Case law: Agent selling licences to use electronically downloaded software was not selling ‘goods’, so not entitled to compensation on termination of agency

Businesses appointing commercial agents to negotiate and/or sell licenses to third parties to use their downloadable software will welcome a legal ruling that downloadable software does not amount to ‘goods’, so that their agent will not be entitled to compensation on termination of their agency.

EU law says that a business – a principal - that has appointed a commercial agent to negotiate the sale of, or sell, its goods to potential customers on its behalf must usually pay compensation to, or indemnify, the agent if the agency is terminated.

A ‘commercial agent’ means a business with ongoing authority to negotiate the sale of the principal’s goods to third parties. Sometimes the agent can also conclude sales on its principal’s behalf.

A difficult question has been whether software amounts to ‘goods’ for these purposes, and whether licensing a third party to use software (which is very often how software is made available to customers) amounts to a ‘sale’ of it. Traditionally the courts have said that only software bundled with hardware amounts to goods for this purpose – so software provided on a DVD is goods but software made available for download on a website is not.

In one case a principal owned rights to software. It terminated its agreement with a commercial agent which it had appointed to find customers to take licences to use its software. The software was provided by way of an electronic download. The agent claimed compensation under the relevant European law. The principal argued that the law did not apply as its software was not bundled with hardware and was not therefore within the definition of ‘goods’.

The High Court originally disagreed. It said that software provided in this way was ‘goods’ so the agent was entitled to compensation.

However, the Court of Appeal has now overturned the High Court decision. It has ruled that computer software supplied electronically – such as via a download – does not amount to 'goods', although software provided via a tangible medium – such as a DVD – can still count as goods for this purpose. The agent was not therefore entitled to compensation on termination under the EU rules.

The Court was particularly concerned that law in this area of agency law should be consistent with other law relating to the meaning of ‘goods’, including in relation to charges over property, treatment of information as property, and criminal law such as the law of theft.

Operative date

• Now

Recommendation

• Businesses appointing commercial agents to negotiate and/or sell licenses for its software to customers should consider whether to provide such software as a download, so it does not amount to ‘goods’, to ensure their agent does not enjoy protection on termination of their agency under EU law.

Case ref: The Software Incubator Limited v Computer Associates UK Limited [2018] EWCA Civ 518

Please note: An article published in the September 2016 edition of Legal Alert covered this case at an earlier stage in the legal process.