A recent decision of the Court of Appeal (Computer Associates UK Ltd -v- The Software Incubator Ltd [2018] EWCA Civ 518) throws some further light on the scope and extent of the Commercial Agents (Council Directive) Regulations 1993 (the Regulations) with wider ramifications as to what constitutes ‘goods’.

The aim of the Regulations is to protect and enhance the position of commercial agents who are not employees but who provide valuable benefits to their principals. The Regulations give certain rights to the commercial agent and in particular confer benefits on termination.

The Commercial Agents (Council Directive) Regulations 1993 – summary:

  • implement Directive 86/653/EEC (the Directive)
  • apply to agents who sell or purchase goods on behalf of a principal;do not apply to agents selling services
  • the Regulations do not provide a definition of ‘goods’
  • government guidance at the time the Regulations came into force indicated that the definition of ‘goods’ in the Sale of Goods Act 1979 (SGA) (section 61(1)) to be a reasonable guide and this provides that “‘goods’ includes all personal chattels other than things in action and money”
  • the Regulations provide protection for commercial agents which includes an entitlement to compensation or an indemnity on termination of the agent’s contract (save in limited circumstances)

Facts

In this case, Computer Associates UK Limited (Computer Associates) was the principal and produced software that was licensed to customers and supplied as a download via an email link – it was not supplied in any tangible format e.g. disc. The agent (The Software Incubator Limited (TSI)) was appointed to promote Computer Associates’ products.

Subsequently, TSI entered into a similar arrangement with third party promoting its products. When Computer Associates learnt of this, it terminated the agency agreement with TSI claiming that TSI had repudiated the contract and breached its obligations to it.

TSI brought a claim for compensation under the Regulations which Computer Associates defended on the basis that the Regulations were not applicable as the Regulations only applied to agents authorised to negotiate or conclude the sale of goods and that the Computer Associates’ products sold by TSI was software supplied electronically which did not fall within the term ‘goods’.

At first instance, TSI was successful and it was held that the sale of electronically supplied software was ‘goods’ for the purposes of the Regulations and that TSI had not been in repudiatory breach of contract. TSI was awarded compensation for termination assessed at £475,000.

Computer Associates appealed.

Decision

In an interesting decision which analysed the characterisation of software/goods, the Court of Appeal overturned the first instance decision and found that TSI was not entitled to the protection afforded by the Regulations as electronically supplied software did not amount to ‘goods’. The existing authority of Accentuate Ltd -v- Asigra Inc [2010] 2AER (Comm) 738 was applied, namely where no hardware was supplied, the Regulations are deemed to be inapplicable to any software because that is purely intellectual property and not ‘goods’ within the meaning of the Regulations. The result of this was that no compensation for termination was due to TSI under the Regulations and the previous award of £475,000 was overturned.

Had the software been provided by way of disc, there would have been a supply of ‘goods’ and the agent protected. The decision is illustrative of the way the law sometimes struggles to keep up to date with technological developments and the Court of Appeal concluded that the classification of electronically supplied software as ‘goods’ was for parliament and not the courts. Gloster LJ stating that the classification approach adopted in the case ‘….might appear to be outmoded in light of technological advances…’

One of the issues Gloster LJ appeared to struggle with was reconciling the intangible nature of software with gas and electricity which had (in the case of Tamarind International Ltd -v- Eastern Natural Gas (Retail) Ltd [2000] Eu.LR 708) been held to constitute goods for the purposes of the Regulations. She said ‘…it is impossible coherently to explain why gas and electricity are any more tangible property than the Software’. Quite!

Summary

The issue of whether software is properly classified as ‘goods’ or ‘services’ or something else entirely e.g. ‘digital content’ is relevant not only to claims under the Regulations but also in other scenarios e.g. applicability of the Sale of Goods Act 1979, VAT legislation and the recognition of digital information as property, which the law has resisted. The Court of Appeal was clear though that it was not open to the courts to impute a commonsense meaning to the word ‘goods’ which parliament had not specifically given. The issue was one for the UK parliament not the courts.