In a recent landmark ruling (Kompakwerk GmbH v. LivePerson Netherlands B.V., September 4, 2024, [2024] EWHC 2278 (Comm)), London’s High Court of Justice held that time-limited SaaS subscriptions cannot be regarded as sales contracts. As a result, resellers of such licenses are not entitled to the protections afforded to commercial agents, which apply only to intermediaries involved in the “sale of goods.”

This decision, grounded in Directive 86/653/EEC, is worth close consideration by legal and industry professionals, as it offers a valuable extension to the established interpretation given by the Court of Justice of the European Union (CJEU).

Contractual relationships between software editors and distributors vary widely due to the multifaceted nature of these partnerships (including marketing and pre-sales, technical support, remuneration models…), modes of software delivery (physical copies, downloads, or SaaS), as well as the legal relationships claimed (commissioned distributors, agents, resellers, referrers, etc.). As we will see, the duration of the license granted to the final client should also influence the terms of the distribution contract.

When a distributor is involved in negotiating and/or concluding a license contract between the software vendor and the end customer, the question often arises of whether this intermediary can qualify as a commercial agent. A question that is both relevant and significant:

• Relevant, because the concept of a commercial agent, as defined in Directive 86/653/EEC (reflected in Article L.134-1 of the French Commercial Code), refers to transactions involving the “sale or purchase of goods.” It is far from clear whether a software license, as an intangible asset, falls within this definition of “goods,” a term typically associated with tangible assets and a transfer of ownership.

• Significant, because the European framework for commercial agents offers them highly desirable protections that can be costly for the principal, including the right to commissions and termination compensation.

The CJEU’s Position on Perpetual Software Licenses

In 2021, the Court of Justice of the European Union (CJEU) ruled in a case involving a reseller of perpetual software licenses, determining that the reseller could indeed be considered a commercial agent (CJEU, September 16, 2021, C-410/19, The Software Incubator Ltd v. Computer Associates).

The CJEU held that software can be classified as “goods” because it has commercial value and is subject to commercial transactions. In doing so, “goods” effectively became synonymous with “thing,” which can be either tangible or intangible.

The European judges further recognized the existence of a transfer of ownership, noting that the software copy (resulting from a download) was permanently transferred to the customer due to the perpetual nature of the license. Indeed, the classification of a perpetual software license as a sales contract was not really new (CJEU, July 3, 2012, C-128/11, Usedsoft GmbH v. Oracle International Corp.).

However, SaaS licensing, which does not involve the delivery of a software copy or a perpetual right, will inevitably lead the Court to revisit this issue.

Until then, the recent ruling by the London court is noteworthy as it represents a new interpretation of Directive 86/653 in the context of SaaS offerings.

SaaS Offerings Cannot Be Regarded as Sales

The case concerned a reseller who provided end-users with access to a software solution under an annual SaaS license. The question was whether this reseller could be classified as a commercial agent and thus benefit from the protections of UK regulations transposing Directive 86/653.

The High Court ruled that a cloud-based SaaS model for providing software to clients for a limited period does not involve a “sale” and should instead be seen as a “rental.” In the absence of a permanent right granted to the client, the transaction cannot be equated with a sale of software.

Consequently, a distributor of a SaaS-offered software product cannot claim the protections available to commercial agents.

What Are the Implications of the Kompakwerk Ruling?

Some may point out that this decision comes from a UK court and was issued several years after Brexit, meaning it has no immediate impact on EU or French case law. This is indisputable, and no EU court is bound by the Kompakwerk ruling. It is worth noting that efforts to overhaul the regulations transposing the 1986 directive have been an old chestnut in the UK.

Nevertheless, this decision demonstrates how strongly it is based on the text of the directive and CJEU case law. It does not contradict them but rather seems to align closely with them: Since the CJEU considers a transaction a sale when the customer receives a permanent right to use the software, such a classification cannot apply if that right is temporary, as with a tacit renewable license term.

For professionals, distributors, and resellers, now may be the time to update or enhance the contractual model in use. For specialized legal professionals, this ruling offers a new opportunity to revisit the academic debate on the legal classification of software licenses!

By Antonin STAUB, November 14, 2024

We are very pleased to announce that Amar Goussu Staub was highly praised by JUVE Patent in its ranking 2020 for the “Top patent litigation firms in France”:

“This small IP boutique is well positioned in the Paris market and is best known in patent litigation for its notable clients from the telecoms sector. It also boasts a solid client base of French midsized companies. The team has gained visibility in patent litigation. The work of name partner Cyrille Amar in high-profile telecoms proceedings, e.g. on the side of ETSI in the pan-European dispute between TCL and Philips, drew the most attention in the market. He acted for LG in the dispute against Conversant Wireless and was to thank for the NPE’s controversial SEPs being declared non-essential. Another major mobile telecoms provider, Ericsson, banked on his know-how in high-profile proceedings. Besides these, French clients from a range of industrial sectors, e.g. heating technology or medical devices, frequently call on the team for patent disputes. The firm also advises on licensing and FTO, as well as covering the IP side of deals.”

Update on FRAND decisions before French courts:

In the case between TCL and Philips and in which ETSI was represented by our firm, a first decision was rendered on February 7, 2020. The pre-trial judge dismissed Philips’ challenge and decided that the Paris Court had indeed jurisdiction to hear a request for the determination of FRAND licensing conditions.

The judge noted on this occasion, following our argument, that the link between the promisor (Philips), the promisee(ETSI) and the beneficiary (TCL) stemmed from ETSI’s rules of procedure and was therefore contractual in nature.

A hearing on the merits will be held on June 2, 2020 during which the court will examine ETSI’s request to be exonerated, in particular on the grounds that the stipulation for the benefit of a third party (stipulation pour autrui) excludes any implication of the promisee in the relationship between the promisor and the beneficiary once the beneficiary has accepted the promise.

Identity fraud against a commerce high school: trademarks are invalid. The firm assisted a Business School, in a case of fraudulent trademarks registration. The Lyon Civil Court declared the trademarks registered by the opposing party invalid, for fraudulent registration and for infringement of a domain name. The Court also condemned the opposing party for unfair competition, and ordered the transfer of the domain names, under penalty of a daily fine.

Original character of a knife handle model: The court cuts off the case as we pleaded! The firm intervened in a copyright infringement dispute, in defense of the interests of a French leader in cutlery and tableware. The Paris Civil Court held the original character of the knife handle model, which constitutes a work which can be protected on the basis of copyright, and condemned the opposing party for infringement. The Court also issued prohibition orders, under penalty of a daily fine.

Essential Standard Patents (SEPs – FRAND): Recent news on the Philips-TCL case: On 3 December 2019, during a pre-trial hearing focused on the competence of the French court, Cyrille Amar pleaded for ETSI, the standard setting organisation. Learn more.

The agreement: a tool enabling a best protection for trade secrets in the telecom industry. Read the new article (in French) written by Cyrille Amar in the issue of December 2019 of the legal review Communication – Commerce électronique (ref CCE 2019/12, pratique n°16)

The firm assisted a world famous music orchestra, in a case of fraudulent trademarks registration, unfair competition and parasitism. The transfer of the trademarks to the benefit of the orchestra was ordered by the Lyon Civil Court, which also condemned the opposing party for unfair competition and parasitism, issued prohibition orders under penalty, and ordered the publication of the decision.

A new associate has joined the firm on the 4th of Sept.: It is our pleasure to introduce our new associate, Pierre Nieuwyaer, as associate. With an already rich experience of several years in a leading international lawfirm, Pierre is coming to reinforce our existing team. Please visit Pierre’s dedicated page here.

 

A new GRDP audit achieved! Our firm achieved in the required deadlines (end of July!) the GRDP audit and the review of the implementation of the recommendations made to a BtoB services provider specialized in Web and mobile applications monitoring in the fields of bank, insurance, luxury and e-business.

Intellectual property and cartoon movie: The firm achieved the formalisation of the rights assignments necessary for exploitation of an original cartoon movie dedicated to TV broadcasting. The executed agreements related on the designers, cartoonists and the music composer rights, and the pre-distribution of the animated movie.

Internet-of-things (IoT): The firm assisted one of its clients, a world leader in spirits market, in a large and unprecedented marketing campaign focused on Internet-on-things.

The firm also supports charity projects: The firm is particularly proud to have advised an associative restaurant in its project of partnership with an original concept of catering aimed at fighting against food waste while offering meals to people in difficulty, in a comfortable, artistic and contemporary setting. World-renowned names in the world of cooking and contemporary art have participated in this fabulous and successful project.

 

Our firm has been distinguished as a “rising team” in the category “Lawyers: Patents”  at the edition 2018 of the Trophees du Droit Edition conseils juridiques.

We completed the drafting and negociation of an important amendment to a contract of supply of a monitoring center

We completed negociation and finalisation of an important international agreement for the supply and operation of a system aiming at supervising electronic communications.

Advising a software editor acting in the field of insurances for implementation of a PoC (Proof of Concept)

Proceedings before the Paris Civil Court concerning parasitism in the field of dating websites and cosmetics

Proceedings before the Paris Civil Court concerning a European patent infringement in the industry of laminators

Advice of a public body focusing on science and technology on the determination of ownership rights of a software created by an employee.

Proceedings before the Paris Court of Appeal concerning copyright infringement, unfair competition, parasitism and disparagement in the cutlery and tableware industry

Proceedings before the Paris Civil Court concerning an alleged patent infringement, unfair competition and parasitism in the health industry

Survey and analysis of IP and distribution litigation in the EU for an international healthcare and cosmetics company.

Advise of a French local authority as regards protection of new trademarks and its exchanges with INPI

Consortium for R&D concerning an encryption system for electronic communications

Negotiation of a contract for the implementation of a Bug Bounty program (community tests of computer attacks)

Settlement ending proceedings for trademark infringement in the field of hi-fi

Drafting of a Web development agreement for a producer of industrial oils

Defense of a mobile telecommunication operator before an arbitral tribunal in relation to a FRAND licence on standard essential patents.

Legal support in relation with the proposition made in reply to a bid issued by a first rank bank

Representation of a professional of the tourist industry in a trademark infringement matter

Specific advise concerning regulation applicable to dual-use products (aka “R226-1”)

Action for recovery of property for a well-known football player (registered surname)

Negotiation of a settlement agreement following a long-term investment and collaborative R&D project of biotechnologies and pharmaceutical industry

Negotiation of a support agreement based on time and materials, and concerning a 5G-related R&D project implemented by a company specialized in networks simulation tools and a telecom equipment manufacturer

Dispute resolution before the Court of Appeal of Paris concerning a claimed infringement of designs and patterns in the sector of optical distribution

Finalization of negotiations on a project of products development, between a multi-core chips designer and an aeronautics manufacturer