James Gill and Fiona Vickerstaff of Lewis Silkin summarise a recent case on the legal status of software as a service.
Those of us working in the tech space will remember the relatively recent case of The Software Incubator Ltd v Computer Associates UK Ltd in which the CJEU decided that a perpetual licence to use software constituted a sale of goods under the Commercial Agents Directive. This caused great excitement at the time but did raise the question: what about non-perpetual licences to use software – would these also be considered as a sale of goods, or would such time-limited arrangements be differentiated from their perpetual cousin in the Software Incubator case and, instead, viewed as sales of services?
Well, we can now shuffle back from the edges of our seats: the Commercial Court case of Kompaktwerk v LivePerson has come to our aid and provided an answer. Spoiler alert: it’s rather as we expected…
Background
LivePerson provides a SaaS product called LiveEngage, B2C communication software “which is licensed on a subscription basis and is centrally hosted”. Customers purchase licences for a period of 12 months (which automatically renew, unless terminated) to access and use LiveEngage.
In 2013, the parties entered into an arrangement pursuant to which Kompaktwerk agreed both to introduce customers to LivePerson, as well as resell LiveEngage to customers directly. The relationship between LivePerson and Kompaktwerk broke down and Kompaktwerk brought a claim against LivePerson for unpaid fees, as well as compensation and commission under the Commercial Agents Regulations (on the basis that it was a commercial agent for LivePerson).
Given that a commercial agent is defined under the Regulations 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” [emphasis added], the key issue was whether the licences purchased by customers for LiveEngage were goods or services.
Outcome
The court concluded that the provision of time-limited licences by LivePerson to its customers was (1) more akin to the rental of software, rather than the permanent sale of it; and (2) therefore, for the purposes of the Commercial Agents Regulations, a provision of services.
In particular, the court differentiated LivePerson’s licensing model from the Software Incubator perpetual licensing model because “it was an essential part of the CJEU’s reasoning in Software Incubator … that the licence granted in that case was a perpetual licence” and “there must be a permanent divestment of the seller’s interest in the product for there to be a sale”.
Final thoughts
The decision doesn’t come as a surprise. However, the ruling is helpful in offering ever-important clarity to SaaS providers that time-limited licences of their software will not constitute a sale of their product for the purposes of the Commercial Agents Regulations (although we expect this position may be more generally adopted – the idea that SaaS should be considered a provision of service is, of course, implied in its very name).
It’s also worth noting that the previous Conservative government threatened to scrap the Regulations (see our article here) and it remains to be seen whether the current government will carry out this proposal.
It is my view that here what was provided was services, not goods, and that those services were provided on a temporary basis only (being provided year on year), and not sold.
You can read the judgment here.
This article was first published on Lewis Silkin and has been reproduced here with permission.
