SW Legal studies in Business

Breach of Warranty for Selling Goods Subject to Claim of Trademark Infringement
Description

Appeals court held that the supplier of goods breached an implied warranty under the UCC that goods would be free of rightful claims of infringement by another party. Although the claim in this case failed, it was not a frivolous claim, so the seller breached its warranty to the buyer.

Topic Sales
Key Words

Warranty; Infringement; Trademark

C A S E   S U M M A R Y
Facts

Olaes sold PacSun 16,000 t-shirts with a graphic design for “Hot Sauce Monkey.” Another company, SNCL, sued PacSun for trademark infringement, contending that some of the graphics infringed on graphics SNCL used on shirts. The district court found that there was insufficient copying for there to be infringement, and the parties settled out of court. PacSun then sued Olaes for breach of warranty under Section 2-312 of the UCC which states that goods must be delivered “free of the rightful claim of any third person by way of infringement or the like.” The trial court held for Olaes because no infringement was found to exist in the suit brought by SNCL. PacSun appealed.

Decision

Reversed. A “rightful claim” for infringement covered by the UCC means a nonfrivolous claim that has a significant and an adverse effect on the buyer’s ability to make use of the good. It does not require that the plaintiff claiming infringement must prevail in litigation. The claim made by SNCL was not frivolous. Some elements of infringement were found to exist, but not enough to allow SNCL to prevail at trial. Since there was an infringement issue that was found to justify a trial, PacSun was forced to bear the cost of the litigation and Olaes did breach its implied warranty under the UCC that the goods would not expose the buyer, PacSun, to such claims.

Citation Pacific Sunwear of California v. Olaes Enterprises, ---Cal.Rptr.3d--- (2008 WL 4509090, Ct. App., Calif., 2008)

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