Warranties in intellectual property contracts

Warranties in intellectual property contracts are the undertakings by which the assignor or licensor answers to the other party for the existence, validity, ownership and quiet enjoyment of the right transferred. They derive partly from statute, which imposes on the seller the warranty against eviction and the warranty against latent defects under Articles 1626 and 1641 of the French Civil Code, and which requires anyone assigning an intangible right to warrant its existence at the time of transfer under Article 1693 of the same code. Practice adds detailed contractual warranties, the scope of which is one of the main issues in negotiating an assignment or a licence agreement.

Statutory warranties

The warranty against eviction protects the acquirer against legal disturbance, whether it comes from the assignor itself or from a third party claiming an earlier right. The warranty of the existence of the right applies where the title disappears, in particular through invalidation of the patent. Since invalidation has retroactive effect, the contract loses its consideration, which makes it possible to call into question the sums paid. Between businesses, these warranties may be adjusted, but the assignor cannot exclude the warranty against its own acts.

Contractual warranties

Contracts specify the extent of the assignor’s or licensor’s undertakings, which cover in particular the following points.

• The existence and maintenance in force of the title, including payment of renewal fees
• Exclusive ownership and the absence of rights granted to third parties
• The absence of pending litigation or known claims
• The absence of infringement of third-party rights by the intended exploitation
• The conformity of the technology transferred with a given description or performance

Limits and disputes

Unless expressly stipulated, the licensor does not warrant the technical or commercial success of the exploitation, and the warranty against third-party rights is usually limited to its knowledge or capped. Limitation clauses are valid between businesses, provided that they do not deprive the debtor’s essential obligation of its substance, in accordance with Article 1170 of the Civil Code, and do not cover fraud or gross negligence. Where an infringement action is brought against the licensee, the licensee joins its licensor to the proceedings under the warranty, which requires the clause to govern the conduct of the defence, the allocation of costs and the fate of any settlement.

Key points

Warranties allocate between the parties the risk of invalidity of the title, eviction by a third party and failure of the exploitation. Statutory warranties are minimal and often ill-suited to the complexity of a technology. Precise warranties should be negotiated, with caps and a claims procedure, and backed by prior due diligence on the rights and, where appropriate, a freedom-to-operate analysis.

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This glossary entry is general in scope and does not constitute legal advice.

Dhenne Avocats handles FRAND licences, standard essential patents and contracts bearing on patents, in advisory work as well as in litigation.

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