The Court of Justice of the European Union (CJEU) ruled in case C-410/19 The Software Incubator Ltd v Computer Associates (UK) Ltd that the provision of software by electronic means, when accompanied by the granting of a perpetual license for use in exchange for a royalty, could constitute a “sale of goods” for the purposes of the definition of an agent agent under the EU Commercial Agents Directive (the Directive).
Suppliers of software for resale in the UK and / or EU should be aware of the clarity now provided; resellers could qualify as sales agents and be entitled to certain legal protections, such as minimum notice periods for termination and post-termination payments.
Under the UK Commercial Agents Directive and Implementing Regulations (UK Regulations) “sale of goods” is not defined. This had led to a lack of clarity as to whether software resale agents could qualify as commercial agents under the UK directive and regulation; previously in the Software incubator In that case, the UK Court of Appeal held that the electronically supplied software at issue did not constitute a “sale of goods”. On appeal, the Supreme Court of the United Kingdom asked the CJEU to give a preliminary ruling on the following two points:
- Does the software supplied to the clients of a principal electronically, and not on any material medium, constitute “goods” within the meaning of the definition of a commercial agent within the meaning of the directive.
- Does software provided to a principal’s customers by granting the customer a perpetual license to use a copy of the software constitute a “sale of goods”.
The CJEU considered these questions together and answered them in the affirmative. The CJEU has also confirmed the equivalence, from an economic point of view, of the sale of tangible software in the form of a CD-ROM or DVD and the sale of digital forms of such software, for example downloaded on the Internet.
The CJEU ruling is binding on the UK Supreme Court under the UK-EU Withdrawal Agreement, the referral to the Supreme Court having been made before the end of the transition period on December 31, 2020.
Establish a Commercial Agent
Under UK regulations, three conditions are necessary for a person or entity to be classified as a “commercial agent”: (1) it must be an independent intermediary; (2) they must be linked to the principal by a continuous contractual relationship; and (3) they must carry out, on behalf and in the name of the principal, an activity which may consist either of simply being an intermediary for the sale or purchase of goods, or of acting both as an intermediary and concluding sales or purchases of goods.
With the clarity provided by the CJEU, a reseller could be a commercial agent if appointed by a software supplier for a fixed term to sell to end customers in the UK, in exchange for a royalty, a perpetual license. to use software under the terms of an End User License Agreement (EULA) between the software vendor and the end customer; in this example, the reseller would be designated to accept the EULA on behalf and on behalf of the software vendor.
This is different from a concession whereby an independent intermediary would sell the use of software to its own customers under the distributor’s sales contract and on its own behalf.
It should also be noted that the CJEU ruling concerns a perpetual license to use rather than a limited-term license. For software as a service, the end customer usually receives a license for as long as he pays the usage fees, and this agreement would not be a “sale of goods” as considered by the CJEU. .
Considerations for commercial agencies
If an agreement constitutes a commercial agency, this may provide the following legal protections for the agent, among others:
- The software vendor must notify the agent within a reasonable time of its acceptance or rejection of any business transaction negotiated or entered into by the agent.
- Post-dismissal restrictions could be prohibited from lasting more than two years after dismissal.
- Requirements regarding the commission structure (and risk of double commission) may apply unless they are expressly contracted out.
- Upon termination, an agent may be entitled to compensation for “lost” commission that they would otherwise have generated.
These are just a few considerations if a software resale agreement were to constitute a UK business agency relationship. In the European Union, some national rules of the EU Member States which have implemented the Directive may vary.
Software providers and resellers may wish to review their arrangements in light of the CJEU ruling and determine whether a commercial agency should be considered. As all of the consequences of the trading agency will be fact specific, it is important to seek legal advice if this may be a concern.