A landmark High Court ruling has held that a piece of software licensed on a perpetual basis falls within the legal definition of ‘goods’ for the purposes of the Commercial Agency Regulations 1993 (CAR).
Recent ruling
It has, until the recent High Court decision, been considered that software would not generally be classified as “goods” due to its intangible nature.
Under the CAR, commercial agents are protected by mandatory provisions such as the payment of compensation to an agent on termination of their agency, and possible entitlement to commission after termination. This can lead to significant pay-outs on the part of the principal.
The CAR define a commercial agent by reference to an agent concerned with the sale of goods (as opposed to services). However, ‘goods’ is not defined under the CAR.
Despite previous rulings that have held software to be goods only where supplied in a tangible format, the High Court has now ruled that the supply of software can be a sale of goods as far as the CAR are concerned (even where supplied in an intangible format) and, in addition, that the sale of goods can include the grant of a software licence.
In this case, the claimant was the defendant’s agent for the promotion of a particular software product which was licensed (generally on a perpetual license) and available electronically. The Court ruled that the software was a product not a service; the method of delivery was irrelevant; and the software fell within the definition of goods for the purposes of CAR.
The judgment also further clarified a number of factors as to whether they would reduce the amount of compensation due to the agent on termination, including commission due to the agent on post-termination sales.
What does this mean?
If you sell, promote or market software under commission-based arrangements, we advise you to review your commercial arrangements in light of the ruling to determine the extent to which the CAR may apply. If the CAR applies, the principal (the software licensor) will be liable to an introducer or agent to pay compensation on termination of their appointment.
There remain grey areas. For instance, whether or not software provided via the cloud will also come within the definition of ‘goods’ for the purposes of CAR is not yet clear (although the mode of delivery was stated not to be relevant for the Court in its decision in the above case), however as cloud-users merely pay a subscription in return for the right to use the software for a limited period – this is much more resemblant of a service.
How can we help?
Herrington Carmichael provide expert advice on the CAR and how they impact on your business arrangements. If you have any concerns about the implications of the CAR, or any other commercial issue in relation to your business, contact the experienced commercial solicitors at Herrington Carmichael for specialist advice.
Please contact Mark Chapman on 01276 686222.
1 Software Incubator Ltd v Computer Associates Ltd [2016] EWHC 1587 (QB) (01 July 2016).