22 March 2018 #Dispute Resolution
In 2016 the case of The Software Incubator Limited v Computer Associates UK Limited made waves in the commercial agency sector by finding that the definition of “goods” for the purpose of the Commercial Agents (Council Directive) Regulations 1993 (the “Regulations”) included software. The Regulations provide important rights for commercial agents, including in particular the right to receive compensation upon termination of the agency agreement, but only protect commercial agents who sell goods, rather than services.
All has now changed however as Computer Associates UK Limited has succeeded in its appeal of the High Court’s 2016 decision. The Court of Appeal has decided that software which is supplied by way of a digital download only is not goods for the purpose of the Regulations. On the other hand, software supplied in a tangible medium, for example on a disc or memory stick, will constitute goods.
The Court of Appeal recognised that this distinction seems somewhat arbitrary and outdated, but decided that it must follow the previous decisions made by both the English and European Courts in this context, which maintain that the definition of “goods” requires a product to have some physical, tangible form. The Court of Appeal said that any change to this definition needs to come from the UK or European Parliaments, and should not be made by the Courts.
The Court of Appeal was particularly influenced by the fact that when the UK’s consumer protection legislation was reformed, by way of the Consumer Rights Act 2015, the government decided to deal with digital downloads not by widening the definition of “goods” (which are defined as “tangible moveable items”), but by including a new category of “digital content”. This, it said, was very relevant and clearly shows that any reform to the commercial agents legislation must similarly come from Parliament.
For now, then, we are back to the old definition of “goods”, and however unfair it may seem, this means that agents who sell software will not be protected by the Regulations, unless that software is supplied in a physical medium. Reform of the Regulations is unlikely to be high on the government’s agenda at the moment, and the Regulations are very much a product of Europe in any event – historically English law has not provided much in the way of rights for commercial agents. It therefore remains to be seen whether the protection offered by the Regulations will continue in its current or altered form after Brexit.