Software distribution EU changes
I’m a UK based software vendor. Brexit happened. Why should I be interested in a recent opinion of the Court of Justice of the European Union related to commercial agents?
The Commercial Agents Directive was implemented into UK law by the Commercial Agents (Council Directive) Regulations 1993 (the Regulations) and impacts many commercial agency relationships. It implies a right to a "compensation" or an "indemnity payment" on termination of a relevant agency. Depending on various factors, that termination payment can be quite significant.
It has long been argued that software isn’t goods (unless it’s being sold in physical form i.e. on a disc on installed on hardware) and that the regulations do not therefore apply to relationships between software vendors and agents where there is a fully electronic supply chain.
In the context of a long running case in the English Courts, the UK Supreme Court referred the matter to the Court of Justice of the European Union in May 2019. On 16th September 2021, the European court ruled:-
The concept of ‘sale of goods ’ referred to in Article 1(2) of Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents must be interpreted as meaning that it can cover 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.
It is very likely (albeit there is a certain discretion) that the judgement will be adopted by the UK Courts.
Why you should you be interested?
Agents (as opposed to buy-sell distributors) selling your software whose agreements are terminated are likely to become entitled to termination payments (and that includes former agents – subject to limitations).
Do you distribute software via vendors in the UK or throughout the EEA on an agency basis rather than a buy-sell basis?
Are the termination payment risks on your radar?
If not, it is time to review what you have and consider whether any changes are necessary.
In that regard, there are clear commercial and legal differences between buy-sell distribution relationships and agency relationships. An analysis of the full raft of those differences are beyond the scope of this article. The classification of a relationship has material tax implications too and so when reviewing distribution arrangements at a fundamental level, the tax implications need to be considered with specialist tax advisors too.
Author:
Neil Malone is a consultant general legal counsel (a 2005 qualified English law solicitor). He practiced law at a leading regional and international law firm, and spent nearly a decade supporting in-house legal teams of global tech companies. Further details about Neil can be found at neilmalone.co.uk.
Telephone: 020 7504 7071 ext 201
Email: [email protected]
Sabina Ciofu
Sabina Ciofu is Associate Director – International, running the International Policy and Trade Programme at techUK.