Minimizing the risk of patent infringement in product sales

Minimizing the risk of patent infringement in product sales

03 September 2019 - Tomasz Gawliczek

It is becoming increasingly common that buyers expect sellers to make binding guarantees that reselling products purchased from the sellers will not infringe on any third-party patents. Sellers, and importers in particular, find themselves in a difficult position as they may not know whether the solution used in the product is protected by exclusive rights under a patent. How, then, is it possible to contractually (and in other ways) minimize the risk of breaching a patent?

Under the Industrial Property Law Act of 30 June 2000 (Journal of Laws 2017, item 776 uniform text, as amended) the holder of a breached patent, or a person authorized to do so under the Act, may bring legal claims against the infringing party. A patent infringement is any event of using the patented invention without the consent of the patent holder for profit or professional purposes, including making, using, offering, selling, and/or importing the patented item for those purposes.

This means that the entity that sells a patented product without the consent of the patent holder may face liability under civil law. Therefore, if the seller assigns ownership of the patented product onto the buyer, who then resells it, both the seller and the buyer may be deemed to be in breach of the patent. This also applies to each and every subsequent buyer who decides to resell the patented product.

In practice, the civil liability for the breach of patent is assigned individually, i.e. each entity is liable separately for its actions. In acting against the infringing parties, the patent holders will try to find out as much as they can about the distribution chain of the patent-breaching products and all participants in order to discover other breaching parties. For this reason, businesses are looking for ways of reducing the risk of selling products which may be found to infringe on third parties’ patent rights. Importantly, the civil liability for patent breach is objective in nature, which means that it does not depend on whether the breaching party was aware of committing a breach of another party’s rights through its actions.

An increasingly common way to limit patent infringement risk is the inclusion of the so-called indemnity clauses in sale contracts. The main purpose of such clauses is to work out a model of legal or financial liability between the contractual parties in case of breaching a third party’s exclusive rights. Any declaration included by the seller in the contract stating that the product sold under the contract does not infringe on any third parties’ patents does not indemnify the buyer from civil liability for any breach of such third parties’ rights. At best, it may be used by the buyer as a basis for seeking compensation from the seller.

The parties to any contract are generally free to formulate its contents (Art. 3531 Civil Code, further referred to as CC). However, this rule does not apply to situations where the contract or its parts do not comply with mandatory provisions of law, the nature of the legal relationship or principles of social coexistence (i.e. values acceptable by the society). These principles also apply to contractual provisions regulating the scope of civil-law liability in case of a patent dispute. They may be formulated in various ways, depending on the circumstances of the case and the arrangements made through negotiations held between the parties. When formulating an indemnity clause in a sales contract (including the rights to products sold), it is possible to use various solutions contained in the CC. An example of a provision commonly used for this purpose is Art. 392 CC, which defines a construct commonly referred to as a debtor indemnity agreement. Under this contract, if a third party has agreed to exempt the debtor from its obligations, the third party in question is responsible for ensuring that the creditor will not require the debtor to fulfil such obligations. Therefore, furnishing the contract with a clause based on the aforementioned CC provision will lead to a situation where the seller of the product will make an obligation to the buyer that it will repair any damage that the buyer may incur as a result of claims brought against it by the patent holder. The seller of the product which may potentially infringe on a third party’s patent therefore takes on the role of the guarantor. The scope of the guarantee and the amount of the compensation to be paid by the seller to the buyer can be settled between the parties without limitations.

In some cases, when the buyer of a patent-protected product incurs liability for damage suffered by an injured party resulting from its resale, the buyer can obtain the right to a recourse claim against the seller. This is possible when the damage was caused by an action or failure to act by a number of persons and was a result of a tort. The party which paid the compensation may require the others to repay their part based on the circumstances and in particular on their fault and the extent to which it contributed to the damage (Art. 441(2) CC). It is worth noting that joint and several liability only arises when their actions led to a single indivisible injury. If the damage to the injured party caused by the seller to the patent holder is deemed to be a separate injury from that caused to the injured party by the buyer’s actions in connection with the patented product, then each of them is separately liable. Consequently, the buyer does not acquire the right to a recourse claim against the seller if the damage to the patent holder has been remedied.

In the case of sale transactions that may infringe on third parties’ patents, it is worth raising the issue of the seller’s statutory warranty against legal defects of the item sold. Pursuant to Art. 5563 CC, the seller is liable to the buyer if restrictions of the use or disposal of the item are due to a decision or judgement issued by a pertinent authority. An example of such decision is the granting of patent for an invention by the Patent Office of the Republic of Poland. Pursuant to that decision, the patent holder acquires exclusive rights to the patented invention, which in turn restricts other parties’ disposal of the invention. his means that the seller is liable to the buyer when the subject of the sale agreement is protected by a third party’s patent. Nevertheless, the liability under the statutory warranty for legal defects of the item sold comes into force regardless of whether the patent holder has brought any claims against the buyer. It should be remembered that using the aforesaid statutory warranty by the buyer can only minimize the risk of purchasing the item (sale transaction) and does not change the buyer’s civil-law liability in case of breaching the patent.

One way to minimize the risk of patent infringements when selling a product is to carry out an infringement clearance search. The aim of this is to determine whether the sale of a given product may breach a third party’s exclusive rights. By conducting the infringement clearance search, both the seller of the product – in particular, the importer – and the buyer who intends to resell it can find information about any in-force patents and take appropriate steps to avoid liability. They may, for example, apply to the patent holder for a suitable licence prior to entering the market.

In summary, the legal ways of minimizing patent infringement risk during sale transactions are very diverse. They may be based on contractual provisions binding both parties to the sale transactions, refer to applicable legal provisions or be preventive in nature. In any case, it is worth remembering the old Latin maxim, well known to physicians but also used by lawyers: “Prevention is better than cure.”

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