16 Sep 2021

Court decision increases costs for software companies

The Court of Justice of the European Union in Strasbourg has today decided in favour of Fox Williams’ client, The Software Incubator Limited (TSIL), in its case against Computer Associates.

This landmark decision will have significant consequences throughout the software industry as it concerns the use by software companies of “resellers”.

The case against Computer Associates concerns an action first 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.

After an adverse judgment in the Court of Appeal, TSIL appeared before the UK Supreme Court in 2019 which asked two questions of the Court of Justice of the European Union 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?

The European Court of Justice has now ruled that a sale of electronically supplied software is a “sale of goods” within the meaning of the Commercial Agents Regulations and therefore that Computer Associates wrongfully terminated its agreement with TSIL.

Partner Steve Sidkin who is part of the Fox Williams’ team representing The Software Incubator says: “We are extremely pleased with this decision by the Court of Justice of the European Union. Software companies both in the UK and EU which use resellers – in effect agents – will now need to consider their use.

“The Court’s decision means that they can expect claims for compensation when their contracts with resellers come to an end for any reason other than serious breach by the resellers. As such software companies should give thought to including provisions in their contracts with resellers which reduced the protection given by the Commercial Agents Regulations and the EU Agents Directive to resellers.“

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