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Is software goods under the commercial agent regulations? Vexed question finally answered

21 March 2018
The Court of Appeal has concluded that software supplied electronically and not on any tangible medium did not constitute "goods" within the meaning of the Commercial Agents (Council Directive) Regulations 1993.

The vexed question of whether software can be classified as "goods" for the purposes of the English Commercial Agents (Council Directive) Regulations 1993 (the "Regulations") has finally been answered by the Court of Appeal. 

The question is important as the Regulations apply only to agents who sell a principal's goods, and the Regulations provide significant protections to agents, not least the often substantial post-termination payments that are due under the Regulations.

In the latest case concerning whether agents who sell a principal's software should benefit from the protections of the Regulations, the Court of Appeal concluded that where software is supplied electronically and not on any tangible medium, it cannot be classified as "goods". As a result, agents who promote software which is supplied electronically do not benefit from the protections provided by the Regulations.

In explaining the decision of the Court of Appeal in this case (Computer Associates UK Ltd v Software Incubator Limited [2018] EWCA Civ 518), Lady Justice Gloster admitted that the Court's approach: 

"might appear to be out-moded in light of technological advances".

She also noted that she was:

"…somewhat uncomfortable with a conclusion that the tangible/intangible distinction leads to a construction of “goods” that excludes the Software [i.e. the software supplied by the principal in this case], which seems artificial in the modern age". 

However, whilst acknowledging that this was "an undesirable result from the perspective of commercial agents", she stated that she felt compelled to conclude that the proper interpretation of the language in the Regulations was that software did not fall within the definition of "goods" in the Regulations and that this conclusion was "justified given the commercial context". 

In this case, the principal provided the software by email to its customers which contained a link to an online portal from which the customer downloaded the software. It would appear that the agent would have fallen within the ambit of the Regulations if that software had been provided on a USB drive or CD.

Whether this case is taken to the Supreme Court remains to be seen; however, the Court of Appeal noted that a change in the law in this area was a matter for the UK Parliament or the EU legislature.

We have specialist teams advising on the impact of the Regulations.  Our experts take a pragmatic and commercial approach designed around the needs of your business and can advise on all aspects of the principal-agent relationship, from drafting contracts to protecting your position in the event of a dispute.

We act on all values of claims across all sectors on behalf of both agents and principals and have substantial experience of multi-million pound claims as well as claims involving technical issues such as choice of law and jurisdiction; the applicability of specific regulations; how the Regulations apply in the context of “super-agents” and “sub-agents”; and the calculation of indemnities.

If you would like to discuss any issues relating to the Regulations, contact Andrew Leach or Ben Griffin

Further Reading