21 Dec 2020

The use of resellers by software houses is long established. But this may be about to change following last week’s opinion given by the Advocate General to the European Court of Justice in the case of The Software Incubator Limited v Computer Associates Limited.

The issues in the Software Incubator case are straightforward:

1 Is software goods or services?

2 When a licence to use software is obtained by a business, is there a sale of the software?

These issues are relevant because:

1 Many resellers of software are paid by means of a commission. A business purchases a licence to use the software from the reseller. The reseller pays the money received to the software house, having deducted a percentage by means of commission. But the reseller is not selling ownership of the software. The business is only taking a right to use the software on the terms set out in the licence.

2 A commercial agent is defined by the Commercial Agents Regulation as an intermediary concerned with the sale of goods.

As a result, if the grant of a licence to use software by a software house via the reseller to the business means in law that the reseller has been concerned with the sale of goods, then the reseller will be a commercial agent for the purposes of the Regulations and will be entitled to a protection given by the Regulations to agents.

This protection includes:

1 The right to compensation when the agreement between the software house and the reseller comes to an end (either by way of expiration or termination) unless the reseller has committed a serious breach of the agreement; and

2 Damages if there is a failure by the software house to give notice of termination of the agreement to the reseller in accordance with Regulations.

The decision of the European Court in the Software Incubator case is expected in 2021. Action by software houses to revise their agreements with resellers is now urgent if they are not to be exposed to claims for damages and compensation by resellers.

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