Globalisation has paved the way for various transnational conventions, the United Nations Convention on Contracts for the International Sale of Goods (CISG) being one of them. CISG has efficiently bridged gaps associated with sales law in the international sphere while providing for greater transparency and stability. An extensive convention, the CISG's jurisdiction extends to, inter alia, the conclusion of contracts for commercial sale of goods and the rights of parties arising out of the same, something which is considered to be the foundation for the convention. Albeit the accomplishments of the convention are notable, the convention has created a territorial problem in its quest of solving transnational ones. According to CISG, it is a merchant's responsibility to deliver goods which are independent from third-party claims vis-à-vis intellectual or industrial property (hereinafter IIP). This provision has developed the tendency to create confusion during practice owing to the prima facie conflicting provisions contained under Article 42 of CISG which has arisen because of diverse interpretation of article 42 entangled with territorial nature of IIP.
IIP at a glance
Though the phrase does not find any collective reference under international conventions, the WIPO convention under article 2 has considered the same inversely. The convention makes a reference to the Paris Convention while identifying its role in the protection of industrial property. This brings us to the Paris Convention which explains the scope of Industrial property to include patents, designs, marks of all kinds, origins etc. However, the subsequent paragraphs add up to the ambiguity concerning the original phrase used under CISG as it extends the scope of industrial property to natural manufacturing processes and certifications as well. With regards to Intellectual property, the WIPO convention is straightforward and extends to, but not limited to, rights arising out of literary and artistic works, performances, scientific endeavors, designs, marks etc. It is alleged that the drafters of the CISG believed the territorial nature of Intellectual property would be a deterrent to the uniform application of the convention leading to possible clashes between territoriality and transnationality. However, the conference decided against it as adopting a parochial definition in international sales would have been a precursor to legal impediments and consequentially affected the purpose of the convention.
Article 42 of the CISG
Article 42 of the CISG which deals with seller's duty to deliver goods free from any claim of industrial or intellectual property rights, states that, the vendor must deliver goods which are independent of third party claims arising out of IIP and extends to such instances which were known to the vendor at the time of conclusion of the contract. The article, however, restricts its scope by stating the remedy will only be available against the seller if claims arise under the law of the place, where goods will be resold or where the buyer has their business. Though article 42 (1) remains unambiguous in its approach so far, article 42 (2) (a) adds a mirror obligation on the buyer to be aware of third party claims or rights if any, arising out of IIP.
Thus, article 42 deals with instances where, the vendor knew of a possible third-party claim, that the said knowledge existed at the time of conclusion of the contract and the buyer was unaware of the same. Furthermore, the law governing such rights will not be the convention but the state where such goods will be resold or otherwise used as contemplated in the contract, owing to the territorial nature of intellectual property rights. Though the article sums up the scope and extent of third-party claims and liabilities of the vendor arising out of it, it is imperative to understand two things viz, the mirror obligations of the parties and whether the same exempts mere silence of the seller.
Mirror Obligations: A cancelling act?
The phrase, "could not have been unaware" under 42(1) refers to the vendor's duty to appraise the goods about to be sold to ensure they are not subject to any patent, trademarks or copyright claims or licences in the state where they will be resold or otherwise used. This interpretation has been held desirable because the seller is in a relatively better position to determine the presence of licenses, if any, and make the buyer aware of the same. However, Huber repudiates the same by stating that the seller should be liable only in instances of fraudulent concealment of third-party rights. Though Huber's interpretation appears parochial in nature, it must be understood in light of the buyer's mirror obligation under article 42(2).
Article 42(2)(a) limits the seller's liability to such instances when the buyer was aware of such a claim or "could not have been unaware" of the same. This not only provides for a conflicting obligation but leads to two probable interpretations viz, the parties cancel out one another's obligations towards the other and that an incident of mere silence, where the intent to deceive is missing, will not make the seller liable, thereby according an advantageous position to them, which is in line with Huber's observation. However, though the paragraphs appear to be conflicting in nature they are complementary to one another and represent the idea that either party should not be negligent.
CISG and Intellectual Property
The preceding discussion clarifies the extent of the liability either parties might have but another question which needs to be answered is, when can the defence of article 42 be invoked. To appreciate this, we need to understand the nature of intellectual property rights (hereinafter IP) and their interplay with article 42 of the CISG. IP rights being territorial in nature the exact scope and applicability of CISG would depend on the territorial or the national laws of the place where the buyer is situated or where the goods are contemplated for resale. This puts an obligation on both the concerned parties to research the IP registers of the country of resale and act on the basis of information they might have after all necessary steps have been taken.
To illustrate, it was held that if after a licence being granted to a third party in a given state, another buyer imports goods to the state without obtaining consent or necessary sub-licenses from the licensee of the trademark, then the licensee will have a remedy against the buyer for breaching the terms of their license. This judgment might have clarified the applicability of article 42 from the licensee's end, it failed to address which party evaded their obligation under the convention to supply goods free form any claim or right, which has kept the ambiguity intact.
The preamble to the CISG reaffirms its goal of achieving uniformity concerning the law of global sales, yet a few of its provisions have left plentiful scope for diverse interpretation. To meet this contingency, the drafters had provided for articles 7-8 which spell out the rules for interpretation for the court's and the conduct of the parties. Though it has been envisaged as a provision for allowing greater uniformity across borders, the power given to the courts to apply domestic law has not been used sparingly as it should have been. This has ushered the essence of diverse interpretations into the ecosystem thereby affecting subsequent provisions of CISG. Thus, a probable solution for international bodies is to consider the trends in the current regime of international trade and provide specific rules for interpreting the convention, without which there is bound to be more ambiguities, which will consequentially defeat the sole purpose of the convention, by allowing the application of domestic laws.
Originally Published by , November 2020
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