The California Uniform Commercial Code (UCC) sets out default rules governing the rights and responsibilities of buyers and sellers of goods. Section 2-312(3) provides that unless otherwise agreed, a merchant regularly dealing in a specific type of good warrants that the goods are delivered free of rightful claims of infringement by any third party. However, this warranty does not apply when a buyer provides specific requirements or specifications for a custom product, placing the responsibility on the buyer to hold the seller harmless for any resulting infringement claims due to compliance with these specifications. Notably, the parties are free to contract around these default provisions.
For instance, if someone sells a Yakima bike rack on eBay as a private seller, no warranty of freedom from infringement claims applies, as they are not a merchant dealing in bike racks. However, if a merchant who regularly sells bike racks were to make a sale, they would be warranting that the goods are free of infringement claims—provided these are rightful claims. When buyers furnish specifications, such as for custom-built items, any infringement arising from the seller’s compliance with those specifications is the buyer’s responsibility.
Pacific Sunwear of California, Inc. v. Olaes Enterprises, Inc.
In Pacific Sunwear of California, Inc. v. Olaes Enterprises, Inc. (Cal. App. 4th 2008), the California Court of Appeals interpreted UCC § 2-312(3) to clarify when a claim is considered a “rightful claim” that would trigger the merchant’s warranty against infringement. The court held that any infringement claim that has a significant adverse effect on the buyer’s ability to use the goods qualifies as a “rightful claim,” except when the claim is frivolous or completely without merit. This standard is relatively low, meaning that the warranty could attach to almost any claim with some degree of merit or impact on the buyer’s use.
Key Takeaways
- Merchant’s Warranty: Merchants dealing in specific goods generally warrant that those goods are free from third-party claims of infringement.
- Rightful Claims: A claim is “rightful” if it significantly impacts the buyer’s use of the goods, unless the claim is frivolous.
- Responsibility with Custom Specifications: If the buyer provides specifications that result in infringement due to the seller’s compliance, the buyer assumes responsibility for those claims.
This interpretation underscores the importance of understanding rightful claims and the scope of the merchant’s warranty under California’s UCC. For tailored advice on navigating warranties and claims under the UCC, feel free to reach out at (949) 433-0900. As an experienced attorney serving Orange County, Irvine, Los Angeles, San Diego, and surrounding areas, I’m here to help with all your commercial and contractual concerns.