The Commercial Agents (Council Directive) Regulations 1993 provide for the payment of compensation to a commercial agent whose agency agreement is terminated by the principal without cause, even when terminated under a notice clause in the agreement. However an important limitation is that they only apply to to agents authorised to negotiate or conclude "the sale or purchase of goods" on behalf of their principal. Agencies to negotiate the supply of services by the principal are not covered.
So what is the position when an agency for the supply of software is terminated? Is software "goods" for this purpose? The Regulations, and the EU Directive which they implemented, do not define "goods".
This question came up in the case of Computer Associates UK Ltd v The Software Incubator Ltd [2018] EWCA Civ 518 decided by the Court of Appeal on 19 March 2018. In that case Computer Associates had terminated an agency agreement to resell their release automation software, which was supplied by electronic download only, and not on disks, by way of perpetual licence. The judge held that the Regulations should be interpreted so that "goods" included downloadable software, and that Computer Associates had wrongly terminated the agency, as the agent was not in breach of contract. He therefore awarded the agent £475,000 in compensation for the loss of its future income stream.
Lady Justice Gloster, delivering the judgment of the Court of Appeal agreed that Computer Associates had not been entitled to terminate the agency, but disagreed that downloadable software was "goods" under the Regulations. She referred to the earlier St. Albans and Your Response cases, which had made a distinction between software provided on physical disks and software provided by electronic download, and held that only the former constituted "goods". She noted that the Consumer Rights Act 2015 (which implements the EU Consumer Rights Directive and now governs the sale of goods to consumers - though not to businesses) accepted this distinction as being the existing law and provided for a new category of "digital content" to give consumers equivalent rights for downloaded content to those they had for physical goods. As the software here was not "goods", the Regulations therefore did not apply, the agent's £475,000 compensation was disallowed, and it was left with the £15,000 the judge had awarded as damages for breach of contract.
This case confirms the orthodox understanding that packaged software sold on physical disks is "goods" but software downloaded from the internet is not. The reality nowadays is that almost all software is sold by download. Consumers have the protection of the digital content provisions of the Consumer Rights Act 2015, but those do not apply to businesses, who cannot therefore claim that downloaded software is not of satisfactory quality under the Sale of Goods Act 1979.
In any case, much software is now supplied as a Cloud-based service, especially in a B2B context. This will definitely not be "goods" when the sale is negotiated by an agent, but is more likely to be considered as a "service" given the way Cloud subscription agreements are typically structured. The Commercial Agents Regulations will not apply in such cases, but the implied warranty that the supplier has used reasonable skill and care in the provision of the services under the Supply of Goods and Services Act 1982 would apply if not contractually excluded.
