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Rowan Turrall
Rowan Turrall,
SENIOR ASSOCIATE - SOLICITOR
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Software as goods or services: why does it matter?
12 April 2018

In various scenarios English law distinguishes between goods and services and there has been debate in recent years about which side of the line software should fall. This has been exacerbated by the changing nature of software delivery from provision in tangible format such as discs to provision online. In some cases this debate is academic but in the case of Computer Associates UK Limited v The Software Incubator Limited [2017] the answer to the question of whether software is goods was a difference of some £475,000.

The facts

The software in question was release automation software (“RAS”) which was provided to customers to download via a link to an online portal sent to the customer by email. TSI was engaged by Computer Associates to sell the software pursuant to a consultancy agreement. The agreement was terminated and TSI sought various remedies against Computer Associates including a claim for compensation under the Commercial Agents (Council Directive) Regulations 1993.

The Commercial Agents (Council Directive) Regulations 1993 (“the Regulations”) provide protection for commercial agents including the entitlement to 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”

The court therefore had to determine whether TSI was negotiating the sale of goods. At first instance the judge decided that it was and that the Regulations therefore applied. Computer Associates appealed and so the Court of Appeal revisited this question.

The appeal decision

The Court of Appeal considered various potential sources of authority including European law authority, sale of goods case law and Regulations case law. Lady Justice Gloster also noted that in recent consumer legislation, the legislature had created a new category which included software supplied in digital form as “digital content” instead of trying to categorise it as either goods or services.

Although Lady Justice Gloster was concerned that the court’s approach in this case may seem out-moded in light of technological advances, she felt compelled to conclude that the software in this instance did not constitute goods within the meaning of the Regulations.  

It is important to note that the Court of Appeal was looking at the particular facts of this case in which the software was being supplied electronically and not on any tangible medium. If software is being provided via a tangible medium then the position may well be different, although Lady Justice Gloster was uncomfortable with the distinction between tangible and intangible in this context which seemed to her to be artificial in this day and age. She felt that any widening of the meaning of goods in the context of the Regulations was a matter for Parliament and not judicial interpretation.

As a result of Lady Justice Gloster’s findings, the decision at first instance was overturned and the appeal allowed. The Regulations therefore did not apply and no compensation was payable.

Conclusion

Whilst every case still needs to be reviewed on its individual facts, the decision will be welcome news for software companies who use agents as their sales channel and who provide software in digital format.

For those who provide software in tangible form then there is still a need to be alive to the circumstances in which the Regulations may apply and the consequences that can follow from the termination of an agent’s engagement.

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.

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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