The title of this post is almost poetic. Recently, IP Draughts was asked for advice on the sale of products by an overseas company to purchasers in the UK. The products were to be sold to retail businesses, who would resell to consumers.
The question that was raised was whether the contract terms between the client and the retailer could include a provision by which the client excluded liability if the retailer were sued by a third party for IP infringement.
Any such provision would face some legal obstacles.
Section 12 of the (UK) Sale of Goods Act 1979 (SGA) implies into contracts for the sale of goods, in summary:
- A condition that the seller has the right to sell the goods; and
- A warranty that the buyer will enjoy “quiet possession” of the goods.
In Microbeads v Vinhurst Road Markings  1 All ER 529 (CA), Lord Denning MR discussed that either or both of the above implied terms could be breached if the buyer were sued for patent infringement by a third party. In that case, on the facts, a breach of the first of these terms could not be established, but a breach of the quiet possession warranty was established. The latter is an ongoing warranty that continues while the buyer remains in possession of the goods.
Lord Denning also discussed the earlier Court of Appeal case of Niblett v Confectioners Materials  3 KB 387 (CA), in which a similar point was discussed in relation to trade mark infringement. In the latter case the products in question were tins of condensed milk marked with the name Nissly, to which Nestle (pronounced ness-lay) not surprisingly objected.
These are the only two cases of prominence that IP Draughts is aware of, in this field. The SGA and its predecessors date back to the nineteenth century. In 1975, in the Microbeads case, Lord Denning described the infringement issue in relation to section 12 as a “new and interesting point”.
If one accepts that the law is this area was settled by the Microbeads case, the next question is whether a seller can avoid liability for IP infringement by the buyer through the use of suitable contract terms. Unfortunately for sellers, there is another legal obstacle. Section 6(1)(a) of the Unfair Contract Terms Act 1977 (UCTA) states that liability for breach of section 12 of the SGA “cannot be excluded or restricted by reference to any contract term.”
So, the short answer seems to be that a seller is liable if the buyer is sued by a third party for IP infringement. No doubt there are special cases where this might not be so. For example, sections 12(3) and (5) of SGA limit the implied terms of title where “there appears from the contract or is to be inferred from its circumstances an intention that the seller should transfer only such title as he or a third person may have”. And section 26 of UCTA disapplies certain of UCTA’s prohibitions in the case of “international supply contracts”.
Moreover, if the buyer provides a detailed design and specification for the product, and the seller simply follows the buyer’s instructions, common sense might suggest (although IP Draughts hasn’t yet worked out whether the law follows common sense on this point) that the buyer should not able to rely on section 12. Or perhaps section 12(3) then applies.
Has any reader encountered this legal issue under English or other laws? If so, what conclusions did you reach?