In the case of purchase contracts, the seller must hand over the item to the buyer free of material defects and defects in title and must procure title. If the item infringes the patent of a third party, this is generally to be regarded as a defect in title. Subsequently, the buyer may assert warranty and damage compensation claims against the seller. In principle, the case is no different with contracts for work and services (e.g. development contracts), to which the statements below also apply.
Depending on the industry and the nature of the products, technical progress can be so rapid that new patent applications by competitors cannot be ruled out in the short term. In such cases, there is a risk that a company’s own product will infringe a patent in the future, the application for which already existed at the time of delivery of the company’s own product, but was not visible to the seller despite patent searches. In practice, this can lead to a dispute between the seller and the buyer about responsibility and liability if a patent is subsequently granted to a third party and infringed.
When a patent application is filed with the German Patent and Trademark Office (DPMA) or the European Patent Office (EPO), the application initially remains secret. This applies until either the patent is granted and published or 18 months have elapsed since the filing date (cf. Article 93(1) EPC or § 31(2) of the German Patent Act). In the latter case, the patent application is published after the expiration of the 18 months and can be freely viewed by anyone. In the period between the patent application and its publication, a seller of a product cannot obtain knowledge of a patent application and its contents even with an extensive patent search. It is therefore difficult for the seller to design its product in such a way that the product does not also infringe on as yet unpublished patent applications.
Does the infringement of unpublished patent applications constitute a defect in title?
It has not yet been clarified in legal rulings and literature whether the infringement of an unpublished patent application which later leads to the grant of a patent constitutes a defect in title.
An argument against the assumption of a defect in title is that in the case of a patent application which has not yet been published, neither the protective effects of the patent nor a claim to compensation on the part of the patent applicant exist and the seller cannot have any knowledge of an infringement until the transfer of risk.
However, there are legal rulings concerning the law of sales contracts according to which a defect in title exists through rights of third parties that become effective after the transfer of risk if these are rooted in states of affairs that already existed at the time of the transfer of risk (e.g. .Federal Supreme Court, Ruling of 18 January 2017 – Case VIII ZR 234/15). Patent applications already existing at the time of the transfer of risk can be classified as such states of affairs. If a patent application is subsequently filed, this suggests that the infringement of a subsequently granted patent constitutes a defect in title.
This imposes a considerable risk on the seller, which can at least be explained by the fact that the seller, in contrast to the buyer, is in a better position to assess its own products and competitors and may itself be able to apply for a patent or at least create the conditions for a right of prior use (§ 12(1) of the German Patent Act).
The warranty and damage compensation claims imminent in such a risk can be avoided, at least vis-à-vis the purchaser, by contractually stipulating the distribution of responsibility and liability for the infringement of unpublished patent applications. Moreover, if the matter concerns infringement of unpublished patent applications that are based on specifications of the purchaser (e.g. products manufactured according to the purchaser’s specifications), at least in the case of contracts for work and services the seller’s liability for such infringements may be excluded pursuant to § 645 of the German Civil Code. According to the legal rulings of the District Court of Stuttgart, this principle can also be applied to contracts of sale and contracts for work and materials.
Risk sharing regarding unpublished patent applications should be contractually regulated, to provide clarity regarding responsibility and liability risks.back