42 CISG

[Facts]¹⁶⁸

An Austrian buyer bought CD-Media from a German seller. The German seller’s supplier was its Taiwanese parent company, authorized to produce and distribute the CD-Media under a license agreement stipulated with a licensor. A dispute arose between the parties since the buyer failed to pay for some invoices. The buyer asserted that it had refused payment since the goods acquired from the seller in the year 2000 had not been properly licensed. Indeed, in March 2000, the license agreement had been terminated due to a dispute concerning the license fees. The seller replied that all CD-media delivered to the buyer were properly licensed and that the buyer’s claims were excluded under Art 42(2)(a) CISG because, when the goods had been ordered, the buyer knew of the dispute over the payment of the license fees. In addition, the buyer had not complied with its duty to give notice to the seller of the nature of the right or claim of the third party within a reasonable time as required by Art 43 CISG.

[Judgment]¹⁶⁹

The Court of First Instance […] dismissed [Seller]’s request for [the payment of the outstanding invoices]

[…]

The Appellate Court held that [Seller]’s appeal was justified and amended the judgment of the Court of First Instance in a way that [Seller] was awarded the sum of EUR 283,606.71, now being the matter in dispute. […] The reasoning on the merits is based on the finding that under the special provision of Art 42 CISG […] the seller was liable if an attempt is made to restrict the buyer in the use of the goods. As, in general, unjustified third-party claims may already trigger the seller’s liability, the same legal consequence had to be effected a fortiori in cases where an industrial property right actually existed. As a result, a deficiency in title occurred whenever an industrial property right existed, or if the buyer is being sued by the proprietor or if both aspects are met at the same time. The burden to prove a deficiency in title was on the buyer. The liability of the seller for deficiencies following the property right was territorially limited under Art 42(1)(a) and (b) CISG. Therefore, the seller had to guarantee that no third-party rights existed only with reference to certain countries, but not on a worldwide level. First, it was liable for deficiencies in title caused by industrial property rights according to the law of the country in which the goods should be used or marketed. This would apply if the parties at least recognizably considered this country as a potential place for resale at the time of conclusion of contract, which is to be substantiated by the buyer. Subsidiarily, the seller was liable for conflicting property rights in the buyer’s country.