In a recent decision the High Court has held that software should be considered “goods” for the purposes of the Commercial Agents Regulations 1993 (Regulations). The decision has potentially significant implications for software providers who engage agents to promote their products.
The Regulations apply to self-employed intermediaries who sell or purchase goods on behalf of a principal (they do not, however, apply to the sale or purchase of services). The aim of the Regulations (and the EU directive from which they originate) is to enhance and protect the position of commercial agents in relation to their principals. One of the most significant rights granted to agents under the Regulations is the right, in certain circumstances, to receive a compensation or indemnity payment on termination of the agency relationship.
The term “goods” is not defined in the Regulations but has traditionally been given the meaning set out in the Sale of Goods Act 1967 (Act). The Act states that “goods” means all personal chattels other than things in action and money. Courts have generally considered software not to be “goods”, unless it is supplied in a tangible form.
However, in the recent case of Software Incubator Ltd (Agent) v Computer Associates Ltd (CAL)  EWHC 1587 1587 (QB), the court held that software should be considered goods even when supplied in an intangible format.
The Facts and the Decision
The Agent was appointed by CAL as a non-exclusive agent to promote a software product on behalf of CAL. In September 2013 the Agent was given 3 months’ notice of termination by CAL. However, in October 2013 CAL then terminated the agency agreement with immediate effect. CAL alleged that the Agent had committed a repudiatory breach by carrying out agency activities for another company.
The court held that the Agent had not committed a repudiatory breach and was entitled to a compensation payment under the Regulations in respect of the termination (as well as damages in respect of CAL’s failure to give contractual notice). CAL was ordered to pay £475,000 to the Agent.
The court considered that in the modern world, given the commercial context of the supply of software, software should be treated as a form of sale of goods for the purposes of the Regulations. There was no reason to require the product sold to be tangible or a "chattel" in the traditional sense. In the court’s view, there was nothing in EU or UK case law or legislation which prevented this interpretation, including the ‘sale’ on a limited licence.
The court’s decision in this case is a clear step away from the traditional approach. It extends the scope of the Regulations, and the protections afforded by it (including the right for agents to receive termination payments in certain circumstances), to commercial agents working in the context of the supply of software.
Software providers may wish to review their agency relationships and the contracts on which they engage agents in light of the decision.
For more information on any of the issues raised or if you would like to discuss the implications of this decision, please contact a member of the commercial team at Stevens & Bolton