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AG's opinion: perpetual licence of software is a "sale of goods" for the purposes of the Commercial Agents Directive

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United Kingdom

On 17 December 2020, the Advocate General ("AG") of the European Court of Justice presented an opinion in relation to whether electronically supplied software constitutes a "sale of goods" within the meaning of the Council Directive 86/653/EEC (the "Commercial Agents Directive").
 

Background

The opinion given relates to the case The Software Incubator Ltd v Computer Associates UK Ltd (the "Case"). The brief facts of the Case are as follows:

  • Computer Associates UK Ltd ("CA") produced software that it licensed to customers and supplied electronically.
  • CA and The Software Incubator Ltd ("TSI") entered into a non-exclusive agency agreement whereby TSI agreed to promote the software.
  • A few months later, TSI entered into a similar agreement with another company.
  • CA terminated the agency agreement and claimed that TSI committed a repudiatory breach of its obligations to devote "substantial time and effort" to the performance of its obligations under the agency agreement.
  • TSI brought a claim against CA.
  • CA's defence is that the Commercial Agency Regulations (as defined below) do not apply on the basis that they only apply to the "sale of goods" and software that is supplied electronically is not a sale of goods. 

The High Court initially held that a supply of software is a sale of goods, but the Court of Appeal overturned the decision and held that an agent selling software is not protected by the Commercial Agents (Council Directive) Regulations 1993 (the "Commercial Agency Regulations").

TSI appealed to the Supreme Court. The Supreme Court stayed the proceedings and referred the following questions to the European Court of Justice in relation to Article 1(2) of the Commercial Agents Directive:

  1. whether computer software which is supplied to a principal’s customers by electronic means, and not on any tangible medium, qualifies as "goods"; and
  2. whether the supply of such software pursuant to a perpetual licence, granting customers a right to use a copy of that software for an unlimited period in return for payment of a fee, qualifies as a "sale".ā€‹

AG's opinion

The AG noted that the term "goods" need not be limited to tangible items and that the notion and interpretation of goods in other fields of EU law does not necessitate that this is how it should be applied in relation to the Commercial Agents Directive.

The AG also considered, in relation to the second question posed above, that the words used in the Commercial Agents Directive do not specify that "sale" must necessarily be understood in a particular way. However, the AG noted that the judgment of UsedSoft (Cā€‘128/11, EU:C:2012:407) is pertinent and that in this the Court of Justice recognised a broad interpretation of the term sale which would be relevant to the Case. The AG commented that the context and objectives of the Commercial Agents Directive would similarly suggest such a broad interpretation.   

Overall, the AG proposed that the Court of Justice should answer the questions referred by the Supreme Court as follows:

  1. that a copy of computer software does constitute "goods" within the meaning of the Commercial Agents Directive; and
  2. that computer software which is supplied by way of a grant to the customer of a perpetual licence does constitute a "sale" within the meaning of the Commercial Agents Directive.ā€‹

What's next?

The AG’s opinions are influential in relation to the final decisions made by the European Court of Justice, but the opinion is not legally binding. Therefore, while it may be likely that the European Court of Justice will follow the AG’s opinion, it could decide not do so and so this final decision is still keenly awaited. The European Court of Justice's final decision will then be considered by the Supreme Court in relation to the Case.  

The Case is the first to present the European Court of Justice with the question of interpretation of the concepts of "sale" and "goods" under the Commercial Agents Directive and the decision will be relevant for all agents selling software across the EU. 

It is also noteworthy that the Commercial Agency Directive has been implemented into English law under the Commercial Agency Regulations and so will remain applicable in the UK following the end of the Brexit transition. It is possible that English law may diverge from this position, and even possibly revoke the Commercial Agency Regulations and revert back to common law principles on agents, but this would only apply within the UK.

For the time being, the Court of Justice's decision in relation to the points referred by the Supreme Court will have significant implications for the Supreme Court's final ruling and consequently for agents selling software in the UK and across Europe.

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