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Court of Appeal reverses decision on whether software amounts to 'goods' for purposes of the Commercial Agency Regulations

David Bond
27/03/2018
In a significant decision, the Court of Appeal has reversed the UK High Court's previous decision, ruling that an agent selling software delivered electronically within the UK is not protected by the Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) as it does not fall within the definition of 'goods'.

In a significant decision, the UK's Court of Appeal has reversed the High Court's previous decision, ruling that an agent selling software delivered electronically within the UK is not protected by the Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) as it does not fall within the definition of 'goods'.

What are the Commercial Agents (Council Directive) Regulations 1993 (the 'Regulations')?

A 'commercial agent' is a self-employed intermediary who has continuing authority to negotiate and/or conclude the sale or purchase of goods on behalf of another person (the 'principal').

The Regulations implement a European Directive and seek to protect the position of commercial agents in their relationship with their principal.

Unlike other European member states, when implementing the European Directive the UK took the decision that the Regulations should only apply to goods (and not services). However 'goods' were not defined in the Regulations.

Facts of the Case

In the case which lead to the ruling, Software Incubator Limited (TSI) was appointed as an agent to promote a specific software product for Computer Associates UK Ltd (CA). The agreement was non-exclusive but TSI was obliged to "devote a substantial amount of time and effort in providing the services" and it contained a non-compete provision. In August 2013, TSI started to provide similar services for a company called Intigua. On 9 October 2013, CA terminated its agency agreement with TSI with immediate effect, on the basis that TSI's agreement with Intigua amounted to a repudiatory breach.

TSI claimed against CA for (among other things), compensation under the Regulations. CA argued that there could be no claim under the Regulations because the supply or sale of software by TSI on behalf of CA, did not amount to the sale of 'goods' as required by the Regulations.

High Court Decision

The High Court ruled that where software is treated in an agency agreement in the same way as other "tangible" goods, they should be interpreted in the same way, provided they are a product and not a service.

The Court held that what constitutes goods for purposes of the Sale of Goods Act 1979 is not directly relevant and the meaning of goods in the modern world, and for the purposes of the Regulations, should not exclude software simply because the ownership of the intellectual property rights is not usually being transferred absolutely, or because the software itself is not tangible.

Court of Appeal

On 19 March 2018, the Court of Appeal reversed the High Court's ruling that software amounted to goods for the purposes of the Regulations. It held that computer software supplied electronically and not via any tangible medium does amount to 'goods'.

It cited the fact that previous decisions on the meaning of 'goods', for the purposes of the Regulations, the Sale of Goods Act 1979 and other EU legislation, have all ruled to exclude software or other intangible property.

The Court of Appeal was cautious not to depart from such a wealth of precedent and held that such reform would need to come from the UK parliament or the EU legislature.

The Court cited further concerns that to consider software as goods could have unintended consequences in other aspects of law, such as in respect of charges over property, the recognition of information as property, and the law of theft.

What it means for agents selling software

The ruling recognises the need to address the status of software in a commercial context. However, with the issue likely falling low on the EU and the UK's legislative priority list, we are unlikely to see any drastic changes to the position outlined above any time soon.

Agents who are in the business of selling software which is delivered in an intangible form should therefore remain wary that they will not be afforded the greater protections of the Regulations, should troubles in the commercial relationship arise.

For more information on this topic, please contact David Bond or your usual contact within Fieldfisher's Brand Development Team.

Co-authored by Alex Harbin.

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