When is software goods?
When is software goods?
Is Software “goods” for Purpose of Sale of Goods Act 1979?
The question as to whether software is “goods” for the purposes of the Sale of Goods Act 1979 (“SGA”) has long been debated. Under the SGA, a tangible computer disc containing software would amount to goods, however, software supplied in digital, intangible format (the most common means of supply nowadays) was not goods.
The Consumer Rights Act 2015 (“CRA”) which came into force in October of last year contains specific provisions in relation to digital content, that is, software that is supplied to consumers by means of downloading or streaming.
A recent High Court case has once again considered this question in the context of a commercial agent supplying application software. Under the Commercial Agents (Council Directive) Regulations 1993 (“Regulations”), a commercial agent involved in the sale of goods is entitled to compensation or an indemnity payment on termination of the agency agreement. Under the Regulations software is considered to be intellectual property, and therefore not “goods”, but hardware is.
In relation to the recent High Court case, under the agency agreement the commercial agent was to promote an application software product which was supplied electronically (i.e. in intangible form). The agency agreement was subsequently terminated and the agent sought to claim compensation under the Regulations. The principal argued the Regulations only apply to the sale of goods and that the software in question was not goods, therefore no compensation was due to the agent.
The Court held that the software was in fact goods. Although the software was intangible, the essential characteristics of a piece of software cannot be determined by its mode of delivery and so it should make no difference whether the software is supplied electronically or on tangible media. Importantly in this case, the software was being sold as a product and not as a service.
Under the CRA digital products, such as music, videos and games, which were once sold in tangible format are now recognised as goods when sold in digital format to consumers. This case has once again revisited this question but in the context of commercial agents under the Regulations. The decision demonstrates the importance of considering the actual purpose of the software; in this instance the software was an application package and therefore analogous to goods.