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Software can be considered 'goods' for purpose of commercial agent rules – High Court

Software suppliers can be forced to pay damages

Software suppliers can be forced to pay damages to self-employed intermediaries they contract with to promote their products under UK commercial agents regulations, according to a recent High Court ruling.

The High Court ordered Computer Associates UK Ltd (CA) to pay The Software Incubator (TSI) £475,000 in compensation under the Commercial Agents (Council Directive) Regulations after ruling that there was "no lawful basis" for CA to terminate its contract with TSI in October 2013.

The court said that by terminating the agreement CA was itself in repudiatory breach of the contract with TSI and that TSI was therefore entitled to damages under the terms of the regulations.

Under the Commercial Agents (Council Directive) Regulations, commercial agents are entitled to claim compensation for the damage they suffer when principals terminate their agreements under some circumstances. Principals do not need to compensate commercial agents if they have terminated the agreement because of "default attributable to the commercial agent which would justify immediate termination of the agency contract".

Immediate termination of the contract is justified by either a commercial agent or principal, under the regulations, if the other party has failed to carry out their contractual obligations.

CA had argued that TSI could not be considered a 'commercial agent' for the purposes of the regulations. It claimed that its software could not be classed as 'goods' and that therefore TSI could not bring a claim for compensation under the regulations. His Honour judge Waksman QC rejected CA's arguments.

Under the regulations, a 'commercial agent' is defined as "a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the 'principal'), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal", subject to some listed exceptions.

In his ruling the judge said that products do not need to be tangible to qualify as 'goods' and that, providing software is "treated in the agency agreement in the same way as other 'tangible' goods, they should be interpreted in the same way when they are clearly a 'product' and not, for example, a service".

The judge said: "The intended supply of [CA's] product amounts to a 'sale' of goods. The fact that sometimes, the product might be supplied on a limited licence does not affect this conclusion because one has to decide whether TSI was a 'commercial agent' in the round and having regard to the principal way in which the product was supplied."

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