On 1 July 2016, the UK High Court held in the case of The Software Incubator Limited -and- Computer Associates UK Limited that intangible software may qualify as “goods” for the purposes of the application of the Commercial Agency Regulations 1993 (“the Regulations”) (implementing Council Directive 86/653/EEC on the co-ordination of the laws of EU Member States relating to self-employed commercial agents).
This decision marks a significant movement in the law. Previous case law had explicitly excluded software which was not provided in a physical medium (for example, on a CD or memory stick) from being classified as “goods”, and thereby denied protection under the Regulations to commercial agents dealing in intangible software. This approach was taken in line with the Sale of Goods Act 1979 which defines “goods” as “all personal chattels other than things in action and money”.
However, the distinction between tangible software and intangible software has now been dispensed with by the High Court. In the context of the electronic provision of a perpetual software license, His Honour Judge Waksman QC noted that software which is “intangible in the sense that it does not exist in three-dimensions and cannot be physically handled or transported” should nevertheless be regarded as a “product” and as “goods” and should “not be regarded, nor is it, a ‘service'”. He went on to clarify that there is nothing in the Regulations or Directive which require a different view.
This extension of the definition of “goods” will undoubtedly be well-received by commercial agents who may now seek and find protection which was previously unavailable to them under the Regulations. Principals however will find themselves exposed to costly obligations under the Regulations which were not anticipated at the inception of their commercial agency relationships. Specifically, principals may now be required to pay out compensation to such agents on the termination of their agencies under Regulation 17(6), and make payment of post-termination commission under Regulation 8(a).
Nevertheless, the decision does provide clarity on the status of software under the Regulations which has hitherto long been ambiguous.