06 October 2014 #Dispute Resolution
A significant feature of the Commercial Agents (Council Directive) Regulations 1993 (the “Regulations”) is that they only apply to agents who sell “goods”. Agents who sell services are excluded and do not enjoy any protection.
As a result, there has since the introduction of the Regulations in 1994 been some debate in the courts over what constitutes “goods”. A particular problem area which has come up on several occasions is software.
The traditional view was that goods have to be tangible, and older cases therefore sought to draw a distinction between software which is supplied to the end user together with physical hardware e.g. on a CD or USB stick, and software which is supplied with no physical package e.g. downloaded directly from a website. The former would constitute goods, because the CD or USB stick is a tangible item, but the latter would not.
Most of the decisions until now date back to the 1990s, before the downloading of music, films and software became commonplace. It makes little sense in today’s digital world that the position of an agent selling software should depend on the method of delivery of that software to the end user. However, a recent High Court case has provided support for this view.
In Fern Computer Services v Intergraph Cadworks and Analysis Solutions Inc  EWHC 2908 (Ch), Fern were agents who sold software products on behalf of Intergraph. Their agency agreement was terminated by Intergraph, and they issued proceedings in order to obtain compensation. One of the arguments raised by Intergraph was that Fern were not commercial agents for the purpose of the Regulations, because the software products they sold did not constitute goods.
The court looked at the nature of the software sold by Fern. It found that the software was supplied to the end user on a CD, together with some hard copy documentation and a USB dongle which acted as a passkey. The court decided that these physical aspects of the delivery – the CD, dongle and documents – meant that Fern had real prospects of successfully arguing that what they were selling was goods and that they therefore fell within the Regulations.
The nature of the proceedings in Fern v Intergraph meant that the court did not have to make a final determination on the issue; it only had to decide whether Fern had a reasonable argument that software constitutes goods. However, for the time being the case provides further support for the view (however outdated it may seem to be) that agents who sell software will fall within the Regulations only if the software is supplied as part of a physical package.