The Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”) provide protection for commercial agents including the entitlement compensation or an indemnity on termination of an agent’s contract (save in limited circumstances). A commercial agent is defined in the Regulations as being:
“…a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person…(our emphasis)”
In the case of The Software Incubator Limited v Computer Associates UK Limited , one of the questions which the court had to decide was whether an agency agreement relating to licences for computer software amounted to the “sale or purchase of goods”. The principal, Computer Associates, sought to argue that the Regulations did not apply at all because the activities performed by the agent fell outside the definition set out above.
The question of whether software amounts to goods or services is one which the court has considered previously to a limited extent in the context of the law of sale of goods. The difficulty in interpretation has been largely caused by consideration of issues such as whether there is an absolute transfer of intellectual property rights (usually not) and whether the software is tangible.
The software in question in this case (“the Product”) was intended to coordinate and implement the deployment of upgrades for other software applications in different operational environments across large organisations such as banks and insurance companies. It could be supplied on tangible media or electronically. The judge considered that in this case, however it was supplied, the Product could only operate in a tangible environment and for the purposes of the agency agreement was treated very much as tangible goods.
The judge decided that the debate in the context of sale of goods legislation was not directly relevant to the question of whether the Regulations applied. He found that the Product did amount to “goods” for the purposes of the Regulations and summarised his conclusions as follows,
- Where the goods in question in this case were treated in the agency agreement in the same way as other “tangible” goods, they should be interpreted in the same way when they are clearly a “product” and not a service
- There is no reason for the purposes of the Regulations to require the Product to be tangible or a “chattel” in the conventional sense, particularly where the software was then installed so as to operate in a physical (i.e. a hardware) environment. He also said that “the essential characteristics of a piece of software like the Product cannot depend on its mode of delivery”
- The fact that the proprietorial character of software is intellectual property rather than real or personal does not change the position
The judge also concluded that the supply of the Product amounted to a “sale” of goods, even though the Product might be supplied on a limited licence.
In this case the judge therefore concluded that the Regulations applied and the agent was entitled to compensation following the termination of its agency agreement by the principal.
The case provides further clarity regarding the application of the Regulations to the provision of software although every case will still need to be considered on its individual facts, particularly the nature of the software in question and how it is supplied. Software suppliers who sell through an agency model need to be alive to this and the consequences that can follow on from the termination of an agent’s engagement if the Regulations are found to apply such as compensation or an indemnity.
For more information about how the Commercial Agents Regulations may affect your organisation please contact Rowan Turrall in the Dispute Resolution team [email protected] or Mark Blunden [email protected] in the Commercial & Technology team.
There is now an update to this case so please click here to read the new summary.
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