Software as goods
Computer Associates v The Software Incubator (Court of Appeal) [2018]
The Commercial Agents Regulations 1993 (the Regulations) give certain rights to commercial agents particularly on termination of the appointment. The Regulations only apply to agents who sell goods on behalf of a principal. They do not apply to the sale of services. The Regulations do not, however, provide a definition of ‘goods’. What constitutes ‘goods’ is important for a variety of reasons, not least, whether certain implied conditions under Sale of Goods legislation might apply.
Facts:
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, TSI was appointed to promote Computer Associates’ products.
Subsequently, TSI entered into a similar arrangement with a third party to promote 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 they only apply to agents authorised to negotiate or conclude the sale of goods and that the Computer Associates’ products sold by TSI were 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:
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 decision in the case of Accentuate -v- Asigra [2010] 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. Had the software been provided on a disc, there would have been a supply of ‘goods’ and the agent protected.
Gloster LJ struggled with reconciling the intangible nature of software with gas and electricity which had (in the case of Tamarind -v- Eastern Natural Gas [2000]) 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 software’.
Points to Note:
- The issue of whether software is properly classified as ‘goods’ or ‘services’ or something else entirely 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 etc. The Court of Appeal was clear though that it was not open to the courts to impute a meaning to the word ‘goods’ which parliament had not specifically given. The issue was one for the UK parliament not the courts.
- This is the latest of a number of cases that have looked at this topic over the years, many of which have come to varying conclusions. However, as the latest decision in this area and with the authority of the Court of Appeal the judgment cannot be ignored.