Purchase Order Terms and Conditions-Part IV: Infringement, Confidentiality, Reverse Engineering
January 15, 2021
Frank P. Nagorney and Brent M. Buckley
This last advisory in our four-part series covering purchase order terms and conditions will discuss infringement claims and protecting your intellectual property.
What Does the UCC Say About Infringement?
The UCC provides that when goods are sold by a merchant who regularly deals in goods of that particular kind, the seller warrants those goods to be free of any “rightful” infringement claim of a third person. However, a buyer who furnishes product specifications to the seller must hold the seller harmless against any infringement claim arising out of compliance with those specifications. The warranty covers patent and trademark infringements. The “no infringement” warranty can be excluded by specific language in the contract.
What About Confidential Information, Trade Secrets and Services?
Because the UCC does not address these and other intellectual property, parties often enter into a separate confidentiality agreement. However, it is good practice to include terms and conditions in the contract that address patent and trademarks, copyrights, trade secrets, and confidential information. If services are being sold at the same time, then the contract should likewise cover services.
For example, a buyer should prohibit seller from using the buyer’s trade secret specifications to make similar products for sale to third parties. On the other hand, a seller using its own trade secret technology, such as software source code, should prohibit any reverse engineering of its products. Therefore, the contract should address the concerns of both the buyer and seller, and include provisions which protect their respective intellectual property.
The purpose of this series was to bring some focus on the terms and conditions that affect all goods bought and sold every day, and which often are overlooked. We encourage you to review your contracts to ensure that the terms and conditions mitigate risk and protect your interests.