Clearing The Clouds On The CISG’S Warranty Of Title

Donald J. Smythe | January 1, 2016

The risk of intellectual property infringement claims poses an increasing threat to international trade. The UN Convention on Contracts for the International Sale of Goods (CISG) is the most prevalent body of law governing international sales. Important questions will inevitably arise, therefore, under the CISG about the scope of the seller’s warranty of title. Courts will be called upon to interpret Article 42 of the CISG, which provides a warranty of title governing third-party intellectual property claims, or the parties’ contract if they execute a customized warranty of title term. This Article analyzes the appropriate scope of the seller’s warranty of title against third party intellectual property claims under the CISG. It draws on the CISG’s legislative history, the CISG case law, the underlying policy of the warranty of title, and an important German Supreme Court precedent in an analogous case to reject the “cloud on title” standard that has been applied in U.S. cases under the Uniform Commercial Code. This Article argues instead that, unless the parties’ contract clearly indicates otherwise, the seller under a CISG contract should only be held liable for third-party intellectual property claims against the buyer if (1) the buyer resells the goods in the seller’s jurisdiction and the claim arises under the intellectual property laws in the seller’s jurisdiction, (2) the buyer informed the seller about the third-party’s intellectual property rights prior to contracting, or (3) due to special circumstances, such as the seller having a branch in the jurisdiction under which the third-party’s intellectual property rights are created, the seller—but not the buyer—knew or should have known about the third-party’s intellectual property rights.