Warning to all Principals - Software may be good...
26 July 2016
In recent years there has been much discussion on whether software is considered a "good" for the purpose of Commercial Agents (Council Directive) Regulations 1993 ("Regulations"). Broadly speaking, the Regulations apply to agents who sell or purchase goods (and not services) on behalf of their principal in the UK and provide such agents with extra contractual protections particularly on termination.
In recent years there has been much discussion on whether software is considered a “good” for the purpose of the Commercial Agents (Council Directive) Regulations 1993 (“Regulations”). Broadly speaking, the Regulations apply to agents who sell or purchase goods (and not services) on behalf of their principal in the UK and provide such agents with extra contractual protections particularly on termination.
Traditionally, software has only been considered a good for the purpose of the Regulations if it is provided on a tangible medium such as disk or CD ROM. In all other instances software has typically been treated as a “service”. However, Judge Waksman QC’s decision in Software Incubator Limited v Computer Associates UK Limited  EWHC 1587 has challenged this notion and proposed a new test.
In this case, Judge Waksman held that the software in question should be treated as a “good” for the purpose of the Regulations. Judge Waksman asserted that in the modern world there is no reason to require the software to be a tangible asset especially when installed to operate in a physical environment. He commented that “the essential characteristics of a piece of software like the [Product] cannot depend on its mode of delivery any more than the nature of tangible goods depends on whether they are transported by rail, sea or air”. He also reasoned that although use of the software was subject to a licence, it could be “sold” for the purpose of the Regulations
As always, this decision is dependent on the facts and does not mean that software can always be treated as a “good” for the purpose of the Regulations. In this case, the software was a sophisticated, commercial non-bespoke piece of software capable of transfer and commercial exploitation. Other software that involves configuration and/or customisation may not as easily fall within the definition of a “good” for the purpose of the Regulations. Further it is doubtful as to whether pure SaaS solutions would fall within the scope of the Regulations given their nature.
However, this judgment is a refreshing approach to the traditional view of “software” and helps to clarify the difficulties posed by previous judgments on this point such as IC v St Albans Council  4 All ER 481. Although Judge Waksman makes it very clear that that his classification has only been made in light of the Regulations, it will be interesting to see if this decision is taken into account when interpreting sales of goods legislation in light of B2B contracts.
This judgment also provides helpful guidance on a number of difficult areas of the Regulations, including on what should be taken into account when calculating compensation due to an agent on termination under the Regulations.