The High Court has recently considered the topic again in the case of Kompaktwerk GmbH v LivePerson Netherlands BV.  The reasons for the reoccurrence of the issue is twofold, one legal and the other technical: the Commercial Agents (Council Directive) Regulations 1991 (“Regulations”) only relate to agents selling “goods”, not “services”, and the growth of SaaS has led to changing business and delivery models.

Whilst this would appear to be a relatively academic and abstract issue, it isn’t.  It impacts on whether no-fault “compensation” is payable at the end of resellers’ appointments and, as such, could have had a considerable impact on reseller models.

What do the Regulations say?

Regulation 2(1) of the Regulations defines a commercial agent as:

“a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal”.

Regulation 17 ensures that “the commercial agent is, after termination of the agency contract, indemnified… or compensated for damage…”.  In effect, this gives the commercial agent a right to no fault “compensation” at the end of the agency contract.  Under Regulation 19 the “parties may not derogate from [it] to the detriment of the commercial agent before the agency contract expires”.

Accordingly, for resellers, it would be of great value for them to be viewed as commercial agents under the Regulations.

What has previous case law said?

The most relevant recent case was that of Computer Associates UK Ltd v The Software Incubator Ltd in the CJEU (on appeal from the UK’s Supreme Court), which held that:

• both tangible and intangible goods can constitute “goods” for the purposes of the Directive upon which the Regulations were based, and this can include the supply of software by the grant of a perpetual licence; and

• in order to constitute a “sale” of goods, there must be a permanent transfer of the rights of ownership of a copy of the software, such as that effected by a perpetual licence to use software.

Accordingly, the application of Software Incubator means that resellers (if agents) of perpetual software licences would be entitled to “compensation” at the end of their contracts with their principals.  But should the same apply to SaaS?

 What did this case concern?

The defendant, LivePerson, sold a SaaS product, called LiveEngage.

As is common with SaaS products, businesses  accessed LiveEnage by means of licences that lasted for 12 months at a time and which automatically renewed for further 12 month terms unless terminated.

LivePerson engaged Kompaktwerk to market the SaaS product to businesses under two methods: on a referral arrangement and on a resale basis (where Kompaktwerk purchased LivePerson’s product and resold it to third parties).

Kompaktwerk sought to claim that it was a commercial agent under the Regulations and was, therefore, entitled to substantial compensation as a result of its arrangements with LivePerson coming to an end.

The case had been put on hold pending the decision in the Software Incubator case and was effectively a summary hearing to decide whether claims based on the Regulations could be added to Kompaktwerk’s claims following Software Incubator.

What did the court decide?

The court held that the Software Incubator decision was not applicable to this case.  Software Incubator involved the grant of a perpetual licence – in this case, there was no permanent licence granted.  The court considered that the fact that the 12-month licence was almost invariably renewed was irrelevant – the initial transaction was for an initial period and each renewal entitled LivePerson to a further fee.  Accordingly, this was more akin to a rental than a sale.

The court also considered that the SaaS product marketed was a service, not a good.  It was a hosting service for which customers subscribed and under which its customers had access to a web platform in order for their clients to access the services run by employees of LivePerson.

Accordingly, this judgment is helpful in further clarifying the treatment of software under the Regulations and the applicability of the Regulations to reseller models.  Certainly, it is now clear that the resale of SaaS software licensed for successive renewing terms should be outside the scope of the Regulations and therefore resellers of such services should have no entitlement to no fault “compensation” at the end of their appointment.