• October 21, 2024

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• 2 minutes of reading

In a recent court decision, the High Court ruled that software-as-a-service has a limited duration (SaaS), subscriptions are not considered “sales of goods”. The case in question, Kompaktwerk GmbH v LivePerson Netherlands BV (2024) EWHC 2278 (Comm)clarifies the legal position of SaaS agreements under the Commercial Agents (Council Directive) Regulations 1993 (1993 Regulations).

The case of the software incubator

In the previous case of the EU, The Software Incubator vs. Computer Associatesthe Court of Justice has established that a perpetual license to use computer software constitutes a “sale of goods” within the meaning of the Commercial Agents Directive (Council Directive 86/653/EEC). This decision raised the question of whether SaaS subscriptions, particularly those of a limited duration, and software provided via a SaaS model would be classified the same under English law.

The Kompaktwerk affair

THE Compact works This case concerned a reseller and listing agreement between a SaaS provider and a reseller, and whether a limited-time SaaS subscription constituted a “sale of goods” within the meaning of the 1993 Regulations. In this case, the reseller would then be a commercial agent and would be entitled to commission and compensation upon termination of the agreement.

High Court decision: SaaS as a “service” and not a “sale”

The High Court concluded that limited-time SaaS subscriptions do not meet the criteria of a “sale of goods”. The reasoning was based on two key points:

1. Not a sale, rather a rental: Customers received a 12-month limited license to use the software. Although there was an automatic renewal right, customers had to pay to trigger it. If payment is not made, the license will not be renewed and the agreement will terminate. The software license was therefore not perpetual and the customer did not have a permanent right to use the software.
2. A service, not a good: The SaaS product was hosted on the vendor’s servers, which required the vendor to grant customers access to use the software. This type of arrangement was considered a “service” rather than a “good.” The court held that the provision of software via a cloud-based SaaS model does not involve the transfer of ownership, but rather the granting of limited access to a service.

Implications for SaaS providers and agents/resellers

This decision has significant implications for companies involved in agency and/or reseller agreements dealing with the resale of SaaS subscription products. If limited-time SaaS subscriptions are considered “services” rather than “goods,” then the 1993 Regulations, which protect agents in the sale of goods, will not apply. This is advantageous for SaaS providers, as they will not be subject to the commission and compensation requirements relating to sales of goods under the 1993 Regulations. However, this is a disadvantage for agents and potential resellers, who lose these protections when dealing with SaaS products.

The ruling could have a wider impact on other areas of law that make distinctions between goods and services. This also strongly suggests that software delivered via the SaaS model (whether time-limited or not) will be a “service” and that other legal principles regarding the sale of goods may not apply to the SaaS model .

The previous Conservative government proposed abolishing the 1993 Regulations and carried out a consultation process earlier this year. It remains unclear exactly how the new Labor government will proceed with the consultation and its conclusions.

If you have any concerns about the impact of this decision or potential regulatory changes on your business, or would like to discuss a SaaS, reseller or agency agreement, please contact a member of our technology team.