Good news for software companies and licensors for the supply of software

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Good news for software companies and licensors. The Court of Appeal has refused to apply the Commercial Agents Regulations 1993 to agencies for the supply of software.

The Commercial Agents Regulations have always seemed a bit odd to lawyers and businesses in this country. Amongst other things, they state that when a commercial agency agreement is terminated, the principal has to pay the agent compensation unless agreed otherwise. That compensation can be very large, possibly being calculated as if the whole value of the agency was a separate business on the market. The rationale for all of this is to protect agents, who are deemed to be in a weaker bargaining position.

The Regulations have frequently caught out companies that either don’t think they apply or don’t know about them, leading to large claims when they later try to transfer an outsourced contract for the sale/promotion of their products to a new business.

Whether the Regulations apply is often complex, and determining what is and isn’t a commercial agent relationship is not always a simple matter. However, one of the clearer points is that the Regulations only apply to the sale and purchase of goods.

‘Goods’ would likely include software bought on a disk, in tangible form. But the world has moved on and software is now almost always downloaded or electronically transferred in an intangible form.
Some countries have updated their rules to state that this kind of transfer is included in the definition of the sale of goods.

The Courts of England and Wales have refused to do so (outside of the consumer rights arena). Overturning a 2016 court decision which caused a lot of comment in the software industry, the Court of Appeal has decided that ‘goods’ means actual tangible, movable things, not electronic software which is not sold in disk form or along with a piece of hardware.

The Court acknowledged that this decision is undesirable for commercial agents. It means that agent companies which deal in software products have essentially lost legal protection as technology has left disks behind. But the Courts considered it more valuable to preserve the certainty of what is and what isn’t ‘goods’, and that commercial parties are not so in need of judicial protection that the definition should be changed without the involvement of the legislature.

In passing, it is worth noting that numerous commentators have asked whether the Commercial Agents Regulations, which arrived from the EU, is so out of place in our jurisdiction that it will be one of the first things jettisoned after Brexit. Maybe, though there are no signals on that front at the moment. At present, companies which supply software through agents can perhaps breathe easier.

The recent case in question is Computer Associates UK Limited v The Software Incubator Limited [2018] EWCA Civ 518 (decision of the Court of Appeal dated 19 March 2018).

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