High Court Rules Software = Goods In Commercial Agency Relationship

The question of whether software constitutes goods or services has always been problematic. The answer can determine if and when certain terms are implied into a commercial contract, which in turn may have significant financial consequences for the losing party in a dispute.

This was illustrated most recently in the High Court case of The Software Incubator Ltd v Computer Associates UK Ltd [2016] EWHC 1587 (QB). Here Judge Waksman QC held that the software promoted by agent TSI was "goods" for the purposes of the Commercial Agents (Council Directive) Regulations 1993. The court found in favour of TSI and awarded it £475,000 in compensation under the Regulations and £24,355 in contractual damages.

This decision will be of interest to software agents, principals - including software licensors and anyone involved in negotiating commercial agency agreements, particularly where those agreements relate to software or other intangible products.

What are the Regulations?

Readers will recall that the Regulations aim to protect commercial agents in relation to their principals. This is achieved, in part, through mandatory provisions such as the payment of compensation to an agent on termination of his agency and, in some cases, payment to the agent of a post-termination commission. One practical effect of the legislation, where it applies, is that a principal may have to make sizeable payouts to the agent when the relationship ends.

When do the Regulations Apply?

The Regulations apply to commercial agents, defined in the Regulations as a self-employed intermediary with continuing authority to negotiate the sale or purchase of goods on someone else's behalf. No definition of goods is given. The intermediary can be an individual, partnership or company and the Regulations apply to both sales and purchasing agents. They do not apply to employees.

The Facts

TSI entered into a non-exclusive agreement with CA to market, sell and promote CA's application release automation (RAS) software in the UK. Under the agreement, TSI was to "devote a substantial amount of time and effort" to this. The agreement included a non-compete clause and TSI received a monthly consulting fee in addition to an annual sales-based commission.

Subsequently CA grew dissatisfied with the arrangement and gave TSI notice of termination. Shortly afterwards, CA terminated the agreement for alleged repudiatory breaches by TSI, namely that TSI had failed to put in the requisite time and...