CISG Advisory Council Opinion No 22

1.  The CISG governs the seller’s liability for the delivery of goods that actually or allegedly infringe a third party’s industrial or other intellectual property (together “IP”) rights. In contrast, the infringement itself of IP rights is not governed by the CISG.

1.1 Sold goods frequently fall within the scope of IP rights. Machines might be encompassed by patents, apparel by design rights, or virtually any good by trademark rights. Digital content, which can fall within the scope of the CISG, e.g., in case of the sale of standard software, will almost always be subject to IP rights. If a good violates IP rights, it infringes these rights. This situation results in a triangular legal relationship between the holder of the IP right, the buyer and the seller: The holder of the IP right might have claims against the buyer and potentially also the seller of the infringing good. As a result of these claims of the holder of the IP right, there might also be claims between the buyer and the seller.

1.2 The CISG only applies to the contractual relation between the seller and the buyer.[1] The questions whether the IP right exists and what claims the right holder has against the buyer and the seller are governed by the relevant domestic law.[2] This usually is the law of the State for which protection is claimed,[3] regarding tort claims the place of the tortious act.[4]

1.3 Under the CISG, IP rights or claims which the goods infringe are third-party rights or claims the goods are encumbered with. Whereas Article 41 addresses the seller’s liability if the goods are not free from any right or claim of a third party in general, Article 42 regulates the seller’s liability for goods encumbered with IP rights specifically.

2.  The notion of IP must be interpreted autonomously. Under Article 42 CISG, industrial property is encompassed by the broader category of intellectual property. For the purposes of Article 42 CISG, IP encompasses all rights that protect a commercial or intellectual achievement by attributing that achievement to the right holder with effect for a defined territory. These rights include, in particular, patents, utility models, designs, trademarks, semiconductor designs, plant breeder’s rights, copyright and similar rights, as well as licence rights deriving from these rights. In addition, rights based on competition, tort or unjust enrichment laws, that protect commercial or intellectual achievements, are also IP rights for the purposes of Article 42 CISG.

2.1 The notion of IP in the sense of Article 42 must be interpreted autonomously.^[5] The classification of the right or claim in question as IP or otherwise under the domestic law governing the IP infringement thus is irrelevant.

2.2 Article 42(1) encompasses encumbrances based on “industrial or other intellectual property”. It follows from this wording that intellectual property is the broader category and thus decisive for the scope of the provision.[6]

2.3 A broad understanding of the term IP, as used in Article 42, should be applied.[7] Ultimately decisive is – as is the case regarding Article 41 – that the right or claim is abstractly suited to impair the buyer’s use of the goods.[8]

2.4 Article 42 should be distinguished from Article 41 based on a functional-substantive interpretation of the term IP.[9] Criteria such as whether the right can be registered or whether it meets the threshold of originality are as irrelevant as the specific legal conception of the provisions establishing the protection of the IP.[10] IP in this sense encompasses all rights that protect a commercial or intellectual accomplishment by attributing it to the right holder with an effect at least equivalent to a right in rem.[11] This includes patent, utility model, design, trademark, semiconductor design, plant breed rights and copyrights,[12] supplementary protection certificates as well as license rights deriving from these rights with effect in rem,[13] trade secrets,[14] but also rights protecting commercial or intellectual achievements based on competition, tort or unjust enrichment laws.[15] Guidance can be sought in Article 2(2)(viii) of the 1967 Convention establishing the World Intellectual Property Organization[16] which defines IP as “all […] rights resulting from intellectual activity in the industrial, scientific, literary or artistic fields”.

2.5 In cases of doubt, it should be decisive that the third-party right in question is of territorial nature.[17] Furthermore, IP third-party rights or claims encompassed by Article 42 are dependent on the physical features of the goods and encompass all goods of the kind, whereas third-party rights or claims under Article 41 are independent of the physical features of the goods and are specific to the individual good. Finally, with particular regard to competition law, a strong indication that a right is based on IP is the competence of specialised IP courts for the specific violation of competition law[18] – although the determination what amounts to a right based on IP under Article 42 remains autonomous.

3. Article 42 CISG applies also
       a.  to goods produced by means of a process, consisting of a certain series of steps
with which a defined result is achieved, that is protected by a process patent;
       b. to goods used to apply a process protected by a process patent;
       c. to goods encumbered by personality or personal name rights;
       d. to goods subject to measures of public authorities based on IP; and
       e. to rights and claims based on the IP of the seller.

3.1 Article 42 directly applies to process patents which encompass the sold good and going beyond its wording also to process patents which encompass the use contemplated by the parties or the ordinary use of the sold good. Process patents do not protect manufactured things as such but a certain series of steps with which a defined result is achieved.[19] In essence, a process patent prohibits two things, using the process and using a product directly obtained by that process.[20] The latter prohibition directly affects the product as the good in question, and thus without issues triggers the direct application of Article 42. Encompassed are thus methods or processes protected by patents or utility models,[21] as well as IP rights relating to things produced by using the goods.[22]

3.2 The former prohibition, however, is not directly targeted at the purchased good but rather at the way the good is used. This becomes particularly clear when considering that a process patent can also prohibit using generic goods in the specifically protected process. In such a scenario, the good itself is not necessarily affected by the process patent and thus not encumbered by this IP right. Article 42 thus does not apply directly. Since Article 42, however, has the purpose of protecting the buyer’s interest in using the goods, Article 42 applies if the goods cannot be used as intended under the contract or as they are generally used due to an IP right, either as a general principle in terms of Article 7(2) or by way of analogy.[23] In order to properly balance the parties’ respective interests, however, this application is mainly appropriate where the purchased goods only can sensibly be used in the way prohibited by the process patent. Regarding universally usable goods, additional requirements might apply (see infra 6.8).

3.3 Article 42 cannot be applied directly to personality or name rights since these rights do not protect any intellectual achievement and thus are no IP rights.[24] Nevertheless, the comparable interests justify filling this unintentional lacuna by applying Article 42 as a general principle in terms of Article 7(2) or by way of analogy.[25]

3.4 According to its wording, Article 42 only encompasses rights and claims “of a third party”. This term gives no indication of the legal basis upon which this party acts and thus includes public authorities as well as private parties.[26] There is no hard-and-fast rule to classify public law encumbrances as non-conformities or third-party encumbrances.[27] Instead, a distinguishing factor has to be established that allows drawing a line between those public law encumbrances that render the goods non-conforming in terms of Article 35 and those that constitute encumbrances in terms of Articles 41 and 42 on a case by case basis. It appears preferable to use the reason for the public law measure as the distinguishing factor.[28] Depending on whether this reason falls within the ambit of Article 35, Article 41 or Article 42, the respective provision applies.

3.5  Usually, a public law measure in itself does not form a separate defect but is only a reflex of a defect the measure results from.[29] In exceptional cases in which a public law measure constitutes a separate defect, this defect is encompassed by Article 42 if the reason of the measure falls within the ambit of Article 42. This is, for example, the case if the reason the public authorities base their measure on does not actually exist. Potentially unlawful public law measures that are not based on actual facts are comparable to unfounded claims which are encompassed by these provisions as well. In light of the parties’ interests, it makes no difference whether a third party raises a claim based on an inexistent right or a public authority which by law can act on its own initiative does so based on an inexistent right.
Hence, it is not required that the reason of the public law measure is based on existing facts; it suffices that the acting public authority claims to base its measure on this reason. The distinction between non-conformities and encumbrances based on the reason for the measure established above (see supra para 3.5) must thus be made based on the facts as alleged by the public authority. The rare cases, however, in which a public authority acts without direct reason and without claiming to have a reason, constitute neither non-conformities nor legal defects, but instead random events that are attributed to the affected party’s sphere of risk via the rules on the passing of risk.[30]

3.6 According to its unequivocal wording, rights and claims of the seller do not fall within the scope of Article 42.[31] The majority of authors consider the underlying interests of the parties identical to situations covered by Articles 41 and 42 and thus apply these provisions as a general principle in terms of Article 7(2) or by way of analogy.[32] Oftentimes, however, the seller will not be entitled to invoke its IP rights due to the exhaustion doctrine since it willingly put the goods into circulation in the relevant State;[33] if the seller nevertheless does so, however, it is liable for this claim.

4. The seller is liable if the goods are actually encumbered by third-party IP rights even if no claim is lodged.

Third-party rights are existing legal positions regarding the delivered thing.[34] If the goods are in fact encumbered with an IP right, the seller is liable under Article 42 even if the right holder does not lodge a claim against the buyer.

5. The seller is liable for third-party claims that the goods infringe an IP right, regardless of whether this right in fact exists. Such claims may even be obviously unfounded or frivolous.

5.1 Third-party claims are legal positions the third party purports to have, regardless whether they in fact exist.[35] The primary consideration behind the provisions’ broad scope in this regard is that – as Honnold aptly put it – the buyer “is not purchasing a lawsuit”.[36] When determining the seller’s liability for encumbrances under the CISG, it is thus irrelevant whether the claim made by the third-party is well-founded. Even claims that are obviously unfounded or frivolous in general constitute encumbrances of the goods for which the seller is liable.[37]

5.2 It is not required that the claims are raised in any particular form.[38] Particularly, it is not necessary that the third party brings legal action against the buyer.[39] It is also not necessary that the claims are asserted with such intensity that the buyer’s use of the goods is actually impaired.[40]

6. The seller’s liability under Article 42(1) CISG requires knowledge of only the existence of the IP right or claim. Such knowledge exists when the seller cannot be unaware of the right or claim.

6.1 The notion of knowledge under Article 42(1) is to be interpreted autonomously. Accordingly, there can be no recourse to categories of fault known in fault-based domestic legal systems when defining knowledge in a strict liability system like the CISG.[41]

6.2 The seller is not required to know the nature or details of the right[42] or claim or classify the right or claim as based on IP. The seller further is not required to conduct a legal evaluation of the right or claim and is liable irrespective of its subjective evaluation of the existence of the right or the prospects of success of the claim.[43] A legal analysis of the prospects of success of a claim in many cases will simply be too complicated to be expected of the seller. As regards technical IP rights like patents, for instance, determining whether a good is encompassed by the scope of the IP right can be a very complicated legal question that oftentimes is at the core of IP disputes.[44] With regard to trademarks, the risk of confusion also is a complicated matter that mostly requires expert knowledge to assess correctly. Finally, it is precisely the risk of whether a claim is founded that Article 42 allocates to the seller by triggering the seller’s liability already in case of mere claims. Requiring the seller to be aware that a claim is founded would negate this value judgement. Article 42 hence allocates the legal risk, whether a claim is valid to the seller but not the factual risk whether a claim is brought at all.

6.3 With regard to the question which right or claim the seller must be aware of precisely, there are five possible scenarios: First, the goods are infringing an existing IP right without any claim being asserted. In this scenario, it is evident that the seller must be aware of the IP right.

6.4 Second, the goods are not infringing any existing IP right, but the third party claims they do in relation to the buyer. Since the seller is not required to conduct any legal evaluation, the seller’s knowledge of the IP right that the third party’s unfounded claim invokes is insufficient. Rather, the seller must be aware of the claim itself.

6.5 Third, the goods are infringing an existing IP right and a claim based on this very IP right is asserted in relation to the buyer. Here, awareness of either the right or the claim triggers the seller’s liability.

6.6 Fourth, the goods are infringing an existing IP right and a claim based on this very IP right is asserted in relation to another party. In this scenario, the question is whether the seller’s knowledge that the third party asserted a claim against another party is sufficient to trigger the seller’s liability for the goods’ encumbrance with the right if the third party never asserts its claim in relation to the buyer. The answer should be in the affirmative. Knowledge of a claim based on a specific IP right includes knowledge of the IP right itself as minus. In order to distinguish this scenario from the second scenario, it can be summarised that knowledge of the right does not include knowledge of the claim, whereas knowledge of the claim includes knowledge of the right.

6.7 Fifth, the goods are not infringing any existing IP right, but the third party claims they do first in relation to other parties and then in relation to the buyer. The wording of Article 42(1) allows holding the seller liable in this situation. Autonomously interpreted, the term “claim” does not necessarily include the party the claim is directed at. To the contrary, the natural use of the term “claim” requires additional specification against whom it is directed, that is, the party. Accordingly, the claim raised against another party before the conclusion of the sales contract can be the same claim that is subsequently raised in relation to the buyer. Consequently, it suffices that the seller is aware that a third party asserts a specific IP right[5] while it is not required that the seller knows that the third party has done so in relation to the buyer – even if the IP right eventually proves non-existent[6] or not encompassing the goods in question.

6.8 With regard to process patents that do not encompass the goods sold but nevertheless impair the contractually intended use of these goods, the seller does not have to arrive at the conclusion that the buyer’s use is impaired by the process patent. On the other hand, it cannot be sufficient for triggering liability that the seller knows of the existence of a process patent prohibiting one of many potential uses of universally usable goods. This issue is comparable to the territorial limitation: Pursuant to Article 42(1) lit. a, the seller is only liable for encumbrances in the State of use if use in this State was contemplated by the parties. This limitation protects the seller from being liable for encumbrances worldwide and thereby allows it to assess the risk associated with entering into the contract with the buyer. Similarly, in order to assess this risk with specific regard to process patents, the seller cannot take into account all theoretically possible uses of universally usable goods. Instead, the seller must discern the buyer’s intended use on which the infringement of the process patent is based (in parallel to the properly interpreted standard of contemplation under Article 42(1) lit. a, see infra 8.9 et seq.).[47]

6.9 In parallel to Article 42(1) lit. b, the seller further is liable for encumbrances with process patents prohibiting the ordinary use of the purchased goods irrespective of whether he can discern the buyer’s intended use.

6.10 The seller is not only liable pursuant to Article 42 if it knows of the right or claim but also if it “could not have been unaware” of it. In practice, proving actual knowledge will oftentimes be difficult for the buyer.[48] The notion of “could not have been unaware” is thus decisive for the scope of the limitation of the seller’s liability Article 42 seeks to achieve.[49] The crucial question in this regard is whether and if so to what extent the seller is expected to investigate for IP rights and claims.

6.11 In this context, many authors refer to a “duty to investigate”.[50] The term “duty” in this regard is, however, misplaced. Neither can the buyer compel the seller to conduct such an investigation, nor has it any immediate effects on the seller’s legal position whether it conducts an investigation or fails to do so. In particular, the seller obviously still is liable for the encumbrance if it did conduct a proper investigation and discovered the encumbrance but nevertheless sold the encumbered goods to the buyer. It is also undisputed that the seller is not in breach of its obligations if it did not conduct any investigation and the goods sold are not encumbered. In short, whether or not the individual seller in question actually conducts an investigation is irrelevant; rather, the reference to an investigation merely expresses what an abstract reasonable and diligent seller could not have been unaware of. Therefore, it seems more appropriate to refer to an expectation to investigate instead of a duty to investigate. The issue is, however, mainly terminological.

6.12 In essence, there are three positions advocated what degree of knowledge on the part of seller triggers its liability. The most restrictive position can be found in early writings on Article 42 which read the reference to “could not have been unaware” as mere facilitation of proof.[51] Interestingly enough, some of these authors criticise this interpretation as being too burdensome for the buyer[52] and consider it desirable that the seller is expected to investigate for IP rights.[53] A middle-ground is suggested by some authors who expect the seller to investigate for IP rights only in case of specific indications that such rights exist in the relevant State.[54] According to the majority of authors, however, the seller is generally expected to investigate for IP rights in the relevant State.[55]

6.13To answer the question of whether the seller is expected to investigate for IP rights and claims, the standard “could not have been unaware” must be interpreted. The natural understanding of the phrase “could not have been unaware” is that due to the circumstances of the individual case, it was impossible for the relevant party not to be aware of certain facts, that is the party is expected to have been aware of these facts. The French[56] and Spanish[57] language versions do not give any further indications in this regard, and neither do the non-authentic Dutch[58] and German[59] The wording as such does not indicate whether this expectation includes active investigations by the relevant party or is merely based on the party’s – passive – knowledge of the circumstances.[60]

6.14 From a systematic point of view, the phrase “could not have been unaware” is one of the three primary forms[61] of knowledge referred to in the CISG.[62]^] It must be distinguished from the standard “known”[63]^] on the one hand and the standard “ought to have known”[64] on the other hand. Generally, these standards are described as hierarchical in that “could not have been unaware” is stricter than “ought to have known” but less strict than “known”.[65] A systematic comparison of the instances in which these standards are used in the CISG indicates that the standard of “could not have been unaware” tends to be used to determine more severe consequences than the standard of “ought to have known”. How these standards are applied in these instances does, however, vary and does not allow to draw a clear line between the two standards.[66]

6.15 During the drafting of the CISG, after an initial general reluctance to address the issue of IP encumbrances at all was overcome,[67] there was a lively debate on the interrelation of the notions of “known”, “could not have been unaware” and “ought to have known”. Most of the debate focused on Article 8. Yet, an unopposed statement made by the Belgian delegation confirms that the perception was that the standard of “could not have been unaware” required the seller to investigate for IP rights: The Belgian delegate “pointed out that the seller might have a heavy burden because in some cases he would have to undertake inquiries and research into industrial property rights, which he would not always be in a position to do” and suggested to change this wording of Article 42(1).[68] The Belgian delegation’s assessment that the seller was expected to conduct an investigation was neither contradicted nor its suggestion followed to change the wording of Article 42(1).[69] The reasonable conclusion from this is that the majority view during the drafting phase was that the standard “could not have been unaware” in Article 42(1) required the seller to conduct investigations. This result is confirmed by the Secretariat Commentary. According to the commentary on Article 42, “[t]he seller ‘could not have been unaware’ of the third-party claim if that claim was based on a patent application or grant which had been published in the country in question”.[70] Since the seller is not automatically aware of all published IP rights, the Secretariat Commentary’s standard expects the seller to investigate for such publications.

6.16 Expecting the seller to investigate for IP rights also is in line with the purpose of Article 42(1). The primary aim of this provision is to limit the seller’s liability for encumbrances of the goods with IP rights and claims compared to the general liability for encumbrances pursuant to Article 41.[71] The buyer’s interest is to receive goods free from encumbrances which it is usually entitled to without further limitations in accordance with the principle of strict liability. The seller, on the other hand, is interested in having its liability limited due to the specific (territorial) nature of IP rights and claims. Accordingly, a reasonable interpretation of the provision requires balancing these factors and the respective interests attached to them.[72] In consequence, Article 42 must not be interpreted in a way that renders the seller’s liability for encumbrances based on IP meaningless nor in a way that renders the limitation of the seller’s liability meaningless. The notion of “could not be unaware” is the decisive parameter to achieve this balance. The broader this notion is interpreted, the closer the results are to a strict liability of the seller and the less effective is the seller’s limitation of liability.[73] Moreover, it must be taken into account that the seller’s liability already is significantly limited by the territorial limitation.[74] Furthermore, compared to Article 41, the requirements for excluding the seller’s liability under Article 42(2) are significantly more lenient. Accordingly, the seller’s interests are given due regard[75] even if it is generally expected to investigate for IP rights.

6.17 Further, not expecting the seller to investigate for IP encumbrances in the relevant States would render the territorial limitation virtually meaningless. The purpose of the territorial limitation is to allow the seller to assess its liability risk. If the seller would only be liable for encumbrances it was aware of or closed its eyes to, it would already be in the position to assess its liability even worldwide based on this knowledge.

6.18 The expectation to investigate for IP rights thus is a valuable tool to balance the interests of the parties. Defining the scope of such expectation offers far superior possibilities to fine-tune this balance than outright rejecting any expectation of active investigations. The purpose of Article 42 as limitation of the generally strict liability of the seller thus supports an interpretation of the standard “could not have been unaware” as expecting the seller to investigate for IP rights or claims.

6.19 Moreover, economic considerations confirm that the seller should be expected to investigate for IP rights. The economically most efficient outcome would be to allocate the risk of an adverse effect to the party that can avoid this effect with the least effort, the so-called cheapest cost avoider.[76] In the context of Article 42, the question thus is whether it is more efficient to have the seller or the buyer investigate for IP rights or claims.^[[77] As regards the question of whether the seller is expected to investigate at all, it is sufficient to attest that it is at least possible that under certain circumstances, the seller can conduct such investigation more efficiently. The only reasonable conclusion is to expect the seller to investigate for IP rights. From economic perspective, even if the seller is expected to investigate, it will not do so if it determines the cost of such investigation to be higher than the expectancy value of its potential liability; whereas, if the seller is not legally expected to investigate, it will not do so even if it determines the costs of such investigation to be lower that the expectancy value of its theoretical liability.[78]

6.20 Defining the scope of the expected investigations still allows to more precisely allocate the investigations to the cheapest cost avoider. This way, the expectation to investigate can mitigate information asymmetries, reduce the cost of transacting, and improve the economic efficiency of markets.[79] Not expecting the seller to investigate for IP rights would, however, exclude the possibility of efficiently allocating the cost of an investigation altogether.

6.21 Furthermore, the seller’s legal situation from the perspective of IP law must be considered. Pursuant to many IP laws, selling goods encompassed by an IP right already constitutes an infringement the seller is liable for.[80] The seller’s liability in this regard is not limited to IP rights the seller is aware of. Rather, the seller is expected to investigate for IP rights by observing the market and the relevant publications.[81] If such investigation can be expected from the seller in the interest of a third party to which the seller has no relation, it can be expected from the seller even more so in the framework of its contractual relationship with the buyer.[82] At least expecting the seller to conduct an investigation for IP rights in relation to the goods sold cannot be considered overly onerous if the seller is expected to do so pursuant to the relevant IP laws in any case.

6.22 Finally, a comparison with the legal regime governing non-conformities confirms this result. There is a certain parallelism between the seller’s liability for encumbrances in the State of use under Article 42(1) lit. a and the seller’s liability for non-conformities arising from the goods’ non-compliance with public law standards in the State of use (or the buyer’s State) under Article 35(2) lit. b.[83] The parties’ interests in the case of the goods’ non-compliance with public law standards in the relevant State and in case of the goods’ infringement of IP rights in the relevant State are comparable. In particular, public law standards generally apply only in the State in question, just as IP rights do. From the perspective of the parties, it cannot make any difference whether the buyer’s use of the goods is impaired based on public law standards or private third-party rights. This parallelism specifically applies with regard to the knowledge requirements under both provisions.[84] Consequently, when determining whether the seller can be expected to investigate for IP rights in the relevant State, guidance can be sought in the application of Article 35(2) lit. b. With regard to Article 35(2) lit. b, it is acknowledged that “if the seller knew or could not have been unaware of the place of use of the goods, it should investigate the existence of any local standards, affecting the use of the goods”.

This is determined by the circumstances of the individual case taking into account the following factors:
     a.  the IP right’s
           i.    publication in official publications or databases;
           ii.  registration in official registers;
           iii.  whether an IP right (most importantly a trademark) is well-known in the relevant
sector (notoriety);
           iv.  whether an IP right can only be identified based on a deep understanding of the
features and (internal) composition of the goods (technicity); and

6.23 Whether the seller cannot be unaware of the IP right or claim cannot be determined abstractly but must be determined based on the circumstances of the individual case.[85] In doing so, the mainly decisive criteria are the objective accessibility of the information based on the IP right and the goods in question as well as the subjective proximity of the party to the information it is expected to acquire.

6.24  When determining the scope of the seller’s expected investigation, the first and foremost criterion is the accessibility of the information.[86]  The accessibility of the information defines how difficult it is objectively to acquire relevant information. Nowadays, many IP registers can be accessed online and conveniently searched; this naturally affects what can be expected of the seller.[87]

6.25 The second relevant criterion is the proximity of the seller to the relevant information. Hence, the scope of the seller’s investigation depends on the information it has access to at the relevant time.[88] The information proximity thus defines how much of an effort the specific seller must make to acquire the relevant information. Generally, the seller can rely on the legal advice of specialised lawyers in the State of protection.[89]

6.26 The above-mentioned criteria must be determined by taking into account objective factors relating to the IP right in question and subjective factors relating to the specific seller.

6.27 It is obvious that the publication of IP rights facilitates their accessibility in the context of Article 42 by way of an investigation. Yet, some authors go as far as to categorically exclude any expectation of the seller to investigate for non-published rights.[90] This reasoning fails to take into account well-known trademarks[91] or encumbrances resulting from the protection of IP rights through competition or tort law. While these encumbrances are not published, they might very well be identifiable with reasonable effort by way of an investigation. To be considered well-known, a trademark must be generally known in the relevant sector.[92] The required degree of awareness is usually quantified at between 50[93] and 70%[94] of the relevant market participants[95]. Publication is not required for a well-known trademark to be protected. Given its status as being well-known, such a trademark should nevertheless be readily identifiable by way of an investigation – at least if the respective party is part of the relevant sector of the public based upon which the trademark is classified as well-known. Hence, the threshold for the seller to be expected to identify published IP rights by way of investigation is generally lower than it is with regard to non-published rights. Nevertheless, depending on the circumstances of the individual case, the seller can very well be expected to identify certain non-published rights by way of an investigation, like, for example, well-known trademarks.

6.28 According to some authors, the seller can only be expected to investigate for registered rights.[96] For the seller to be expected to access the relevant registers, these must be readily accessible.[97] Again there is no hard and fast rule: The threshold to expect the seller to access readily available registers in its investigation certainly is significantly lower than with regard to non-registered rights. Yet, the seller in principle is expected to investigate for non-registered IP rights as well.[98]

6.29 Where the IP rights protect the technical or biological characteristics of the goods, the seller accordingly will usually be in a better position to investigate for such rights.[99] The reason for this is that identifying such technical rights[100] which might encumber certain goods requires a deep understanding of the features and (internal) composition of said goods. The buyer, on the other hand, will only be able to conduct a proper investigation if it has detailed knowledge of the technical composition of the goods, for example, because it manufactures comparable goods itself.[101] In contrast, most non-technical rights[102] can be identified as potential encumbrance just from the visual appearance of the goods. Here, not the technical or biological composition – of which usually only the seller has sufficient knowledge – is the basis for the potential infringement but the fact that the goods bear a trademark. Concluding that the goods potentially violate the corresponding trademark right of a third party requires no specific knowledge of the goods.[103]

         b.  the goods’
               i.    nature; and
               ii.   novelty; and

6.30 Further the goods’ nature and novelty might influence the objective accessibility of the relevant information, eg a good is of such a novel and innovative type that it is difficult to identify relevant IP rights.

         c.  the seller’s
               i.    experience with the specific goods;
               ii.   experience with the specific market;
               iii.  size of business and sophistication;
               iv.  language skills;
               v.   knowledge of the specific use intended by the buyer (in case of process
patents); and
          d.  any other relevant circumstances of the individual case.

6.31 It has been established that investigating for technical IP rights requires in-depth knowledge of the features and (internal) composition of the goods in question. Consequently, a relevant aspect of assessing the parties’ information proximity is how much experience they have with the goods in question.[104] Generally, the goods’ manufacturer has the most experience with the goods since it has unparalleled knowledge of how the goods work and how they were designed and it sometimes even holds technical IP rights encompassing the goods itself. Accordingly, manufacturing the goods in question indicates that an investigation of technical IP rights can be expected.[105]^] Yet, also intermediary sellers are expected to investigate for IP rights.[106] Usually, the investigation expected of an intermediary seller will be less detailed than that of a seller which manufactured the goods in question.[107] An intermediary seller can, however, be required to gather the information necessary to investigate for IP rights by contacting the manufacturer.[108]

6.32 The parties’ proximity to the relevant information increases proportionally to their experience with the specific market in the relevant State. Hence, a seller who has experience with supplying goods to the relevant State[109] or even has a branch there as well can be expected to investigate for less accessible IP rights. Furthermore, with specific regard to well-known trademarks, a party can primarily be expected to identify a well-known trademark if the party is part of the relevant sector of the public the trademark is well-known in – this includes, in particular, being part of the usual distribution chain for goods in that sector.

6.33 Sellers with extensive business operations and a high degree of sophistication, in particular with a dedicated legal department, can be expected to conduct more substantial and thus more onerous investigations.[110]

6.34 Based on economic considerations, a party fluent in the language the investigation is to be conducted in is more likely to be expected to investigate for IP rights than a party who would need to enlist translators or other costly support.[111]

6.35  Where IP encumbrances do not result from the features of the goods themselves, but from a specific way the goods are used – in particular methods or process patents, the scope of the seller’s expected investigation depends on the degree of knowledge it has of the specific use intended by the buyer.

6.36  In contrast, it is irrelevant for the scope of the investigation which party initiated the conclusion of the contract[112] or the use of the goods in the relevant State.[113] Further, if the seller considers an investigation for IP rights unreasonable from a commercial perspective or impossible to conduct due to time constraints – for example in light of the low value of a first-time contractual relationship[114] or the short period of time between contract conclusion and delivery[115] – it has to exclude this duty by way of an agreement with the buyer.[116]

6.37 Additionally, all other relevant circumstances of the individual case must be taken into consideration to come to an appropriate outcome.

 7.  In order to determine a State of use under Article 42(1)(a) CISG, use is to be interpreted broadly and encompasses any action the buyer intends to take or to have taken with regard to the goods. Use includes transit of the goods through a State other than the State of their destination.

7.1  Mirroring the territorial scope of IP rights, Article 42 holds the seller liable only for encumbrances based on IP law under the law of certain States. Depending on the circumstances of the case, these relevant States can be a State of use pursuant to Article 42 (1) lit. a, the buyer’s State pursuant to Article 42(1) lit. b, the seller’s State or a transit State.

7.2 Pursuant to Article 42(1) lit. a, the seller is liable for the goods’ encumbrance with IP rights or claims in the contemplated State of use. Article 42(1) lit. a encompasses States “where the goods will be resold or otherwise used”. Considering the provision’s purpose to protect the buyer’s interest in using the goods unimpaired by any IP rights or claims, the phrase “resold or otherwise used” should be interpreted broadly.[117] It encompasses any action the buyer intends to be taken with regard to the goods. In line with the purpose of Article 42 to comprehensively protect the buyer’s interest in using the goods unimpaired, where the parties at the relevant time contemplate any action to be taken with regard to the goods in a particular State, the seller is liable for any impairment to this action based on IP in that State.

7.3  The parties are free to contemplate multiple States of use.[118] It furthermore is possible to combine resale and use in this regard; the parties can thus contemplate reselling the goods in certain States and additionally using the goods in certain other States.[119]

7.4  Resale or use of the goods by anyone, including the buyer’s customers is encompassed by Article 42(1) lit. a.[120] The provision’s wording contains no limitation to resale or use specifically by the buyer. Instead, the wording refers only to the act of reselling and using without even mentioning the acting party. The only reasonable inference that can be drawn from this open wording is that anyone can resell or use the goods in terms of Article 42(1) lit. a. Accordingly, the Secretariat Commentary acknowledges that “[i]t will even be the case that the buyer’s subpurchasers may take the goods to a third country for use”.[121] Further, when reselling the goods, the buyer is potentially liable in relation to its customer for the goods’ freedom from encumbrance in the State that is relevant to this customer. As a consequence, in relation to the seller, the buyer’s primary interest is that the goods are free from encumbrances in the State they are ultimately used by its customer. The buyer’s interest in the goods’ freedom from encumbrance in the State where the resale takes place is but a mere reflex of this primary interest. Hence, a reasonable interpretation of Article 42(1) lit. a must take into account this primary interest of the buyer. Against this background, the distinction between the State “where” and the State “whereto” the goods are resold[122] is accurate but irrelevant, since the customer’s State is not just the State “whereto” the goods are sold by the buyer, but also a State “where” the goods are resold if the customer decides to sell on the goods again or the customer’s State is a State “where” the goods are “used” if the customer decides to use the goods itself.[123]

7.5 In line with the appropriate broad interpretation, use includes all actions the buyer intends to be taken with regard to the goods – be it by the buyer or somebody else. Accordingly, transit is use of the goods, even if initiated by the seller. The proponents of the opposing view who exclude encumbrances in the transit State from the scope of Article 42 mostly offer no reason for their view.[124] The finding that transit is use and thus encumbrances in the transit State can trigger the seller’s liability under Article 42 is confirmed by the fact that in certain jurisdictions already mere transit can infringe IP rights (even without the goods being put into circulation)[125] and customs authorities even can take measures already based on the suspicion of infringement.[126] Excluding such encumbrances resulting from transit from the scope of Article 42 would result in unwarranted gaps in the protection of the buyer’s interest in utilising the goods unhindered by encumbrances.

7.6 If transit is contemplated by the parties, the seller thus is liable for IP encumbrances in the transit State by virtue of direct application of Article 42(1) lit. a. By way of example, the parties might make reference to an ICC Incoterms® F- or D-clause in their contract, requiring the seller to deliver the goods to a particular place whereas the buyer is responsible for the goods’ transport from that place on. If the place named in reference to the clause lies in a State that has not already been contemplated as a State of use, transit through that State is contemplated, and the seller is liable for encumbrances there. The situation is comparable if the parties opt for a C-clause under which the seller is responsible for arranging carriage of the goods also after the risk passes to the buyer. Contemplation can also be based on practices or usages established between the parties or international trade usages.[127]

7.7  If transit through the State in question was not contemplated by the parties, direct application of Article 42 is not possible. If the seller does, however, unilaterally determine the transit route, thereby choosing the transit State, Article 42 nevertheless applies either as a general principle in terms of Article 7(2) or by way of analogy.[128] If transit was not contemplated, the buyer’s interest in the goods’ freedom from encumbrances in the transit State is a reflex of its interest in freely using the goods in the contemplated State of use or its own State the goods are destined for. Further, the seller is not unduly burdened if it is expected to investigate for IP rights in a transit State that was not contemplated but unilaterally chosen by itself. Also with regard to the territorial limitation, the seller even is in a better position to assess its liability risk if it unilaterally chooses the transit State compared to cases of mere contemplation of the State of use intended by the buyer. The balance of interests in this regard – if at all – shifts in favour of the buyer, not the seller. Where the relevant infringement is not based on mere transit but on the goods being put into circulation in the transit State, the seller is liable if the seller unilaterally decides to put the goods into circulation. In contrast, the seller is not liable where the buyer puts the goods into circulation in the transit State without the parties having contemplated so when concluding the contract.

7.8  If, on the other hand, the transit State is unilaterally chosen by the buyer, application of Article 42 is not justified. Yet, if in this situation the seller brings the goods into circulation without the buyer’s agreement – for example to repackage them – and thereby infringes an IP right resulting in loss of the goods, the buyer is discharged from its obligation to pay the purchase price under Article 66 in fine.

8. Contemplation by the parties of a State of use only requires that the seller can discern the buyer’s intention to use the goods in one or more specific States from the circumstances. In particular, the parties are considered to have contemplated a State
of use if
     a. the buyer is active only in the market of that State and the seller could not have been
unaware of this; or
     b. under the contract,
           i.    transportation of the goods to or through that State is envisaged;
           ii.   instruction manuals or other documents accompanying the goods are to be in a
specific language other than the buyer’s language and this language is spoken
only in that State;
          iii.  the required design of the goods points to that State; or
          iv.  mandatory or voluntary certificates that the goods are required to have are
relevant only in that State.

8.1 The State of use is only relevant pursuant to Article 42(1) lit. a “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”. Based on the principle of party autonomy in Article 6, the parties can agree that a particular State is relevant as a State of use. Likewise, practices or usages applicable by virtue of Article 9(1) or international trade usages applicable pursuant to Article 9(2) can result in a particular State being contemplated as a State of use. With regard to the minimal requirements of the notion of contemplation, there is agreement that the term “contemplated” in the context of Article 42(1) lit. a requires an objectively manifested intention of the buyer that the goods will be resold or used in the State in question.[129]

8.2 For the seller, however, it is sometimes required that he agrees to the buyer’s intended use,[130] sometimes that he has actual knowledge[131]. The majority of authors rightly consider it sufficient that the seller can discern from the circumstances of the contract conclusion that the buyer intends to use the goods in the respective State.[132] The CISG consistently uses the term “agree” if an agreement of the parties is required.[133] The fact that the term “agree” is not used in Article 42(1) lit. a thus strongly indicates that “contemplated by the parties” does not mean “agreed upon by the parties”.[134] Further, considering a seller to have contemplated circumstances it was not positively aware of is not easy to square with the natural meaning of the term “contemplate”.[135] Requiring actual knowledge, however, always burdens the party relying on such knowledge with an onus of proof almost impossible to meet.[136] Putting such an onus on the buyer in the framework of Article 42 would not lead to adequate results. In line with this, many authors who require an agreement or actual knowledge with regard to Article 42(1) lit. a are forced to objectify their purely subjective requirements as well.[137] This widespread consensus that it is necessary to determine whether the parties contemplated the State of use based on objective criteria confirms that it is sufficient that the seller can discern the State of use from the circumstances. Further support for this position can be found in a comparison of Article 42(1) lit. a and Article 35(2) lit. b. The prevailing opinion interprets Article 35(2) lit. b as requiring that the seller can discern the particular purpose from the circumstances.[138] Despite the differences in the provisions’ wordings, reasonably interpreted, both provisions thus require that the seller can discern the relevant aspect from the circumstances. This outcome is also appropriate since both provisions have the purpose of protecting the buyer’s interests in using the goods unimpaired from any legal (Article 42(1) lit. a) or factual (Article 35(2) lit. b) hindrances. The standard of knowledge the seller is required to have of the intended use should accordingly be the same. Finally, to achieve the purpose of Article 42, that is to allow the seller to assess its liability risk, it is not necessary that the seller actually assessed its liability risk correctly. A seller that objectively is in the position to accurately assess its liability risk but fails to do so does not deserve to be protected from this failure.

8.3 Usually, some kind of statement or behaviour of the buyer will be the basis for an indication that the goods will be resold or otherwise used in a particular State. Accordingly, it seems appropriate to seek guidance in the provision dealing with the interpretation of the parties’ statements and other conduct, that is Article 8.[139] In order to assess whether a State of use was contemplated by the parties, it thus is decisive whether a reasonable person in the shoes of the seller should have become aware of the use intended by the buyer on the basis of the contract and the given circumstances.[140] Relevant in this regard are the factors listed in Article 8(3), most importantly the parties’ negotiations in general and the agreed delivery modalities specifically.[141] Since Article 42(1) lit. a requires that the parties contemplated the State of use at the time of contract conclusion, only circumstances existing at or before that point in time can indicate to the seller that the goods will be resold or otherwise used in a particular State. The parties’ subsequent behaviour can only be relevant to confirm their understanding at the time of contract conclusion. Furthermore, in line with Article 9, usages known to or practices established between the parties can be relevant.

8.4 The threshold for contemplation by the parties in the sense of Article 42(1) lit. a should not be set overly high with regard to a single State of use. If no State of use is contemplated pursuant to Article 42(1) lit. a, the seller is liable for encumbrances in the buyer’s State pursuant to Article 42(1) lit. b. Therefore, the decisive question a reasonable seller would ask is whether it is more likely that the goods are to be used in the potential State of use or in the buyer’s State. The seller’s interests are not affected by this approach. Abstractly, it makes no difference to the seller whether it is liable for the goods’ freedom from encumbrances in the buyer’s State or in a State of use. However, if the circumstances point to multiple States as States of use, the seller’s interests are affected. Accordingly, in order to contemplate multiple States of use, it is not sufficient that, considered in isolation, the balance of probabilities tips in favour of the potential States of use. Instead, the threshold must be higher, that is further or more specific indications are required. This higher threshold is for example met if a reasonable seller would conclude from the circumstances that one of the States the indications point to is a transit State whereas the other is the State the goods are ultimately destined for in which the buyer intends to resell the goods to a customer located in a third State where the goods will be used. In any case, the buyer is well advised to expressly make the seller aware of its intention in a provable way not only, but specifically in cases in which it intends to use the goods in multiple States.[142]

8.5  Finally, as indicated by the wording of Article 42(1) lit. a (“contemplated […] that the goods would be […] used”, emph. add.),[143] the parties are not required to contemplate any specific kind of use but merely that as opposed to how the goods will be used in the State in question. Accordingly, it is sufficient that the parties contemplate at least one use of the goods in the State in question to trigger the seller’s liability for the goods’ freedom from encumbrances in that State with regard to all potential uses. If the seller wants to limit its liability to certain specific uses only, it must do so by mutual agreement.

8.6  Applying these considerations, the parties have contemplated a State of use if

• the buyer is active only in the market of that State and the seller could not have been
  unaware of this;[144] or
• under the contract
  --  transportation of the goods to or through that State is envisaged;[145]
  --  instruction manuals or other documents accompanying the goods are to be in a
  specific language other than the buyer’s language and this language is spoken only
  in that State;[146]
  --  the required design of the goods[147] points to that State;[148] or
  --  mandatory or voluntary certificates the goods are required to have are relevant only
  in the State in question.

8.7  With the exception of the place of delivery,[149] all of the above factors require further indications if they point to multiple States for these States to be contemplated as States of use.[150]

8.8  Pursuant to Article 42(1) lit. b, the buyer’s State is only relevant subsidiarily if no State of use was contemplated at the relevant time.[151] In this regard, the operation of this provision thus is similar to the ordinary purpose the goods must be fit for pursuant to Article 35(2) lit. a if no particular purpose was made known to the seller in terms of Article 35(2) lit. b.[152] If the buyer has multiple places of business, Article 10 determines which of multiple places of business is the relevant one.

8.9  Article 42(1) makes no reference to the seller’s State. Accordingly, there are only three possibilities how the seller can be liable for encumbrances in its State: first, if the seller’s State was contemplated as a State of use;[153] second, if IP rights existing in the State relevant in terms of Article 42(1) lit. a or b are enforced in the seller’s State; and third, if IP rights protected in the seller’s State take effect indirectly via the applicable law in the relevant State.[154] This corresponds with the general interests of the buyer since it is generally only in these situations that the buyer is interested in the goods’ freedom from IP encumbrances in the seller’s State.[155]

9.  States in the sense of Article 42(1)(a) and (b) CISG include federal States together with all their constituent territories but not associations of States. If, however, the parties contemplate that the goods will be used only in a specific area of the State of use, the buyer cannot invoke encumbrances in different areas as a basis of the seller’s liability.

9.1 Pursuant to Article 42(1) lit. a and b, the seller is liable for encumbrances in “the State” of use or of the buyer. The capitalised use of the term “State” in this provision evidences that the meaning of this term here is identical with the remaining capitalised references to the term “State” throughout the CISG. As is confirmed in particular by the CISG’s Preamble (“The States Parties to this Convention”), Article 1(1) lit. a (“when the States are Contracting States”) and Article 91(3) (“This Convention is open for accession by all States”), “States” as referred to in the CISG are the entities that are or can become a party to the CISG as an international convention. This includes all entities recognised as States under public international law.[156] This notion thus includes federal States together with all their constituent territories. Further, the notion of State in the sense of Article 42(1) lit. a and b does not include associations but rather States only.[157] Otherwise, a seller that sells to a buyer that has its place of business in the European Union would – if the parties did not contemplate any State of use – be liable for encumbrances in the entire European Union,[158] which would unduly weaken the territorial limitation of Article 42(1).

9.2 Certain IP rights are protected only in part of the relevant State’s territory. Examples include trademarks that are established not by registration but by use in the relevant market[159] or in federal States when rights are protected under State law only with effect for the respective individual State.[160] In Article 93, the CISG distinguishes between the “Contracting State” and its “territorial units”. Based on the provision’s reference to “State”, the seller thus is liable for encumbrances existing only in parts of the State of use or the buyer’s State, even when the parties just contemplated use of the goods in the State as such without concretely contemplating using the goods in that specific part of the State.[161] The same applies mutatis mutandis to the seller’s liability pursuant to Article 42(1) lit. b if the buyer’s place of business is located in a part of the buyer’s State while the IP in question is only protected in another part of this State. If, on the other hand, the parties did contemplate using the goods only in a specific part of the State of use, the buyer gave the seller reason to conclude that the goods were to be used only in the partial territory. Thereby, the buyer assumes the risk of encumbrances outside of this partial territory. Invoking encumbrances existing only in another part of the State would hence constitute contradictory conduct prohibited by the principle of venire contra factum proprium.[162] Accordingly, the buyer’s conduct and statements indicating the use of the goods in a partial territory must be interpreted as triggering contemplating use only in that partial territory thereby effectively limiting the seller’s liability to this part only.[163]

9.3  The tendencies of harmonisation in the field of IP law result in an increasing number of IP rights that are protected not just in one but in several States.[164] Since generally treaties and conventions establishing IP rights with territories of protection encompassing the respective State parties are considered part of these States’ law, IP rights based on legislative acts with effect for several States exist “under the law” of the State of use or the buyer’s State respectively as referred to in Article 42(1) lit. a and b. The same applies to IP protected under the law of supranational organisations of States like the European Union.

9.4  The law relevant under Article 42(1) lit. a and b is determined by virtue of the rules of international private law of the relevant State.[165]

10.  The seller’s knowledge and the identity of the relevant States are assessed at the time of conclusion of the contract. Whether the goods are encumbered with IP rights or claims under Article 42 CISG is assessed at the time of the passing of risk based on the general principle enshrined in Article 36 CISG. In the case of delivery prior to the agreed date, the seller is entitled to cure any encumbrance until the agreed date in accordance with the general principle stipulated in Article 37 CISG.

10.1  The relevant time to assess the parties’ knowledge of the encumbrance under Article 42 is the time of the conclusion of the contract as per Article 23. If the parties become aware of the IP right after this point in time, they are not liable pursuant to Article 42, but both of them can be subject to a duty to inform the other party accordingly based on the parties’ general duty to cooperate. Likewise, the relevant time to determine the relevant State under Article 42(1) also is the time of the conclusion of the contract. Subsequent changes do not affect the seller’s liability, neither with regard to the intended State of use[166] nor to the buyer’s relevant place of business.[167] It flows from the general principle of party autonomy as provided for in Article 6, however, that the parties are free to change the relevant territories after contract conclusion by way of mutual agreement[168] – as opposed to mere contemplation.

10.2  Article 42 does not expressly stipulate the time relevant to assess whether the goods are encumbered with IP rights or claims. Although many authors infer from the reference to the seller’s delivery obligation that the time of delivery is the relevant time to assess whether the goods are encumbered,[169] this inference is not self-evident. In comparison, the parallel provision dealing with non-conforming goods, Article 35(1) also provides that “the seller must deliver goods” that conform to the contractual requirements. With regard to non-conformities, however, Article 36(1) defines the time relevant to determine whether the goods conform to the contract as “the time when the risk passes to the buyer”. Article 36, however, expressly refers to “any lack of conformity” and thus does not apply directly to encumbrances of the goods pursuant to Article 41 and 42. Encumbered goods are not encompassed by references to goods not conforming to the contract in the CISG (see infra 105).

10.3  This gap regarding the relevant time to assess the seller’s liability for IP encumbrances should be filled by applying the general principle enshrined in Article 36(1). Accordingly, the time of the passing of risk is the relevant point in time to determine the seller’s liability for encumbrances. An analysis of the drafting history suggests that the view that delivery of the goods is the relevant time to assess the seller’s liability for encumbrances results from a more or less unreflecting adoption of the legal situation under the ULIS[170] as the CISG’s predecessor without any further discussion of the issue during the CISG’s drafting phase.[171]

10.4  Under the CISG, however, the ULIS’ system was changed significantly – most importantly for the issue at hand, the passing of risk was linked to handing over of the goods instead of delivery[172] and specific rules for delivery by placing the goods at the buyer’s disposal were implemented:[173] The passing of risk pursuant to Articles 67 to 69 is linked to the fact-based concept[174] of handing over of the goods.[175] While in most situations the time of delivery corresponds to the time of handing over of the goods and thus the time the risk passes,[176] there are situations in which delivery is effected before the risk passes:[177] If the goods are to be put at the buyer’s disposal in line with Article 31 lit. b or c, delivery is effected if the goods are at the buyer’s disposal even if they are still in the custody of the seller. The risk, however, only passes once the buyer physically takes over the goods or breaches the contract by not doing so as stipulated by Article 69(1).

10.5  Against this background, an analysis of the parties’ interests should primarily inform determining the relevant point in time to assess the seller’s liability for encumbrances. The buyer is interested in the goods being free from IP encumbrances at the time it takes possession of the goods, that is at the time the goods are physically handed over to it. The seller’s interest, on the other hand, is that the point in time at which its liability is assessed is as late as possible. Until the relevant point in time, the seller can still remove any encumbrances and thereby avoid being held liable by the buyer.[178] Furthermore, the seller is not unreasonably burdened by the risk of any new encumbrances arising after the conclusion of contract since its liability is limited to those encumbrances it knew or could not have been unaware of at the time of contract conclusion. Consequently, the time of the passing of risk, as opposed to the delivery, is the relevant point in time to determine whether any encumbrances of the goods exist the seller is liable for.

10.6  Strictly drawing the line at the time of the passing of risk to delimitate the seller’s liability would, however, unduly exclude liability for any claims raised after the passing of risk.[179] Applying the general principle derived from Article 36(1) in fine offers a solution; this article provides that the seller is liable for non-conformities which exist at the time the risk passes, “even though the lack of conformity becomes apparent only after that time”. The underlying rationale is that while the non-conformity did not exist in its final form at the relevant time, the non-conformity was already inherent to the goods.[180] This rationale also applies to claims raised after the passing of risk:[181] If the claim is based on factual circumstances existent at the relevant time, it was already inherent to the goods and the seller should be held liable for it. Accordingly, it must be assessed whether the circumstances, on which the encumbrance is based, exist at the relevant time in contrast to the encumbrance itself.[182] In other words, the seller is liable for all claims that could have been raised identically at the relevant time, even if they were raised only after this point in time. With regard to unfounded claims, it is not decisive whether the circumstances de facto existed at the time of the passing of risk but rather whether they existed at that time according to the allegations raised by the third party so that the unfounded claim could have been raised at the relevant time already.[183] A similar logic applies with regard to the goods’ encumbrance with IP rights in a State of use or the buyer’s state if, at the time of the passing of risk, the goods have not yet reached this State and thus at this time do not yet infringe the relevant IP right. Also in this scenario, the encumbrance is already inherent in the goods as it is clear that once they reach the contemplated State of use or (subsidiarily) the Buyer’s state, they will infringe the relevant IP right.

10.7  In certain scenarios, it can be warranted to hold the seller liable for encumbrances coming into existence only after the relevant time to assess its liability. For example, the seller might violate or cancel existing license agreements with the right holder causing the goods to infringe the respective IP right or register a trademark in the relevant State encompassing the goods after the relevant time.[184] Article 36(2) addresses this situation with regard to non-conformities and should be applied as a general principle in terms of Article 7(2) to encumbrances as well. The seller is under a general obligation to cooperate by loyally facilitating the success of the contractual relationship with the buyer and refraining from any actions preventing this success.[185] The success of the contractual relationship can be hindered by physical deterioration of the goods resulting in a non-conformity as well as deteriorations of the buyer’s legal position. Likewise, with regard to the related issue of breach of a guarantee of durability also addressed in Article 36(2), there is no reason to treat guarantees of physical durability any different than guarantees of what could be referred to as legal durability.[186]

10.8  Also with regard to premature delivery of encumbered goods, the seller should not be placed in a worse position than in case of early delivery of non-conforming goods. Article 37 allows the seller to remedy any lack of conformity up to the date of delivery. This provision applies to encumbrances as a general principle in terms of Article 7(2) or by way of analogy.[187] Article 37 is an expression of the general principle in terms of Article 7(2) underlying the CISG as a whole that contractual relationships should be maintained as long as possible.[188] The rationale of this principle of favor contractus leaves no room to distinguish between different causes that might result in unwinding the contract.

11.  The buyer’s knowledge of the encumbrance under Article 42(2)(a) CISG should be assessed according to the same legal standard as the knowledge requirement for the seller under Article 42(1) CISG. The same factors as in rule 6 should be considered taking into account any factual differences in the individual circumstances of the buyer and the seller.

11.1  For the seller’s liability to be excluded by virtue of Article 42(2) lit. a, the buyer must be aware of the existence of the right or claim; a legal evaluation whether the goods actually infringe the (alleged) right is not required. Conversely, a false legal evaluation cannot protect the buyer from the exclusion of the seller’s liability. Accordingly, a buyer who knows of the relevant IP right but (falsely) assumes that a valid license was granted knows of the encumbrance. This can be of particular relevance for sales of digital content, since in these cases, the buyer will usually be aware that IP rights exist with regard to the digital content sold and rely on an actual or assumed license. The relevant time to assess the buyer’s knowledge is the time of contract conclusion. Any information which the buyer receives after contract conclusion is irrelevant for the exclusion of the seller’s liability pursuant to Article 42(2) lit. a,[189] but can result in a duty to inform the seller based on the parties’ general duty to cooperate.[190]

11.2  A significant number of authors are of the view that in determining whether the buyer could not have been unaware of the IP right or claim, it must be considered that the buyer cannot be expected to investigate for IP rights in the relevant States.[191] What appears to be the majority of authors also expressly reject what they usually call a duty to investigate[192] for the buyer but nevertheless submit that the buyer cannot be unaware of IP rights which are characterised as “obvious”,[193] “widely known”,[194] “internationally known”,[195] “notorious”[196] or which “cannot be overlooked”.[197]  A third view also rejects a general expectation to investigate on the part of the buyer but takes into account subjective qualities of the buyer and expects a professional buyer to be aware of well-known trademarks[198] or even all IP rights in its industry.[199] The fourth and final view is that in certain circumstances, the buyer is expected to investigate for IP rights in the relevant State as well.[200]

11.3  The last view is preferable. Already when analysing the above approaches, it becomes apparent that, apart from the first approach, all approaches recognise that the buyer is expected to know certain IP rights it does not actually know of. Although all approaches but the final approach expressly reject a so-called “duty to investigate” on the part of the buyer, they do not offer any explanation how the buyer is expected to gain knowledge of these certain IP rights. It is submitted that the only possible way the buyer can ex ante be expected to gain knowledge of IP rights unknown to it is by way of investigation. An interpretation of Article 42(2) lit. a confirms that in determining whether the buyer cannot have been unaware of the IP right or claim, the buyer can be expected to investigate for IP rights.

11.4  As a starting point, it is noteworthy that the language used to describe the knowledge of the seller in Article 42(1) and of the buyer, in Article 42(2) lit. a are identical; this strongly indicates that the threshold of knowledge is also the same for the seller and the buyer.[201] Obviously, it is not reasonable to assume that by including the same language to establish the seller’s liability and to exclude the seller’s liability the drafters of the CISG intended the liability of the seller always to be excluded. Consequently, Article 42 only offers a reasonable solution for the goods’ encumbrance with IP right if the knowledge requirement with regard to the seller and the knowledge requirement with regard to the buyer yield different results. Since these two standards are, however, identically worded, the solution to this conundrum is that the difference between the two standards is one of fact, not one of law.

11.5  The parallelism between Article 42 and Article 35(2) lit. b confirms this assessment. Under Article 35, it is increasingly held that to properly balance the parties’ interests with regard to the goods’ non-compliance with public law standards in the relevant State, the buyer can in certain circumstances be expected to investigate for such standards in the relevant State.[202] It is not conceivable why the buyer should be expected to investigate for public law standards but not for IP rights which in many cases are even more accessible than the former, especially when registered.

11.6  Further, in an unfortunately unpublished statement the International Chamber of Commerce expressly stated that the references to the notion of “could not have been unaware” in Article 42(1) and Article 42(2) lit. a have to be interpreted consistently.[203] The document in which this statement was made was referred to multiple times during the deliberations, yet the position advocated by the International Chamber of Commerce remained unopposed.

11.7  Economic considerations support the finding that the buyer is expected to investigate for IP encumbrances as well. When it comes to assessing and avoiding legal risks associated with the goods’ use in the State of the buyer or a State chosen by the buyer, one should assume that the buyer could avoid the costs associated with these risks cheaper than the seller.[204] In many cases, the buyer will have far superior knowledge of the legal situation in the relevant States.[205] Moreover, there undoubtedly are situations in which the buyer can more efficiently investigate for IP rights in the relevant State – for example, if the buyer is a global player who itself manufactures comparable goods and has significant experience in the relevant market whereas the seller is a small supplier who has not done business in the relevant market before.

11.8  These considerations are even reinforced by the fact that the buyer is required to investigate for such rights anyways under the relevant IP law since the buyer itself would be liable for the goods infringing any IP rights in the relevant State. If the buyer can be expected to do so for the benefit of the third-party holder of the IP right, it can even more so be expected to conduct an investigation when it comes to the contractual relationship with the seller.

11.9  This analysis is not changed[206] by the fact that there is a broad consensus that under Article 35(3), the parallel provision dealing with exclusion of the seller’s liability due to knowledge of the buyer in case of non-conformities, the buyer is not required to examine the goods before the contract conclusion.[207] In fact, there are fundamental differences between the interests of the parties under these two provisions. While non-conformities generally comprise all factual and legal circumstances concerning the relationship of the goods to their surroundings,[208] the view that Article 35(3) does not require an examination from the buyer appears to be limited to the goods themselves. In contrast, the question whether the buyer, for example, can be expected to investigate the goods’ compliance with public law standards in the buyers country before contract conclusion does not seem to have been the subject of in-depth analyses so far in the framework of Article 35(3). The distinction between physical and non-physical features is, however, essential when comparing Article 35(3) with Article 42(2) lit. a.[209] While any physical non-conformities result from the seller’s sphere, IP encumbrances relevant in the State the buyer intends to use the goods in or in the buyer’s own State are more closely associated with the buyer’s sphere. Moreover, physical examination of the goods by the buyer before contract conclusion causes high costs and effort for both parties mainly in the context of an international sales contract where the buyer and the goods usually are not even located in the same State before delivery. In contrast, the buyer investigating for IP rights in States it conducts business in is significantly more feasible and does not require possession of the goods.

11.10  What the buyer cannot be unaware of is determined primarily by the information available to it at the time of contract conclusion.[210] The criteria of accessibility of information, information proximity and the resulting economic considerations, as well as the relevant factors determining these criteria, apply to the buyer just as they apply to the seller. In some cases, this information will be insufficient to conduct an effective investigation for IP rights, and the buyer thus is not obliged to conduct a comprehensive investigation.[211] A medium-sized buyer with no particular knowledge of the goods or the market will most likely be expected to investigate for well-known and other obvious non-technical registered rights only. If the buyer, however, has equal[212] or superior information,[213] for example, because itself manufactures comparable goods,[214] the buyer plans to use universally usable goods in a specific way that infringes an IP right[215] or the IP rights in question are internationally known[216], the buyer might be expected to investigate for registered technical rights as well. Additionally, if the buyer has specific knowledge of the relevant market – which is not unlikely if the buyer regularly operates in it – the buyer can even be in a better position than the seller to investigate for IP rights overall.[217]  In this regard, the buyer can be required to inquire with its customers situated in the relevant States of use as to the legal situation in their respective States.[218]

11.11  If the buyer knows or could not have been unaware of the encumbrance in terms of Article 42(2) lit. a, the seller’s liability is excluded. The provision thus employs an all-or-nothing approach.[219]

 12.  The seller is not liable according to Article 42(2)(b) CISG for an encumbrance if it is the inevitable result of the contract requiring the goods to comply with the specifications furnished by the buyer. However, the seller cannot rely on Article 42(2)(b) CISG if the seller in addition to having knowledge of the IP right or claim pursuant to Article 42(1) CISG knew or could not have been unaware that the buyer’s specifications would result in an encumbrance of the goods and did not inform the buyer about this.

12.1 Pursuant to Article 42(2) lit. b the seller’s liability is excluded if the encumbrance with an IP right results from the fact that the seller manufactured or bought the goods in accordance with specifications made by the buyer. [220] Article 42(2) lit. b is based on the consideration that where the buyer causes the goods to fall within the ambit of an IP right by furnishing specifications the seller complied with, the seller is not liable for the resulting encumbrance.[221]

12.2  Specifications in the sense of Article 42(2) lit. b encompass “technical drawings, designs, formulae or other such specifications”. The catch-all element, in the end, evinces that the list is not exhaustive.[222] The term “such” indicates that other specifications must be comparable to the expressly listed examples.[223] This does not require that the specifications are made by way of a corporeal medium.[224] Rather, it is decisive that the specifications are intended to influence the way the goods are manufactured, designed or packaged.[225]

12.3  The provision further requires that the encumbrance “results from the seller’s compliance” with the specifications. The plain wording of the provision seems to indicate that every causal link suffices to trigger the exclusion of the seller’s liability. Accordingly, every specification the buyer furnishes the seller with would exclude the latter’s liability. Such interpretation would negate any possibility of the buyer to take influence the way the goods are manufactured, designed or packaged. The buyer having the ability to specify the features of the goods is, however, a crucial element of any sales contract.[226] Hence, not every logical causal link suffices for the encumbrance to “result from the seller’s compliance” with the specifications.[227]

12.4  In light of the principle of autonomous interpretation, an appropriate evaluative limitation of causation must be guided by the parties’ interests in the specific situation governed by this provision. Against the background that Article 42(2) lit. b only applies in cases in which the seller knew or could not have been unaware of the encumbrance, the buyer’s interest in receiving goods free from such encumbrances in this situation generally outweighs the seller’s interest in limited liability. It follows that a high threshold for causation should be employed in order to protect this reasonable interest of the buyer. Causation in the sense of Article 42(2) lit. b should thus be limited to cases in which the encumbrance was the inevitable result of the contract requiring the goods to comply with the specifications furnished by the buyer.[228]

12.5  For the encumbrance to be such an inevitable consequence, two requirements must be met: First, the specifications must be sufficiently precise.[229] The specifications must leave no leeway, making it possible for the seller to comply with the specifications without resulting in the goods being encumbered.[230] In the case of (unfounded) claims, this test must be applied on the basis of the allegations of the third party. Second, the specifications must be binding for the seller.[231] The seller thus cannot rely on non-binding specifications of the buyer.[232] Whether specifications are binding for the seller must be determined in the individual case by way of interpretation applying Article 8; usages and practices pursuant to Article 9 can also result in binding specifications.[233] Given that a buyer who furnishes binding specifications to the seller assumes the risk of encumbrances resulting from these specifications, it should not be assumed lightly that the buyer intends to do so. Lack of experience in dealing with goods of the kind in question on the part of the buyer makes it is less likely that the buyer intends to have the seller blindly comply with the former’s specifications and more likely that compliance with the specifications is subject to their analysis for potential infringements by the more experienced seller.

12.6  Since Art. 42(2) lit. b is not based on fault of the buyer but merely on causation, the seller’s liability is even excluded if the buyer’s binding specifications unbeknownst to it caused an encumbrance. It is not necessary that the buyer is aware of the potential infringement.[234] The buyer’s awareness of the risk of infringement resulting from its specifications can, however, be relevant with regard to a potential duty of the seller to inform the buyer of this very risk.

12.7  If the seller realises that the buyer’s specifications result in the risk of an infringement, the former must inform the latter accordingly due to the parties’ general duty to cooperate.[235] A failure of the seller to comply with this information duty prevents it from relying on the exclusion of its liability[236] and can result in a claim for damages of the buyer.[237] Notably, the threshold for the seller’s knowledge in this regard is higher than for the seller’s general knowledge of the encumbrance under Article 42(1). Whereas under Article 42(1), the seller must only be aware of the right or claim as such and is not required to conduct a legal evaluation, for the seller to be obliged to inform the buyer of a risk of infringement resulting from the latter’s specifications, the seller must arrive or ought to have arrived at the (legal) conclusion that there is a significant risk that an IP right might be infringed.

12.8  Specifications of the buyer that make the goods fall in the scope of an IP right violate a respective contractual protective duty of the buyer.[238] This breach of contract entitles the seller to demand specific performance pursuant to Article 62 in the form of non-infringing specifications and to set a corresponding additional period of time pursuant to Article 63.[239] If the buyer does not comply with this request, it fundamentally breaches the contract in terms of Article 25 entitling the seller to avoid the contract pursuant to Article 64(1) lit. a.[240] The buyer is liable for losses incurred by the seller due to its compliance with the specifications (for example due to being subject to claims of the IP right holder) based on Article 61(1) lit. b.[241] If the seller complies with the specifications, although it is aware that this might lead to an infringement, its claim for damages is reduced based on Article 77.[242] Article 80, however, does not apply since the seller did not cause the buyer’s failure to perform in the form of giving specifications leading to infringement.

12.9  The seller’s liability is excluded if the buyer fails to give proper notice of the encumbrance pursuant to Article 43(1) and none of the exceptions of Article 43(2) or Article 44 applies.

13.  Where the seller is liable for an encumbrance of a third-party IP right or claim, the buyer has all the remedies listed in Article 45 CISG. Any provision which according to its wording is expressly limited to the delivery of non-conforming goods nevertheless applies to the delivery of goods encumbered with third-party IP rights or claims.

13.1  Encumbrances are encompassed by the CISG’s uniform concept of breach of contract[243] with Article 45(1) as the central provision for the buyer’s remedies.[244] In contrast to the general reference to the seller’s failure „to perform any of his obligations under the contract or this Convention“ found in particular in Article 45, Articles 46(2), (3), 50, 51 and 82(2) lit. c refer to goods not conforming to the contract.

13.2  The former articles do not apply directly to encumbrances of the goods. As becomes clear from the title of Part III. Chapter II. Section II., the CISG establishes a dichotomy between “conformity of the goods” and “third party claims”.[245] Moreover, the CISG contains another notion which has to be juxtaposed with the notion of “goods do not conform with the contract”: Article 45(1), the central provision of Part III. Chapter II. Section III. “Remedies for breach of contract by the seller”, grants the buyer access to specific remedies “[i]f the seller fails to perform any of his obligations under the contract or this Convention”. The title of this section referring to “breach of contract” as well as the synonymous[246] wording of Article 45(1) referring to the seller’s “fail[ure] to perform any of his obligations” thus contain broader categories the natural meaning of which encompasses goods which “do not conform with the contract” as well as goods which are encumbered with “third party claims”. In addition to the grammatical distinction this title makes, the provisions contained therein also can be divided into provisions dealing with conformity of the goods and provisions dealing with third-party rights or claims. Doing so reveals a certain parallelism between the two sets of provisions.[247] The CISG thus stipulates two distinct sets of obligations for the seller when it comes to the characteristics of the goods.[248]

13.3  The CISG’s legislative materials evince, however, that the conscious distinction between non-conformities and encumbrances was not meant to exclude the application of the provisions specifically dealing with non-conformities to encumbrances. Rather, the drafting history confirms that the drafters – while deliberately distinguishing between non-conformities and encumbrances – consciously refrained from comprehensively regulating those matters for encumbrances which are dealt with in the CISG’s provisions which only refer to goods not conforming to the contract.[249] This lacuna allows applying the provisions specifically dealing with non-conformities as general principles in terms of Article 7(2) to encumbrances.

13.4  Against this background, the buyer has the same remedies as it has with regard to non-confirming goods: In the first place, the buyer can claim specific performance according to Article 46(1), with the restriction of Article 28. Specific performance can be rendered by delivery of unencumbered substitute goods,[250] removal of the third-party right,[251] a binding and effective declaration of the third party not to invoke its right or claim[252] or the final and binding rejection of the third-party claim in court proceedings initiated by the seller.[253] It does not suffice that the seller merely declares that it will indemnify the buyer.[254] The seller can freely choose which of these forms of performance it wants to employ.[255] Thus, the buyer cannot require the seller to defend it against the third-party claims.[256] Legal costs incurred by the buyer in this regard, however, must be compensated.

13.5  According to their unequivocal wording, Article 46(2) and (3) merely apply to non-conforming but cannot be directly applied to encumbered goods.[257] Against the background of the identified gap regarding the legal consequences in case of encumbered goods, the restrictions of Article 46(2) and (3) apply as a general principle in terms of Article 7(2) or by way of analogy.[258] Article 46(2) limits the buyer’s right to delivery of substitute goods to cases of fundamental breach, without the restrictions of Article 28.[259] The underlying rationale is that delivery of substitute goods effectively is comparable to avoidance of the contract, which in turn generally requires fundamental breach. This rationale applies equally with regard to encumbered goods.[260] Specifically, with regard to IP encumbrances, it is very well conceivable that the parties contemplated multiple States of use and the encumbrance exists in only one of these States allowing the buyer to sell or use the goods originally intended for this State in one of the other envisaged States of use. There is no reason why a buyer who received encumbered goods should be in a better position than a buyer who received non-conforming goods.[261] In both cases, the seller has a reasonable interest in avoiding unnecessary shipping costs associated with restituting the goods if the buyer’s loss can equally well be compensated by an award of damages.

13.6  Article 46(3) concerns the repair of the goods and protects the seller from unreasonable requests for repair. While the term repair appears to indicate physical interaction with the goods, it should be understood in a broader fashion and include all forms of remedying a defect without restituting the goods.[262] Consequently, repair of goods encumbered with IP rights or claims is possible, for example by removing the encumbrance. The provision aims to protect the seller from having to repair goods in particular where the repair costs would be disproportionately higher than the costs of acquiring substitute goods.[263 This scenario can arise with regard to IP encumbrances (and general encumbrances) as well. For example, the third party might be willing to grant a license at a prohibitively high price whereas the goods can without issue be delivered or acquired in a non-infringing way which would still conform with the contract.[264] Such cases might include the delivery of generic goods of a certain trademarked colour which can easily be replaced by goods of a different colour. Again, there is no reason why the buyer of encumbered goods should be better off than the buyer of non-conforming goods.

13.7  The buyer can furthermore avoid the contract based on Article 49(1) lit. a if the breach of contract is fundamental in terms of Article 25. A breach of contract, in particular, is fundamental if the third party has taken possession of the goods,[265] is in the position to do so anytime[266] or the buyer is prevented from or heavily restricted in using the goods due to other reasons based on the encumbrance.[267] On the other hand, a breach of contract is not fundamental if the buyer has a reasonable possibility to remove the encumbrance.[268] It is, for example, reasonable for the buyer to remove the encumbrance if it is possible to set-off the sum required for this removal against the purchase price[269] or the seller otherwise provides sufficient security.[270]

13.8  Because the resale of encumbered goods itself usually constitutes an infringement of the relevant IP right, the seller’s breach of contract will, in most cases, be fundamental.[271] It should be added that the buyer generally cannot be expected to sell the goods in a market where no protection is claimed for the IP right instead of the initially intended market[272] and that, accordingly, the possibility to do so does not render the breach non-fundamental in terms of Article 25.

13.9  In cases of obviously unfounded or frivolous claims, the breach of contract will usually not be fundamental in terms of Article 25 since both the buyer and the seller will be readily able to fend off the claims.[273] By way of exception, however, the breach can be fundamental if time was of the essence for the buyer, and the seller was aware of this.[274]

13.10  Under Article 82(1), the buyer loses its right to avoid the contract if it cannot restitute the goods. An exception is made from this rule under Article 82(2) lit. c if the buyer sells on the goods before it discovered or ought to have discovered the relevant lack of conformity. Since Article 82(2) lit. c expressly refers to non-conforming goods it does not apply directly to encumbered goods.[275] Yet again, the provision applies as a general principle in terms of Article 7(2) or by way of analogy.[276] By allowing the buyer to avoid the contract despite being unable to restitute the goods because it used them in the normal course of business, Article 82(2) lit. c, in essence, protects the buyer's interest in using the goods in the normal course of business without having to worry about potentially having to restitute the goods in the future. With regard to encumbrances, the buyer is under no duty to examine the goods, as it is regarding non-conforming goods under Article 38. The buyer of encumbered goods thus should have to worry even less about any defects once it has concluded the contract. It follows that when balancing the parties’ interests in the situation encompassed by Article 82(2) lit. c, this balance tips even more in favour of the buyer of encumbered goods compared to the buyer of non-conforming goods.

13.11  Article 50 allows the buyer to reduce the purchase price and only applies “[i]f the goods do not conform with the contract”. Specifically in case of unforeseeable losses or losses that are not recoverable due to an exemption based on Article 79,[277] however, applying Article 50 as a general principle in terms of Article 7(2) or by way of analogy to encumbrances must be considered.[278] Generally, a buyer receiving encumbered goods is as interested in a reduction of the purchase price as a buyer receiving non-conforming goods. Mere difficulties in computing the reduction of the purchase price in certain situations do not hinder application in situations where the reduction can be computed.[279]

13.12  Curiously, also Article 51 – stipulating that if only part of the goods delivered by the seller is defective, the buyer can exercise its remedies only in respect of the defective part – only refers to non-conforming goods. With regard to partially defective deliveries, however, there is no reason to distinguish between non-conformities and encumbrances – Article 51 applies as a general principle in terms of Article 7(2) or by way of analogy to encumbrances.

13.13  With regard to damages, a buyer receiving encumbered goods can demand full compensation of its losses based on Article 74.[280] Recoverable costs include the costs of an appropriate legal defence against the third party, particularly if the buyer cannot claim its legal costs based on the applicable procedural law[281] or if this claim cannot be enforced.   Furthermore, the costs for removing the encumbrance are recoverable[282] as well as lost profits due to loss of use.[283] In case of a cover purchase, the damages can be calculated based on Articles 75 and 76. The seller can generally invoke exclusion of its liability pursuant to Article 79.[284] Yet, cases in which the seller is exempt from liability for encumbrances will be rare.[285] Mere ignorance of the seller regarding the third-party rights or claims is in any event insufficient.[286]
 
13.14  Losses, such as legal costs, resulting from obviously unfounded claims are usually foreseeable in the sense of Article 74 since this requirement is not aimed at the breach of contract but merely the resulting losses. Depending on the circumstances of the individual case, the seller can be exempt from liability under Article 79.[287] If the buyer colludes with the third party, however, all its remedies are excluded by virtue of Article 80.[288]

13.15  Depending on the circumstances of the individual case, the buyer can be obligated to fend off the third-party claims itself. This is particularly the case if limitation periods are about to expire.[289] This obligation is based on the buyer’s duty to preserve the goods under Article 86[290] and on the parties’ general duty to cooperate flowing from Article 7.[291]
Furthermore, simply sitting idle can constitute a violation of the buyer’s duty to mitigate its loss under Article 77.[292] Whether the buyer can be expected under its duty to mitigate to license infringing goods from the holder of the IP right will depend on the individual circumstances of the case.[293] Costs the buyer incurred in fending off the third-party claims are recoverable from the seller as damages.[294]

13.16  Further, the buyer can invoke the encumbrance as a defence against the seller’s claim for payment of the purchase price pursuant to Article 58.[295]

13.17  If the buyer has a reasonable excuse for failing to notify the seller of encumbrances under Article 44, it retains the right to reduce the purchase price and claim damages as if it had complied with the duty to give notice, except for loss of profit.[296] If the factual basis for the reasonable excuse is only temporary, the buyer has to give proper notice within a reasonable period of time after this basis ceases to exist.[297]

13.18  Limitation periods are not governed by the CISG but by domestic law. The two-year cut-off period stipulated in Article 39(2) does apply neither directly nor by way of analogy.[298]

14.  After the buyer has taken over the goods, the buyer bears the burden of proof regarding the requirements of the seller’s liability under Article 42 CISG, including
        a.  that the IP right or claim exists;
        b.  that the goods are encumbered by IP right or claim;
        c.  that the seller knew or could not have been unaware of the encumbrance; and
        d.   that the State of use was contemplated by the parties.

After the buyer has taken over the goods, the buyer bears the burden to prove the existence of the right or claim,^[1] that the third party at least claims that the goods fall within the scope of the IP right,^[2] the seller’s knowledge in this regard^[3] and that the State of use was contemplated at the time of contract conclusion.^[4] If the buyer lacks expert knowledge, the burden to prove that the goods are encompassed by the IP right can shift to the seller.^[5]

15.  The seller bears the burden of proof regarding the requirements of the defences pursuant to Article 42 CISG, including
        a.  in a case where the buyer relies on an encumbrance in the State in which it has its
place of business, that only a different State of use was contemplated at the time of
the conclusion of the contract;
        b.  in a case where the buyer invokes an infringement of a right, that there is no
infringement, for example due to existing licenses;
        c.  that the buyer knew or could not have been unaware of the IP right or claim; and
        d.  that the encumbrance was the inevitable result of the contract requiring the goods
to comply with the specifications furnished by the buyer.

The seller must prove that a State of use was contemplated at the time of contract conclusion if the buyer relies on an encumbrance in the State in which it has its place of business.^[6] If the buyer does not rely on any claim made but merely on the right of a third party, the seller must prove that there is no infringement, for example due to existing licenses.^[7] The same applies if the seller relies on the exclusion of its liability due to the buyer’s knowledge of the IP right or claim or sufficiently detailed specifications made by the buyer.^[8]