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