What's the issue?
The question of whether the supply of software is one of goods or services has been more or less resolved for the purposes of business to consumer supplies. The UK and EU now classify electronically supplied software as a supply of digital content, and the supply of software on a tangible medium, as one of goods.
This clarity is lacking in other areas of the law. For example, the term "sale of goods" is not defined in Article 1(2) of the Commercial Agents Directive, implemented in the UK as the Commercial Agents Regulations. The Supreme Court of England and Wales asked the CJEU to decide whether the term would cover electronically supplied software.
The reference was made before the end of the Brexit transition period so under the terms of the Withdrawal Act, the CJEU determination applies in the UK even though it was delivered after Brexit.
What's the development?
The CJEU has ruled that the term "sale of goods" in Article 1(2) of the Commercial Agents Directive covers electronically supplied software which is paid for and which is supplied with a perpetual licence.
Court of Appeal decision
The Court of Appeal held in 2018 that sale of such software could not be considered to be a sale of goods where no tangible medium was supplied. While acknowledging this might lead to unfair outcomes, particularly with regard to the Commercial Agents Regulations, the CA said that it was up to Parliament to initiate reform in this area. This was especially true given that, for the purposes of consumer legislation, electronically supplied software is considered to be a supply of digital content rather than of goods or services.
Reference from the Supreme Court
The CJEU was asked to look at whether software supplied in return for a fee to a customer by electronic means and with a perpetual user licence, qualified as a sale of goods under the Commercial Agents Directive.
The CJEU discussed:
- The meaning of 'goods': It applied EU case law which has held that: the term 'goods' is understood to mean "products which can be valued in money, and which are capable, as such, of forming the subject of commercial transactions", (Commission v Greece); that software can be classified as goods irrespective of whether or not it is supplied on a tangible medium; and that, economically, the sale of computer software online "is the functional equivalent of the supply of a material medium" (UsedSoft). As a result, the CJEU concluded that the term 'goods' within the meaning of Article 1(2) of the Commercial Agents Directive, can cover computer software regardless of the medium on which it is supplied.
- The meaning of 'sale': The CJEU again relied on UsedSoft in its analysis of the meaning of 'sale'. In UsedSoft the CJEU said that an accepted definition of 'sale' is "an agreement by which a person, in return for payment, transfers to another person his rights of ownership in an item of tangible or intangible property belonging to him". Downloading a copy of a computer program and concluding a user licence for the copy form an indivisible whole. As such, the CJEU said that making computer software available by way of download and concluding a perpetual licence agreement in return for a fee would involve a transfer of ownership. Accordingly, such a transaction would be covered by the concept 'sale of goods' in the Commercial Agents Directive.
- The purpose of the Commercial Agents Directive: Like the Court of Appeal, the CJEU recognised that holding the electronic supply of software with a perpetual licence not to be a sale of goods would undermine the purpose of the Commercial Agents Directive and the protection it provides to commercial agents. Unlike the Court of Appeal, however, the CJEU was not prevented in holding such a supply to be a sale of goods.
What does this mean for you?
The Commercial Agents Directive has been implemented differently across the EU with some jurisdictions including services and software as well as goods within scope of their implementing legislation.
This ruling puts electronically supplied software firmly within scope as a sale of goods provided its supply is paid for and comes with a perpetual licence.
This potentially impacts commercial agency agreements for the sale of downloadable software which would previously have been presumed to be outside the scope of the Commercial Agents Regulations. We await the Supreme Court ruling.