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Electronically supplied software & Commercial Agents regulations: “Goods” or not “Goods”, that is the question…

  • United Kingdom
  • Other
  • Technology, Media and Telecoms

28-03-2018

In Computer Associates UK Ltd v The Software Incubator Ltd [2018] EWCA Civ 518, the Court of Appeal considered whether software sold electronically by download constitutes the sale of “goods”.

This case is particularly important for IT companies who increasingly sell their products in a purely electronic fashion, rather than in physical form.

Background

Computer Associates UK Ltd (“CA”) entered into an agency agreement with The Software Incubator Ltd (“TSI”). TSI were engaged as an agent to sell CA’s software to customers in the UK. Importantly, the software was sold by the agent electronically via email which contained a link to an online portal from which the customer could download the software (rather than sold in the ‘tangible’ form of a CD, DVD, USB stick etc).

A dispute arose between the parties after the agreement was terminated by CA after 7 months. At first instance, the High Court interpreted the current law so that the sale of the software could be deemed as a “sale of goods”. The effect being that as agent, TSI would be able to rely on 2(1) Commercial Agents (Council Directive) Regulations 1993 (the “Regulations”) and claim the protections granted to agents by the Regulations on the basis that they were involved in the “sale or purchase of goods”. This protection is not available to agents if they are not involved in the “sale or purchase of goods”.

There is no definition of “goods” within the Regulations, therefore the Court considered case law to determine whether electronic software can constitute “goods”.

Court of Appeal Decision 

The Court of Appeal overturned the decision of the High Court, ruling that downloaded software did not constitute “goods” for the purposes of the Regulations. The application of 2(1) of the Regulations was determined by LJ Gloster to be “limited to tangible property”. Therefore the agent lost the case.

LJ Gloster relied on an interpretation of goods established by precedent and rejected the purposive interpretation by the High Court. Accepting the difficulties in making a distinction between tangible/intangible goods, LJ Gloster noted:

• The Judgment may “appear to be out-moded in light of technological advances” (para 19);

• She was “somewhat uncomfortable” with the tangible/intangible distinction that excludes software, accepting that such distinction “seems artificial in the modern age” (para 45);

• The decision permits a “certain kind of injustice to persist” (para 61);

• In New Zealand and Australia, the judiciary “left it to the legislature to make the change” (para 58), which, after legislation was introduced, does now include computer software in their legal definition of goods; and

• “If the legislation were being designed today, software might well be classified as “goods” (para 46).

Comment

If the software in question had been provided in the tangible form of a CD or USB stick, the Court would likely have found that there was a “sale of goods” and the agent would have obtained the protection of the Regulations. This decision is likely to be considered by many as backward looking. An appeal to the Supreme Court may be reasonably contemplated by the agent given the various concessions LJ Gloster accepted and set out above. In an era where we download digital content such as music, video games, e-books etc without purchasing a physical/tangible item, this judgment appears ripe for future legal challenge, or new legislation.

 

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