Agency: The Software Incubator Ltd v Computer Associates UK Ltd

Does software amount to goods such that the Commercial Agency Regulations 1993 (the Regulations) are engaged? Note that the Regulations define a commercial agent by reference to the sale of goods, not services.

The facts

The claimant, The Software Incubator Ltd (TSI), entered into an agency arrangement with the defendant, Computer Associates UK Ltd (CA), whereby TSI agreed to act as a non-exclusive agent for the promotion of a particular software product. The software was licensed on a perpetual basis and was made available electronically, not on a physical medium. CA purported to accept alleged repudiatory breaches on the part of TSI, thereby entitling it to terminate the agreement. TSI denied repudiatory breach, and brought a claim against CA for damages at common law and compensation under the Regulations.

CA denied liability on a number of grounds, including that the software did not constitute “goods”, and therefore the Regulations did not apply.

The decision

The High Court held that the software fell within the definition of “goods”, despite being supplied in an intangible format. The court noted that how software is treated in the “pure” law of sale of goods is of limited assistance. At the very least, the software would be regarded as a “product” – it would not be regarded, nor was it, a “service”. Moreover, while itself intangible, the software could only operate in a tangible environment (ie by being loaded onto a hard disk, server, device etc). It was also held that the method of delivery was not relevant. HHJ Waksman said: “These days I would suggest that the essential characteristics of a piece of software like the Product cannot depend on its mode of delivery any more than the nature of tangible goods depends on whether they are transported by rail, sea or air.”

He also observed that, while there was copyright in the software, it would be wrong to describe it simply as intellectual property. The fact that the proprietorial character of software is intellectual (not real or personal) does not alter the position.

Why is this important?

Until now, only software bundled with hardware was deemed to be goods. Here the judge held that software (whether downloaded or on disk) constitutes “goods” for the purpose of the Regulations. Also, the sale of goods includes the grant of a software licence under the Regulations. But note that, as was held in Usedsoft, the Regulations are autonomous and so are not subject to the interpretation of apparently similar concepts under sale of goods legislation.

The court’s decision here is undoubtedly valuable in the context of the law of agency. However, the decision does not resolve the wider question of whether software constitutes goods more generally. HHJ Waksman acknowledged that “the case law dealing with the status of software is both scarce and limited in effect”. Hence, the “software as goods” issue in the wider sale of goods context remains to be resolved.

Any practical tips?

Any organisations involved in the sale or promotion of software should review their arrangements to understand the extent to which the Regulations might apply, given that software now clearly falls within their definition of “goods”. As a consequence, they should consider the inclusion of contractual terms to potentially limit the application of the Regulations.