Computer Associates UK Ltd ("CA") entered into a
non-exclusive agreement with The Software Incubator Limited
("TSI"). TSI agreed to provide software consulting and
promotion services in return for a fixed monthly fee and commission
TSI's director was unhappy with the relationship and decided
to become an agent for another company ("the company"),
which led to TSI signing an agreement with them. TSI intended to
terminate the agreement with CA, but CA served three months'
notice of termination on TSI in September 2013. However, CA then
decided to terminate the agreement earlier and with immediate
effect, alleging that TSI's work for the company amounted to a
repudiatory breach. TSI claimed compensation under the Regulations,
commission on post-termination sales, and damages.
CA argued that the Regulations did not apply because (i) a
supply of software could not qualify as a sale of goods for the
purposes of the definition of "commercial agent" in the
Regulations; (ii) TSI's actions as a commercial agent were
"secondary"; and (iii) TSI was in repudiatory breach of
the agreement, and therefore no contractual damages or other
compensation could be claimed.
The Court accepted that software does qualify as goods for the
purposes of the Regulations and held, also, that the breaches TSI
had committed were minor and not repudiatory. In doing so, the
A separate definition of the sale of
goods for the purposes of the Regulations is desirable to help
clarify the law.
Software should be interpreted as
goods where it is treated in the same way as other tangible
There is no reason why software
should be tangible for it to qualify as goods.
Other jurisdictions, including New
Zealand, consider a sale of software to be a sale of goods.
The software is
"commodified" ("capable of transfer and commercial
exploitation"), so it would be normal to refer to it as a
product rather than a service.
This is a landmark decision. The judgment departs from
traditional interpretations of the definition of goods found in the
Sale of Goods Act 1979, affording software agents statutory
protection. The Court's approach in this case demonstrates that
the Regulations do not prevent software being treated as goods.
Also, the grant of a perpetual license of software can be treated
as a sale.
Historically, software could only qualify as goods where it was,
for instance, combined with hardware. The Court adopted a modern
day interpretation and appears to have lifted the restrictions in
the digital age. This sends a message out to software companies who
should now consider minimizing their exposure under the Regulations
when they engage with agents.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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