Bradford 01274 350 800
Leeds 0113 849 4000
Huddersfield 01484 915 000

Is an agent selling software products now a Commercial Agent?

The question of whether the sale of software products is classed as “goods” under the Commercial Agents (Council Directive) Regulations 2003 has hung in the balance for some time. Historically it has been “tangible” items that have been classed as goods under the Regulations and, until recently, only software that was sold with hardware.

The matter has been given clarity in the case of The Software Incubator Limited –v Computer Associates UK Limited (2016). In this case an agent had been employed to promote and sell release automation software. The agency arrangement was terminated by the principal and the agent brought a claim for damages and compensation under the Regulations.

A central argument was whether the Regulations applied at all as the company argued that the sale of software was not a “sale of goods” for the purposes of the definition of a commercial agent under the Regulations.

Judge Waksman QC stated that “I do not see that the expression “sale of goods” should be read as excluding the supply of software simply because the ownership of the intellectual property rights therein will not usually be transferrable or because the software is not tangible”.

Whilst each case will depend on the nature of the software and any agreement in place, Judge Waksman made the following comments which will assist in classifying whether other software products are also likely to be classed as goods for the purposes of the Regulations:

  1. Where software is treated in the same way in an agency agreement as other tangible goods then they should be interpreted in the same way as a “product” as they clearly are not a service. Software can be transferred and is capable of commercial exploitation in the same way as tangible goods.
  2. Whilst the software itself may be intangible and the method of transfer electronic, there is no reason that a software product must be tangible for it to fall within the scope of “sale of goods” especially when the software can only operate in a tangible environment.
  3. There is no logic in making the status of software as “goods” turn on the medium they are delivered or installed.
  4. Software will not be excluded from the interpretation of “sale of goods” simply because any intellectual property rights are not transferred, because there are detailed provisions on the use of the software or there is a licence in place.

As a result the software sold by the agent was held to be goods and his claim under the Regulations was successful. The agent was awarded damages for breach of contract of £15,631, future commission of over £5,000 as well as compensation under the Regulations of £475,000.

Any award under the Regulations is fact specific and will depend on the nature of the agency, the terms of any agreement and the sales involved. However, as can be seen from the award in this case the fact that software is now more likely to be classed as “goods” under the Regulations can have a significant impact when deciding whether an agent should be appointed in the first place or whether an existing agency should be terminated. It would be prudent for an agent or principal to take advice prior to any steps being taken in respect of any agreement.  

If you require any further advice or assistance in relation to the Commercial Agents (Council Directive) Regulations 2003 then please contact Marion Meager.

About the Author

Marion Meager

Director

Marion specialises in internet disputes, defamation/social media claims, commercial agent disputes,…

View Profile View all