Distribution
Commercial Agent Indemnity and the sale of software licences
A look at the case C.J.E.U., The Software Incubator Ltd v Computer Associates (UK) Ltd. Can a commercial agent obtain an indemnity after having distributed software licences? In September 2021, the Court of Justice of the European Union (C.J.E.U.) dealt with an important question. It
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A look at the case C.J.E.U., The Software Incubator Ltd v Computer Associates (UK) LtdCan a commercial agent obtain an indemnity after having distributed software licences? In September 2021, the Court of Justice of the European Union (C.J.E.U.) dealt with an important question. It concerned the indemnity rights of commercial agents in the sale of software. Indeed, the debate arose from a conflict between The Software Incubator Ltd and Computer Associates (UK) Ltd. They were disputing over the indemnity due after the termination of their agreement.
Qualification of the commercial agent
Computer Associates sells software licences online. The Software Incubator had the task of finding new clients in the United Kingdom and Ireland. After the end of the contract, The Software Incubator requested an indemnity. Computer Associates refused, arguing that online sales do not count as a "sale of goods" under Directive 86/653/EEC.
Indemnity of the commercial agent
The C.J.E.U. had to rule on whether this form of sale could be classified as a sale of goods. After analysis, the Court recognised The Software Incubator as a commercial agent. It held that these transactions involve a transfer of ownership against payment, thus qualifying the online supply of software as a sale of goods. *** Thus, this decision clarifies the application of the directive to the sale of software online. It confirms that these transactions can be considered as sales of goods. From now on, suppliers can be recognised as commercial agents and can claim an indemnity under certain conditions. Consequently, this clarification has a major impact for software companies and digital commercial agents. It precisely delimits the rights and obligations linked to the distribution of software.
To learn more
Does a commercial agent who sells software have a right to an indemnity?
Yes, the Court of Justice of the European Union confirmed this in 2021 in the case The Software Incubator v Computer Associates. The supply of software licences online can be qualified as a sale of goods, opening up the status of commercial agent and the right to an end-of-contract indemnity under certain conditions.
What did the case The Software Incubator v Computer Associates say?
Computer Associates was selling software licences online and refused the end-of-contract indemnity to its agent, considering that online sales were not a sale of goods within the meaning of Directive 86/653. The CJEU ruled in favour of the agent, qualifying the online supply of software as a sale of goods.
Is the online supply of software a sale of goods?
Yes, according to the CJEU. The Court held that these transactions involve a transfer of ownership against payment, which qualifies them as a sale of goods within the meaning of the directive on commercial agents. This qualification opens up the application of the protective status of the commercial agent to the distribution of software.
Why is this decision important for software publishers?
Because it clarifies that distributors of software licences online can be recognised as commercial agents and claim an end-of-contract indemnity. Publishers must therefore factor this risk into their distribution contracts and anticipate the possible indemnity due upon termination of the relationship.
What indemnity can a commercial agent claim?
In the event of termination of the contract, the agent is entitled to an indemnity compensating the loss suffered. In practice, it is often assessed at around two years of commissions, but this scale is not binding on the judge, who assesses according to seniority, the contribution of clientele and the circumstances of the termination.
What conditions to benefit from the commercial agent's indemnity?
One must first be qualified as a commercial agent, which the CJEU decision facilitates for distributors of software online. The indemnity is due in the event of termination of the contract, except for exceptions (serious fault of the agent, assignment on its initiative, termination by its own doing). The conditions are assessed on a case-by-case basis.
How can a publisher anticipate this indemnity risk?
By precisely framing its distribution contracts: qualification of the relationship, missions, remuneration, conditions and consequences of termination. The publisher must appreciate that its online distributors may fall under the status of commercial agent and provision for the potential indemnity. Legal support makes it possible to structure these contracts with full knowledge of the facts.
Does this case law apply in France?
Yes. CJEU decisions are binding on the interpretation of the national law of Member States. The French Court of Cassation integrates this case law, as it has done on other aspects of the status of commercial agent. Distributors of software online established in France can therefore avail themselves of it.
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