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Software: goods or services - continued

15 December 2014 #Dispute Resolution

In last month’s newsletter (“Software: goods or services?”) we discussed the recent court decision of Fern Computer Consultancy Ltd v Intergraph Cadworx & Analysis Solutions Inc. and the court’s confirmation of the distinction between agents who sell “goods” as opposed to agents who only sell “services”.  The court considered that the Commercial Agents Regulations 1993 (“the Regulations”) – which afford important protections to agents who sell goods but not services in the EU – may apply to the supply of software but only if it is accompanied by some form of physical delivery (i.e. through a dongle, with documentation, or on a CD). 

We return to discussion of this case because Fern v Intergraph not only looked at the question of what constitutes goods or services but also raised some very interesting questions about whether agents who carry out their activities mainly outside of Great Britain, and/or mainly outside of EU Member States, could rely on the protection of the Regulations, and whether agents can rely on the Regulations even where their agency agreement appears to be very clear about governing law and jurisdiction. 

To recap the main facts of the case: Fern was Intergraph's agent for selling software products throughout Europe.  Intergraph was a company incorporated and based in Texas.  The agreement between the two parties was stated to be governed by the laws of Texas and contained an exclusive Texas jurisdiction clause.  However, when Intergraph terminated the agreement, Fern issued proceedings in the English courts for unpaid commission and compensation under the Regulations.  At first glance, Fern therefore appeared to have no basis for bringing a claim anywhere outside of Texas.

The nature of the proceedings meant that the judge didn’t finally determine whether the Regulations applied, but two important questions were discussed which would have big implications on the amount of compensation payable to Fern in the event that the English courts subsequently hear the claim.

Were Fern’s activities carried out “in Great Britain”?

The Regulations state that they will apply to the activities of commercial agents “in Great Britain”.  In addition, it is generally considered that by virtue of Regulation 1(3) they also apply to agents who carry out activities in other EU Member States, provided the parties have agreed that English law will apply to the agency contract, and the law of the Member State in question permits this choice of law.  But what if, as in this case, the parties have chosen that the law of a non-EU Member State will apply?  After much consideration of the true and express meaning of the Regulations in light of the inter-territorial nature of many agents’ activities in today’s market, the court determined that where an agency agreement is stated to be subject to or governed by the law of a non-EU Member State the Regulations could only apply to such of the agent’s activities as are carried out in Great Britain.  The effect of Regulation 1(3) was not determined.    

Were the activities “secondary”?

An agent whose commercial agency activities are considered "secondary" will not benefit from the protection of the Regulations.  It was argued by Intergraph that if the sale of the physical hardware by Fern (the dongle or CD, for example) could be treated as separate to the supply of the software, it would amount to a secondary activity and would therefore fall outside the scope of the Regulations.  The court concluded that to separate out the sale of the hardware from the supply of the software in this case would import too much artifice.  What was sold was a package - what the judge called an “agency for selling a package” – with the result that Fern’s claim potentially fell within the scope of the Regulations.

Unfortunately the judge did not have to make a final decision on either of these questions but the case provides useful commentary on a number of contentious issues in this area of law.

Clarkslegal, specialist Dispute Resolution lawyers in London, Reading and throughout the Thames Valley.
For further information about this or any other Dispute Resolution matter please contact Clarkslegal's dispute resolution team by email at by telephone 020 7539 8000 (London office), 0118 958 5321 (Reading office) or by completing the form on this page.
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