Court of Appeal considers whether software supplied electronically is "goods"

SaaS: some considerations in an M&A context

The Court of Appeal considers whether software is “goods” for the purposes of the Commercial Agents (Council Directive) Regulations 1993.

In a decision that will be of interest to those in the IT industry, the Court of Appeal has held that computer software supplied electronically and not on any tangible medium did not amount to "goods" for the purposes of the Commercial Agents (Council Directive) Regulations 1993 (the “Regulations”).

Commercial Agents (Council Directive) Regulations 1993

Computer Associates UK Limited terminated its agency arrangements with Software Incubator Limited for the promotion of application release automation software in the UK.

On termination, Software Incubator Limited claimed, it was entitled to the protection of the Regulation including payment of compensation. Computer Associates argued that the Regulations did not apply because the supply or sale of software is not "the sale of goods" for the purpose of the Regulations. The High Court initially held that software supplied electronically was still “goods” for the purposes of the Regulations and that the Regulations applied. This was appealed in the Court of Appeal.

The Decision

The Court of Appeal upheld the appeal on this issue and ruled that software supplied electronically and not on any tangible medium did not constitute "goods" within the meaning of the Regulations and that the Regulations did not apply to the relationship.

In reaching the decision, the Court of Appeal noted that the Regulations did not define "goods" and did not indicate that only tangible property could amount to "goods". However, the court noted that the principle of limiting the definition of "goods" to tangible property was widely recognised in domestic and EU case law, and the weight of authority compelled the conclusion that electronically supplied software did not constitute "goods" under the Regulations. It further considered various cases including the High Court’s decision in Accentuate Ltd v Asigra Inc (2009), where the High Court had interpreted "goods" within the Regulations as being limited to tangible property and not extending to software programmes supplied without any physical medium.

Comment

This ruling has the potential to impact on those that market software which is not supplied on a tangible medium on behalf of their principals. As our society becomes increasingly technology focused, it could be that there are further developments in this area of law and the Court of Appeal itself had concerns on the approach taken towards this issue.

It also remains to be seen whether this decision will be challenged in the Supreme Court.

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