.C. Mohr 223 at 239.

2. A description is available at: <http://www.cisg.law.pace.edu/cisg/text/queenmary.html>.

3. Available at: <http://en.wikipedia.org/wiki/Dragon_%28Zodiac%29>.

4. Available at: <http://www.rainfall.com/horoscop/dragon.htm>.

5. See the list available at: <http://cisgw3.law.pace.edu/cisg/text/anno-art-42.html>.

6. Oberster Gerichtshof (Austria), 12 September 2006, available at: <http://cisgw3.law.pace.edu/cases/060912a3.html>.

7. Magnus, U in (2005) J. von Staudingers Kommentar zum Burgerlichen Gesetzbuch: Wiener UN-Kaufrecht (CISG) Sellier-de Gruyter, Art 42 para 1; Saenger, I in Bamberger, HG and Roth, H (eds) (2003) Kommentarzum Burgerlichen Gesetzbuch C.H. Beck, Art 42 para 1; Enderlein, F 'Rights and Obligations of the Seller under the UN Convention on Contracts for the International Sale of Goods' in Sarcevic, P and Volken, P (eds) (1996) International Sale of Goods: Dubrovnik Lectures Oceana 133 at 179.

8. Achilles, WA (2000) Kommentar zum UN-Kaufrechtsübereinkommen (CISG) Luchterhand, Art 42 para 4; Rauda, C and Etier, G (2000) 'Warranty for Intellectual Property Rights in the International Sale of Goods' (4) Vindobona Journal of International Commercial Law and Arbitration 30 at 49; Date-Bah, S in Bianca, CM and Bonell, MI (eds) (1987) Commentary on the International Sales Law Giuffre at Art 42 para 2.2.

9. Schlechtriem, P (1996) 'Vertragsmäigkeit der Ware als Frage der Beschaffenheitsvereinbarung' Praxis des Internationalen Privat- und Verfahrensrechts 12 at 16; Magnus Kommentar supra fn 7 at Art 42 para 6; Luderitz, A and Schüler-Langeheine, D in Soergel, HT (2000) Bürgerliches Gesetzbuch: Obereinkommen der Vereinten Nationen über Verträge über den internationalen Warenkauf (CISG) at Art 42 para 1; Langenecker, I (1993) UN-Einheitskaufrecht und Immaterialgüterrechte V. Florentz at 166; Schwerha, II (1995) 'Warranties against Infringement in the Sale of Goods: A Comparison of U.C.C. 2-312(3) and Art 42 of the U.N. Convention on Contracts for the International Sale of Goods' (16) Michigan Journal of International Law 441 at 459.

10. Date-Bah in Bianca & Bonell Commentary supra fn 8 at Art 42 para 2.2.

11. There is a lively debate regarding the impact of domestic public law in the target state on the definition of non-conformity under Article 35(2)(a) CISG, cf. Bundesgerichtshof (Germany), 20 April 1994, available at: <http://cisgw3.law.pace.edu/cases/940420g1.html>; Oberster Gerichtshof (Austria), 13 April 2000, available at: <http://cisgw3.law.pace.edu/cases/000413a3.html> on the one hand and Schlechtriem, P (2001) 'Noch einmal: Vertragsmäigkeit der Ware bei divergierenden öffentlich-rechtlichen Qualitätsvorgaben' Praxis des internationalen Privat- und Verfahrensrechts 161 at 162 on the other. For a full account of the debate see Schwenzer in Schlechtriem/Schwenzer Kommentar supra fn 1 at Art 35 para 17 et seq.

12. 'Commentary on the Draft Convention on Contracts for the International Sale of Goods. Prepared by the Secretariat' in (1981) United Nations Conference on Contracts for the International Sale of Goods, Vienna, 10 March -- 11 April 1980, Official Records: Documents of the Conference and Summary Records of the Plenary Meetings and of the Meetings of the Main Committees United Nations at Art 40 para 1 fn 1, available at: <http://cisgw3.law.pace.edu/cisg/conference.html>; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 4; Shinn, AM (1993) 'Liabilities Under Article 42 of the U.N. Convention on the International Sale of Goods' (2) Minnesota Journal of Global Trade 115 at 121 et seq; Rauda and Etier 'Warranty' supra fn 8 at 32; Van Duzer, JA (2001) 'A Seller's Responsibility for Third Party Intellectual Property Claims: Are the UN Sales Convention Rules Better?' (4) Canadian International Lawyer 187 et seq fn 13; largely agreeing Prager, M (1987) Verkäuferhaftung und ausländische gewerbliche Schutzrechte Centaurus at 145 et seq; but see Schwerha 'Warranties against Infringement' supra fn 9 at 461: analogy to UCC.

13. 1967 Convention Establishing the World Intellectual Property Organization, available at: <http://www.wipo.int/treaties/en/convention/pdf/trtdocs_wo029.pdf>

14. Magnus Kommentar supra fn 7 at Art 42 para 9; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 4 with further references.

15. Schwerha 'Warranties against Infringement' supra fn 9 at 458; Rauda and Etier 'Warranty' supra fn 8 at 36; Van Duzer ' A Seller's Responsibility' supra fn 12 at 187; Saenger in Bamberger/Roth Kommentar supra fn 7 at Art 42 para 6; opposing view held by Langenecker UN-Einheitskaufrecht supra fn 9 at 69.

16. Honnold, JO (1999) Uniform Law for International Sales under the 1980 United Nations Convention (3rd ed) Kluwer at 265; similarly Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 41 para 12.

17. Advocating an inclusion of all claims: Langenecker UN-Einheitskaufrecht supra fn 9 at 69; Rauda and Etier 'Warranty' supra fn 8 at 37 et seq; Magnus Kommentar supra fn 7 at Art 42 para 13; Enderlein 'Rights and Obligations of the Seller' supra fn 7 at 179; arguing for a restrictive interpretation Schwerha 'Warranties against Infringement' supra fn 9 at 457; Herber, R and Czerwenka, B (1991) Internationales Kaufrecht C.H. Beck at Art 42 para 2.

18. The case is not entirely fictional, cf. Heise Online (2005) 'O2 mahnt Sauerstoff-Abfüller ab', available at: <http://www.heise.de/newsticker/meldung/57564>.

19. Van Duzer ' A Seller's Responsibility' supra fn 12 at 187 et seq.

20. For this proposition see Schwerha 'Warranties against Infringement' supra fn 9 at 457.

21. Saenger in Bamberger/Roth Kommentar supra fn 7 at Art 42 para 6; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 6.

22. Shinn 'Liabilities Under Article 42' supra fn 12 at 127.

23. Schwerha 'Warranties against Infringement' supra fn 9 at 450; Rauda and Etier 'Warranty' supra fn 8 at 41; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 8, Art 41 para 15.

24. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 4' the existence of a basis for the claim at the time of the conclusion of contract is not held to be necessary by Rauda and Etier 'Warranty' supra fn 8 at 41 et seq.

25. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 8, Art 41 para 15.

26. But see Rauda and Etier 'Warranty' supra fn 8 at 42.

27. Rauda and Etier 'Warranty' supra fn 8 at 40 et seq.

28. This also seems to be envisaged by the Secretariat Commentary supra fn 12 at Art 40 para 6 which refers to published patent applications.

29. Cf Article 29 Patent Cooperation Treaty (PCT), available at: <http://www.wipo.int/treaties/en/registration/pct/>; Article 67 European Patent Convention (EPC), available at: <http://www.european-patent-office.org/legal/epc/>.

30. Oberster Gerichtshof(Austria), 12 September 2006 supra fn 6.

31. Ferrari, F in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 4 para 51.

32. Oberster Gerichtshof (Austria), 12 September 2006 supra fn 6.

33. Albeit a high degree of probability, cf Hornung, R in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 71 para 17.

34. Cf. Rauda and Etier 'Warranty' supra fn 8 at 55: 'paradoxical'.

35. Van Duzer ' A Seller's Responsibility' supra fn 12 at 187 et seq; similarly Shinn 'Liabilities Under Article 42' supra fn 12 at 125.

36. Herber and Czerwenka Internationales Kaufrecht supra fn 17 at Art 42 paras 5 et seq; Magnus Kommentar supra fn 7 at Art 42 paras 22, 26; Saenger in Bamberger/ Roth Kommentar supra fn 7 at Art 42 para 11; Enderlein, F and Maskow, D (1992) International Sales Law Oceana at Art 42 paras 4, 9; Rauda and Etier 'Warranty' supra fn 8 at 46, 55, who, however, draw distinctions on the basis of the size of seller's business and the countries involved.

37. Secretariat Commentary supra fn 12 at Art 40 para 6.

38. For a full account cf Prager Verkäuferhaftung supra fn 12 at 165 et seq.

39. Honnold Uniform Law supra fn 16 at 229, 270; similarly also Shinn 'Liabilities Under Article 42' supra fn 12 at 126 et seq; opposing view held by Rauda and Etier 'Warranty' supra fn 8 at 44:"'could not have been unaware" requires some work'.

40. Herber and Czerwenka Internationales Kaufrecht supra fn 17 at Art 42 para 5; Langenecker UN-Einheitskaufrecht supra fn 9 at 183 et seq.

41. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 14; Herber and Czerwenka Internationales Kaufrecht supra fn 17 at Art 42 para 6.

42. Langenecker UN-Einheitskaufrecht supra fn 9 at 203.

43. Langenecker UN-Einheitskaufrecht supra fn 9 at 193.

44. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 14; Rauda and Etier 'Warranty' supra fn 8 at 44 et seq.

45. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 14; Herber and Czerwenka Internationales Kaufrecht supra fn 17 at Art 42 para 5; Achilles Kommentar supra fn 8 at Art 42 para 9; Rauda and Etier 'Warranty' supra fn 8 at 46 et seq; Van Duzer ' A Seller's Responsibility' supra fn 12 at 187 et seq.

46. Concurring Saenger in Bamberger/Roth Kommentar supra fn 7 at Art 42 para 11.

47. Revised Berne Convention for the Protection of Literary and Artistic Works, available at: <http://www.wipo.int/treaties/en/ip/berne>.

48. By virtue of Article 3 of the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), available at: <http://www.wto.org/english/docs_e/legal_e/27-trips.pdf>.

49. Council Regulation (EC) No 6/2002 of 12 December 2001 on Community designs, Official Journal L no.3, 5.1.2002, p 1 et seq.

50. Regarding the Madrid System refer to the Madrid Express Structured Search database available at: <http://www.wipo.int/ipdl/en/search/madrid/search-struct.jsp>, for a more extensive research turn to the Romarin database available at: <http://www.wipo.int/madrid/en/romarin>. The European Office for the Harmonization in the Internal Market -- Trade Marks and Designs -- provides several databases available at: <http://oami.europa.eu>, whereas Esp@cenet -- Europe's network of Patent Databases -- is available at: <http://www.espacenet.com/access/index.en.htm>. US intellectual property can be investigated on the website of the United States Patent and Trademark Office, available at: <http://www.uspto.gov>. A complete list of Intellectual Property Offices worldwide is provided by WIPO, available at: <http://www.wipo.int/directory/en/urls.jsp>.

51. An overview of non-conventional trademarks is given by Siekmann, R 'Non traditional trade marks archives' available at: <http://www.copat.de/markenformen/mne_markenformen.htm>; for a more recent account on motion trademarks cf Siekmann, R (2007) 'Bewegungsmarken -- motion trade and service marks 2007', available at: <http://downloads.brainguide.com/publications/PDF/pub61870.pdf>.

52. Cf i.e. Articles 16, 26, 28, 36 TRIPS supra fn 48.

53. Similarly Heuze, V (2000) La vente internationale de merchandises -- Droit uniforme (2nd ed) L.G.D.J. at para 316 who however focuses on the buyer's seat of business.

54. Shinn 'Liabilities Under Article 42' supra fn 12 at 126; Lüderitz and Schüßler- Langeheine in Soergel Bürgerliches Gesetzbuch supra fn 9 at Art 42 para 4.

55. Similarly Shinn 'Liabilities Under Article 42' supra fn 12 at 125.

56. Achilles Kommentar supra fn 8 Art 42 para 9; Gruber, UP in (2004) Münchener Kommentar zum Bürgerlichen Gesetzbuch. Band 3: Schuldrecht -- Besonderer Teil I (4th ed) C.H. Beck at 42 para 19.

57. Langenecker UN-Einheitskaufrecht supra fn 9 at 171.

58. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 6; Rauda and Etier 'Warranty' supra fn 8 at 42.

59. I.e. European Court of Justice, 22 June 2000 -- C-425/98 (Marca Mode), European Court Reports 2000, 1-4861; European Court of Justice, 23 October 2003 -- C-408/01 (Fitnessworld Trading), European Court Reports 2003, I-12537; Bundesgerichtshof (Germany), 6 July 2000 -- I ZR 21/98, Gewerblicher Rechtsschutz und Urheberrecht 2001, 158; see further Marinovich, S (2006) 'Much Ado About Adidas Stripes', available at: <http://www.businessweek.com>.

60. Enderlein 'Rights and Obligations of the Seller' supra fn 7 at 182; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 17; Enderlein and Maskow International Sales Law supra fn 36 at Art 42 para 9.

61. Opposing view held by Langenecker UN-Einheitskaufrecht supra fn 9 at 205.

62. Cour d'appel de Rouen (France), 17 February 2000, available at: <http://cisgw3.law.pace.edu/cases/000217f1.html>.

63. Shinn 'Liabilities Under Article 42' supra fn 12 at 125; Prager Verkäiuferhaftung supra fn 12 at 174 et seq; similarly Van Duzer ' A Seller's Responsibility' supra fn 12 at 187 et seq; opposing view held by Rauda and Etier 'Warranty' supra fn 8 at 45, 55; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 paras 14, 17; Enderlein and Maskow International Sales Law supra fn 36 at Art 42 paras 4, 9; Saenger in Bamberger/Roth Kommentar supra fn 7 at Art 42 para 12; Herber and Czerwenka Internationales Kaufrecht supra fn 17 at Art 42 para 6.

64. Gruber in Münchener Kommentar supra fn 56 at Art 42 para 22.

65 Oberster Gerichtshof (Austria), 12 September 2006 supra fn 6; Magnus Kommentar supra fn 7 at Art 42 para 19; Herber and Czerwenka Internationales Kaufrecht supra fn 17 at Art 42 para 3; Achilles Kommentar supra fn 8 at Art 42 para 5; Rauda and Etier 'Warranty' supra fn 8 at 52; but see Enderlein 'Rights and Obligations of the Seller' supra fn 7 at 181.

66. Rauda and Etier 'Warranty' supra fn 8 at 50.

67. Rauda and Etier 'Warranty' supra fn 8 at 51; but see Enderlein 'Rights and Obligations of the Seller' supra fn 7 at 181.

68. Achilles Kommentar supra fn 8 at Art 42 para 5; Gruber in Münchener Kommentar supra fn 56 at Art 42 para 15; for a contrary view Magnus Kommentar supra fn 7 at Art 42 para 17; Lüderitz and Schüßler-Langeheine in Soergel Bürgerliches Gesetzbuch supra fn 9 at Art 42 para 4; Saenger in Bamberger/Roth Kommentar supra fn 7 at Art 42 para 8.

69. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 11; Rauda and Etier 'Warranty' supra fn 8 at 52; Magnus Kommentar supra fn 7 at Art 42 para 19.

70. Oberster Gerichtshof (Austria), 12 September 2006 supra fn 6.

71. Article 3 European Patent Convention, supra fn 29.

72. For the requirement of actual use in the contemplated state see Herber and Czerwenka Internationales Kaufrecht supra fn l7 at Art 42 n 3.

73. Supreme Court of Israel, 22 August 1993, cf. Reich, A 'Editorial remarks', available at <http://cisgw3.law.pace.edu/cases/930822i5.html>.

74. Obviously, this was also a case of Article 42(2)(a) CISG.

75. Enderlein 'Rights and Obligations of the Seller' supra fn 7 at 183; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 21; Magnus Kommentar supra fn 7 at Art 42 para 31.

76. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 20; Magnus Kommentar supra fn 7 at Art 42 para 29; Schlechtriem, P (1984) 'The Seller's Obligations Under the United Nations Convention on Contracts for the International Sale of Goods' in Galston NM and Smit H (eds) (1984) International Sales: The United Nations Convention on Contracts for the International Sale of Goods Matthew Bender 6-1 at 6-33; Herber and Czerwenka Internationales Kaufrecht supra fn 17 at Art 42 para 7; Prager Verkäuferhaftung supra fn 12 at 177; Langenecker UN-Einheitskaufrecht supra fn 9 at 233 et seq.

77. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 43 para 2; Lüderitz and Schüßler-Langeheine in Soergel Bürgerliches Gesetzbuch supra fn 9 at Art 43 para 2.

78. Schwerha 'Warranties against Infringement' supra fn 9 at 469; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 43 para 2.

79. Secretariat Commentary supra fn 12 at Art 39 paras 7 and 8.

80. Secretariat Commentary supra fn 12 at Art 47 para 1; cf Langenecker UN-Einheitskaufrecht supra fn 9 at 267; Mohs, F (2002) 'Die Vertragswidrigkeit im Rahmen des Art. 82 Abs. 2 lit. c CISG' Internationales Handelsrecht 59 at 66 fn 64.

81. Admittedly, the exception of Article 44 CISG may apply to third party claims only with respect to damages under Article 74 CISG and not to the reduction in price under Article 50 CISG.

82. Schlechtriem 'The Seller's Obligations' supra fn 76 at 6-32; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 25; Mohs 'Die Vertragswidrigkeit' supra fn 80 at 63; seemlingly concurring Enderlein and Maskow International Sales Law supra fn 36 at Art 42 para 3.

83. Mohs 'Die Vertragswidrigkeit' supra fn 80 at 63 et seq; opposing view held by Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 paras 25 et seq.

84. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 para 26.

85. A list is provided by The Autonomous Network of CISG Websites, available at: <http://cisgw3.law.pace.edu/network.html#cp>.

86. For information on the CISG Advisory Council see Mistelis, L (2003) 'CISG-AG publishes First Opinions', available at: <http://cisgw3.law.pace.edu/cisg/CISG-AC.html>.

87. Mohs 'Die Vertragswidrigkeit' supra fn 80 at 63; Herber and Czerwenka Internationales Kaufrecht supra fn 17 at Art 45 para 2; similarly Schlechtriem 'The Seller's Obligations' supra fn 76 at 6-32, 6-34; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 42 paras 25 et seq, who nonetheless prefers a formalistic interpretation to ensure a uniform application of the Convention; for a contrary view see Prager Verkäuferhaftung supra fn 12 at 202 et seq; Langenecker UN-Einheitskaufrecht supra fn 9 at 268 et seq; Saenger in Bamberger/Roth Kommentar supra fn 7 at Art 42 para 14; Gruber in Münchener Kommentar supra fn 56 at Art 42 para 27; Müller-Chen, M in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 46 paras 22, 39.

88. Honnold Uniform Law supra fn 16 at 313.1; Prager Verkäuferhaftung supra fn 12 at 212: Müller-Chen in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 50 para 8 with further references; critical Enderlein and Maskow International Sales Law supra fn 36 at Art 50 para 1.

89. Herber and Czerwenka Internationales Kaufrecht supra fn 17 at Art 50 para 3; Magnus Kommentar supra fn 7 at Art 50 paras 9 et seq; Langenecker UN-Einheitskaufrecht supra fn 9 at 270 et seq; Mohs 'Die Vertragswidrigkeit' supra fn 80 at 64.

90. Instructive on the redundancy of Article 50 CISG Honnold Uniform Law supra fn 16 at 313; see further Müller-Chen in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 50 para 8; Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 41 para 21.

91. Schwenzer in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 41 para 21.

92. Concurring Mohs 'Die Vertragswidrigkeit' supra fn 80 at 62, who, however, misinterprets Article 82(2)(c) CISG as a blockage of avoidance of contract instead of an exception to Article 82(1) CISG; generally arguing for an extensive interpretation of Article 82(2) CISG Hornung, R in Schlechtriem & Schwenzer Kommentar supra fn 1 at Art 82 para 18.

93. Oberster Gerichtshof (Austria), 12 September 2006, supra fn 6.

94. Oberster Gerichtshof (Austria), 8 November 2005, available at: <http://cisgw3.law.pace.edu/cases/051108a3.html>, sub 2 with further references.

95. Cf Schlechtriem, p (2005) 'CISG -- Auslegung, Luckenfüllung und Weiterentwicklung', in Bernhard, C and Kramer, EA (eds) (2005) Symposium fur Frank Vischer Helbing & Lichtenhahn 47 at 67, also available at: <http://www.cisg-online.ch/cisg/publications.html>; CISG Advisory Council Opinion no.5: The buyer's right to avoid the contract in case of non-conforming goods or documents, available at: <http://cisgw3.law.pace.edu/cisg/CISG-AC-op5.html> at 4.18.

96. Cf Article 46(1) and (2), Article 49 CISG.

97. There is an indication that the Court may not have considered the influence of the resale for a failure to make corresponding submissions on the part of the liquidator of seller's assets.


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