The Software Incubator Ltd v Computer Associates UK Ltd: QBD 1 Jul 2016

Claim for damages for repudiatory breach of agency agreement,and for damages for termination of sales agency agreement. The defendant argued that the 1993 Regulations did not apply since the supply of computer software under the contract was not a supply of goods as required by the Regulations.
As to whether the software was goods: ‘The Product is an application as opposed, simply, to data. More particularly, in this case, it is a program designed to give effect to the automatic deployment of or changes to other applications across a large computer network. Like other software it is itself intangible in the sense that it does not exist in three-dimensions and cannot be physically handled or transported. But its effects can be observed as with, for example, gas or electricity.
In common parlance, and without wishing to state the obvious, I believe that as a piece of sophisticated, commercial non-bespoke software, it would be regarded, at the very least as a ‘product’. It would not be regarded, nor is it, a ‘service’. Like other pieces of software, it is ‘commodified’ i.e. it is capable of transfer and commercial exploitation. Moreover, so far as ‘tangibility’ is concerned, while software itself is intangible and its method of delivery may be electronic, it can only operate in a tangible environment i.e. (a) being loaded onto a hard disk or server or some other permanent storage system, somewhere, and (b) when it runs, it will be run on a computer, tablet, reader mobile phone (depending on the software) and so on. In that sense it is akin to digital music. As Professor Clark of University College Dublin put it in an article called ‘The Legal Status of Software’ in March 2016, ‘Digital content . . possesses a functional equivalence to goods.’
Indeed, for the purposes of the Agreement, the Product is treated very much as tangible goods. Thus TSI was engaged to promote, market and sell it – there was clearly no difficulty foreseen in referring to sales and commission on those sales. Moreover, and although hardly determinative, the purported release of CA by TSI of any claims under the Regulations set out in Clause 10.2, rather suggests, objectively, that absent such a release, the Regulations would have applied.
While there is copyright in the Product owned by CA, it would be wrong to describe the Product as simply intellectual property in my view. Rather, the property rights associated with it are simply intellectual as opposed to real or personal. In that sense it is like other products, for example, music downloaded on MP3 files or books downloaded in electronically readable form. The fact that there are detailed provisions as to the use of the Product and the terms of the licence (see, for example, the master agreement made between CA and Tesco at D5/p3839 – ‘the Tesco Agreement’) does not alter this. In the case of the Product, the agreements with CA usually provide for the grant of a perpetual licence. Although it is possible to supply it on a lesser licence, it was not suggested to me by CA that perpetual licences were not the usual commercial aim and indeed Mr Dainty said that they were the most popular. I proceed on that basis.
Finally, the Product can be delivered either on tangible media or electronically. See in this regard, for example, paragraph 11 (f) of the Tesco Agreement. These days I would suggest that the essential characteristics of a piece of software like the Product cannot depend on its mode of delivery any more than the nature of tangible goods depends on whether they are transported by rail, sea or air.
Working from first principles, therefore, I would consider that the Product would today, be regarded as ‘goods’ albeit that it is not tangible.

Waksman QC HHJ
[2016] EWHC 1587 (QB), [2017] Bus LR 245
Commercial Agents (Council Directive) Regulations 1993 17(2)
England and Wales

Contract, Agency

Updated: 18 January 2022; Ref: scu.566574