The classification of software has long been a thorny issue for software companies who employ agents to sell their programs. The importance of the classification is that it may determine whether the Commercial Agents Regulations 1993 apply in the UK. These regulations are based on the EU Commercial Agents Directive 86/653/EC. The Regulations could significantly increase the costs of selling through agents by dictating mandatory termination payments for agents.
The industry has long clung to dated case law which erred on the side of finding software a service as long as it wasn’t sold on a physical medium such as a CD. There are recent signs that the status quo may be swinging towards the consideration of software as a good.
In the draft Consumer Rights Bill, the Department of Business, Innovation and Skills wrestled with the concept of software as a good or a service, recommending at one stage that certain rules are instigated when goods and services are sold together.
Further, the European Court and the UK High Court have both deliberated over the classification of software as a good for policy reasons. In the 2014 case Fern Computer Consultancy Ltd v Intergraph Cadworx & Analysis Solutions Inc, the issue was considered. Although the Court did not have to make a finding on that particular issue, obiter dicta remarks in the judgment suggest that were this issue to come before the courts it is likely that the selling of the software on any physical medium is likely to be a considered a good and come under the Regulations.
The Fern case also confirms that UK Regulations will have effect even if the contract is not governed by English law provided that the services are in whole or in part performed in the UK.
Whilst no concrete change has yet been made to the law, software suppliers and their agents alike should continue to monitor the case law closely. It would not be surprising if a sea change did come about leading to added protection for commercial agents selling software.