European Court confirms that electronically supplied software constitutes ‘goods’ under the Commercial Agents Directive.
On 27 May 2019, the English Supreme Court referred the following question to the Court of Justice of the European Union (CJEU) for a preliminary ruling:
Whether the supply, in return for payment of a fee, of computer software to a customer by electronic means where that supply is accompanied by the grant of a perpetual licence to use that software fell within the definition of a “sale of goods” under Article 1(2) of the Council Directive 86/653/EEC (Commercial Agents Directive)?
Decision of the CJEU
On 16 September 2021, the CJEU delivered its judgment in Software Incubator Ltd. v Computer Associates (UK) Ltd (C-410/19). The CJEU recognised that the Commercial Agents Directive did not define the concept of “sale of goods” and it did not reference national law concerning the meaning to be given to the concept. Accordingly, the CJEU stated that the concept of “sale of goods” must be given “an autonomous and uniform interpretation” throughout the EU, applying the “principle of equality”.
The CJEU held that the Commercial Agents Directive does not distinguish between tangible or intangible goods. Applying the definition of “goods” from earlier case law, the CJEU found that it means products that can be valued in money and which are capable of forming the subject of a commercial transaction. The CJEU held that “goods”, for the purposes of the Commercial Agents Directive, can cover computer software irrespective of the medium on which it is supplied. The CJEU was influenced by the fact that the conclusion of a user licence agreement accompanying the computer software demonstrated a transfer of ownership since that copy of the software was permanently usable by the customer.
The CJEU ruled that the concept of “sale of goods” under the Commercial Agents Directive covers the supply, in return for the payment of a fee, of computer software to a customer by electronic means, where accompanied by the grant of a perpetual licence.
Implications under Irish Law
The Commercial Agents Directive was transposed into Irish law under S.I. 33/1994 European Communities (Commercial Agents) Regulations 1994 and S.I. 31/1997 -European Communities (Commercial Agents) Regulations, 1997 (Irish Regulations). Many Irish businesses engage self-employed sales agents to act as a conduit for selling their goods to third parties throughout Europe. Commercial agents enjoy benefits arising from the specific terms of the written agency contract, and under the provisions of the Irish Regulations. However, there are distinct tests to determine whether a person qualifies as a “commercial agent”, including that they negotiate the sale/purchase of goods or negotiate and conclude such transactions on behalf of a principal.
The CJEU’s decision has potentially broad implications. Commercial agents that negotiate the sale of software on a perpetual licence would appear to be entitled to protections under the Commercial Agents Directive and the Irish Regulations.
The CJEU recognised that the overall effectiveness of the Commercial Agents Directive would be undermined if the supply of software in the circumstances of the case fell outside the definition of the “sale of goods” and one which would not align with the reality of an increasingly technology-driven supply chain.
Paul Convery, IDI Country Expert for agency & distribution in Ireland