Commercial Agency Update: Sellers of Software

In recent weeks, the Court of Justice of the European Union (CJEU) has provided a potentially seismic ruling, which could have significant impacts for certain commercial agents who deal in the supply of specific software. 

What is a commercial agent?

A commercial agent is defined as “a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the principal), or to negotiate and conclude transactions on behalf of and in the name of the principal”.

Commercial agents are usually paid in commission on sales achieved, are not a party to the sales contract and are not considered distributors. If an agent falls within the realms of the definition above and is deemed to be a “commercial agent”, then the agent is able to benefit from the significant protection of The Commercial Agents (Council Directive) Regulations 1993, which regard a principal’s conduct and behaviour towards commercial agents and guard against being dismissed without due compensation.

The definition of “goods” and the guidance from Europe

As the Regulations do not provide any definition as to “goods”, up until now, government guidance has indicated the definition of “goods” in the Sale of Goods Act 1979 to be a reasonable guide, which provides that “goods’ includes all personal chattels other than things in action and money”.

In light of this guidance, software (which was downloaded as opposed to being provided on a hard disc) was never previously considered as goods for the purposes of the Regulations. However, on 16th September 2021, the CJEU (ECLI:EU:C:2021:742) delivered a ruling which will likely have the effect of broadening the scope of what is considered “goods” in relation to the sale of certain software.

The CJEU noted specifically that “The concept of ‘sale of goods’ referred to in Article 1(2) of Council Directive 86/653/EEC of 18th December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents, must be interpreted as meaning that it can cover the supply, in return for payment of a fee, of computer software to a customer by electronic means where that supply is accompanied by the grant of a perpetual licence to use that software.”

The ruling arose after the UK Supreme Court (UKSC) had asked the CJEU for guidance on this point specifically in relation to the case of Computer Associates (UK) Ltd v The Software Incubator Ltd. It is not yet clear whether the UKSC will adopt the same stance as the CJEU, although the UKSC is likely to be heavily influenced by this ruling.  

Conclusion

The ramifications of this ruling (if adopted by the English Courts) could ultimately mean that where an agent sells software the customer downloads, that can be considered “a sale of goods” on the provision that the customer is granted a perpetual licence to use that software. As such, any agents who sell software in this way may benefit from the protections and entitlements offered by the Regulations, including Regulation 17 compensation.

It is not clear whether the CJEU’s judgment ruling would capture the sale of software that is licensed on a subscription basis rather than accompanied by the grant of a perpetual license, although it is certainly arguable in our view that this could also amount to a “sale of goods”. However, extending the ruling to cover centrally hosted software accessed by customers on a subscription basis only seems more unlikely.  

The decision of the UKSC is now awaited.

Here to help

If you have any more questions or would like more information regarding this recent ruling, you can contact our specialist Dispute Resolution Team below.