• 2 min read

Time-limited SaaS subscriptions are not ‘sales of goods’

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What’s happening?

In the recent case, Kompaktwerk GmbH v LivePerson Netherlands BV [2024] EWHC 2278 (Comm), the High Court has held that time-limited, software-as-a-service (SaaS) subscriptions are not sales of goods.

The Court of Justice previously established in The Software Incubator v Computer Associates, that a perpetual licence to use computer software was a ‘sale of goods’ for the purposes of the Commercial Agents Directive (Council Directive 86/653/EEC).

Kompaktwerk considered a reseller and referral arrangement between a SaaS provider and a reseller, and whether a time-limited SaaS subscription was a ‘sale of goods’ under the Commercial Agents (Council Directive) Regulations 1993 (1993 Regulations). If it did, then the reseller would be deemed to be a commercial agent and entitled to commission and compensation as a result of the arrangement ending.

The High Court found that the SaaS cloud-based model of delivering software to customers:

  • did not involve a ‘sale’ so was considered to be a ‘rental’ arrangement. Customers received a limited 12-month licence to use the software. Although there was an auto-renewal right, customers had to pay in order to trigger it. Therefore, if the customer failed to pay, the licence would not renew and the arrangement would end, so the software licence was not perpetual and the customer did not have a permanent right to use the software; and
  • was a ‘service’ and not a ‘good’. The granting of access to the software by the SaaS provider, which was held on its server, was a service provided.

Why is this important?

If agency arrangements involving the reselling of SaaS subscription products which are time-limited are ‘services’ rather than ‘goods’, then the 1993 Regulations (and any protections afforded to agents thereunder) will not apply.

What should you do?

The previous Conservative government proposed plans to abolish the 1993 Regulations and held a consultation process earlier this year. It remains to be seen how the new Labour government will proceed with the consultation and its findings. If you have any concerns or would like to know how the above ruling and potential changes might affect your business, or if you would like to discuss any current or potential SaaS, reseller or agency arrangement, please contact a member of our Technology team.

Disclaimer

This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.

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