Commercial Agent Regulations extends its interpretation of the promotion of software as a sale of ‘goods’.

Software Incubator Ltd v Computer Associates Ltd [2017] Bus. L.R. 245.

The definition of a ‘commercial agent’ in regulation 2(1) of the council directive regulations 1993 for commercial agents can now be extended to software. This means that when an agreement has been entered between a company and an agent, for the promotion of various types of software, the agent will be entitled to claim for compensation under regulation 17(2).

Facts

The claimant software agent entered into an agreement to promote the software on behalf of the defendants. Due to a frustration that had occurred, the defendant gave notice to the agent of termination of the agreement. This termination was in the form of a 90-day notice, however the defendant then gave notice of immediate effect, on the grounds that the claimant had breached two clauses in the contract.

Firstly, the defendant alleged that the claimant had not devoted a substantial enough amount of time and effort into promoting the software on behalf of the defendants company, which was in breach of the agreement. Secondly, it was purported that the agent had been engaging in competing activities with another company, again in breach of a clause of the agreement.

This led to the claimant software agent taking action for damages against the defendant for breach of an agency agreement. They also sought compensation under the Commercial Agents (Council Directive) Regulations 1993 reg.17(2).

In response to this claim, the defendant submitted that the Regulations did not apply because the sale or supply of software was not the “sale of goods” within the definition of “commercial agent” in reg.2(1). They also submitted that if the Regulations did apply, the claimant was in repudiatory breach, or fundamental breach of the contract. This would mean that there could be no contractual damages claim and no claim under reg.17.

Held

When handing down his judgment, Judge Waksman found that in the context of the agreement and for the purpose of the Regulations, software did amount to “goods”. It was permissible and desirable to have an autonomous definition of “sale of goods” for the purpose of the Regulations. The product was treated in the agreement in the same way as other “tangible” goods. The fact that the software was intellectual and not real or personal did not alter that position. He then said that although the product was intangible in the sense that it could not be physically handled or transported, its effects could be observed as with, for example, gas or electricity. While there was copyright in the product, it would be wrong to describe it simply as intellectual property. The intended supply of the product also amounted to a sale of goods. The fact that the product might sometimes be supplied on a limited licence did not affect that conclusion.

The next issue for the judge to consider was that the defendant highlighted considerably that the claimant was involved with a competing company, but the judge could not see any evidence of any competition between the other company and the product and so wasn’t a breach of the agreement.  He then considered the few instances when the claimant cancelled meetings or planned to attend a conference on behalf of the other company, and found that they were isolated examples which did not amount to a breach and, if they did, they were minor, thus there had been no lawful basis for the defendant’s termination of the agreement. The termination was itself a fundamental breach of the contract which entitled the claimant to damages, as well as a claim for compensation because of the defendant’s breach under reg.17(2).

A whopping total of £475,000 was awarded under reg.17(6) as well as post-termination commission of $3,724 and £5,000 in respect of two transactions. On top of this the claimant was also entitled to damages for breach of contract of £15,631 in respect of the wrongful summary termination of the agreement. This case has created an important position regarding the way that software is considered in term of goods under the Commercial Agents Regulation 1993. It will be interesting to see whether in future this case will be considered as an isolated case, or one that will be followed.

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