18 Dec 2020

New legal protection for software resellers anticipated

Software resellers are entitled to be protected by law when their agreements with software houses come to an end.

This was the opinion of the Advocate General of the Court of Justice of the European Union in the case of The Software Incubator Limited (TSIL) v Computer Associates Limited.

The case against Computer Associates concerns an action brought by TSIL in the English High Court for compensation under the Commercial Agents Regulations following the termination by Computer Associates of TSIL’s agency agreement with Computer Associates.

TSIL had acted as the agent of Computer Associates before its agency agreement was terminated by Computer Associates in 2013.  Following termination, Fox Williams LLP, on behalf of TSIL, issued a claim in the High Court for compensation and post-termination commission under the Regulations and for damages for failure to give proper notice of termination.

In the English High Court judgment was given in favour of TSIL represented by Fox Williams LLP.  This judgment was overturned by the Court of Appeal.  But in 2019, on the application of TSIL, the UK Supreme Court decided to ask two questions of the European Court namely whether:

1 Bespoke software supplied electronically (and not on any tangible medium) constitute “goods” for the purpose of the definition of a commercial agent?

2 Bespoke software supplied to a principal’s customer under a perpetual licence constitutes a sale of goods for the purpose of the definition of a commercial agent?

At the same time the Supreme Court granted TSIL permission to appeal the Court of Appeal’s judgement. In the opinion delivered to the European Court Advocate General Tanchev has stated that:

1 Bespoke software supplied electronically does constitute “goods” for the purpose of the definition of a commercial agent; and

2 Bespoke software supplied to a principal’s customer under a perpetual licence does constitute a sale of goods for the purpose of the definition of a commercial agent.

It is likely that the European Court will follow the opinion of the Advocate General. If this proves to be the case it is likely to impact the eventual judgment of the Supreme Court.

Stephen Sidkin, Partner at Fox Williams commented, “This opinion of the Advocate General should serve as a wake-up for the software industry in particular and the digital tech sector as a whole in the UK and across the European Union. It is likely that the Court of Justice of the European Union will decide to follow the Advocate General’s opinion in finding that software is to be considered as “goods” for the purpose of the European Agents Directive. This will have a major impact on the software industry where the use of resellers (agents) is commonplace but businesses have not factored in their exposure to compensating agents on termination of reseller (agency) contracts.”

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