Germany: Are Commercial Agents Who Are Selling Software Entitled To Compensation At The End Of The Contract?

Last Updated: 27 April 2018
Article by Oliver Korte
Most Read Contributor in Germany, September 2018

In March 2018, the UK Court of Appeal (Computer Associates UK Ltd. v. The Software Incubator Ltd. [2018] EWCA Civ 518) ruled that commercial agents who sell software that is downloaded rather than supplied on data carriers (such as a CD-ROM) are not entitled to compensation under UK law if the contractual relationship ends.

Under UK law, commercial agents are only entitled to compensation if they are engaged in the sale of goods. The UK court ruled that non-embodied software was not considered goods and that therefore no compensation claim was to be awarded. The court was clearly attempting to justify this particular ruling, because the distinction as to whether software is embodied in a medium or not does not seem fair and arbitrary. The court considered itself prevented from interpreting downloaded software as goods, however.

Using this judgment, the question can be assessed of what the legal situation is when German law is applied. A response can be given quickly since both Section 84 German Commercial Code (which defines what a commercial agent is within the meaning of the Commercial Code) and Section 89b Commercial Code (which governs the compensation claim) stipulate that "transactions" are to be brokered. It is irrelevant under German law what the subject of the transaction is, whether goods or not. A commercial agent who is selling software (or services) is therefore always entitled to compensation under German law if the requirements of Section 89b Commercial Code are met, irrespective of whether the software is downloaded or supplied on a storage medium. This statement, arising directly from the wording of the law, is banal, albeit of practical relevance, of course. The UK judgment is not only interesting as a counterexample, but also opens up design options for certain constellations that lead to excluding the right to compensation. This is significant because this claim generally cannot be excluded under Section 89b(4) Commercial Code (exception: Section 92c Commercial Code, in particular in sales outside the EEA). According to Art. 3 Rome I Regulation (which governs which law is applicable in cross-border contractual obligations), the parties are free to choose the applicable law by contract. Anyone who therefore chooses UK law to be contractually applicable in this respect may probably avoid the right to compensation as a business – at any rate, no court decisions to the contrary are evident. Of course, this is only possible in cross-border transactions, thus not in purely German transactions (Art. 3(3) Rome I Regulation). This way out is even blocked for the sale of goods, because UK law also provides for a mandatory compensation claim in this case (stipulated by European Directive 86/653/EEC). UK law is not the only law within the EU which provides for compensation claims only for commercial agents selling goods. Irish and Hungarian law, for example, also have the same provisions as UK law in this respect and may therefore be used to avoid compensation claims.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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