CJEU revisits UsedSoft: Is online supply of perpetual license software equivalent to selling merchandise?

 In this post we analyze the judgment of the Court of Justice of the European Union (“CJEU”) in case C ‑ 410/19 (The Software Incubator), which concludes that computer software supplied electronically can be considered a “merchandise” and that, if accompanied by a perpetual license to use the copy of the downloaded software, it must be understood as a “sale of goods”, all within the meaning of Article 1 (2) of Directive 86/653, of December 18, 1986, on the coordination of the rights of the Member States with regard to independent commercial agents (Directive 86/653).

Although the question resolved has little to do with the field of intellectual property, the famous “Usedsoft” case (case C-128/11) plays a decisive role in its resolution. That ruling had a great impact in the field of copyright because in it the CJEU examined whether in the field of computer programs it was possible to speak of distribution and, consequently, of the exhaustion of this right when their commercialization had been carried out in intangible form by making a copy available for download online.

It should be remembered that there were four main conclusions reached then by the CJEU: (i) that when the copy of a software program is provided through a license without a time limit in exchange for a price, there is a transfer of ownership of that equivalent copy to a "sale"; (ii) regardless of whether the program is marketed on physical media or by download; (iii) that once the software is sold, the owner's right of distribution is exhausted and the acquirer can resell it; and (iv) that the following acquirers of the software are legitimately so.

Facts of the case "The Software Incubator"

However, before explaining the relevance of the UsedSoft judgment for our case, it is necessary to identify the parties to the resolution analyzed here and the reason for their confrontation. In the first place, the opposing parties are: Computer Associates, a company located in the United Kingdom and dedicated to the commercialization of software designed for large entities such as banks or insurance companies; and The Software Incubator, promoter and marketer of the aforementioned software in the United Kingdom and Ireland on behalf of Computer Associates by virtue of a contract signed by both parties in March 2013. It should be clarified that the commercialization of the litigious software was carried out through electronic concession of licenses for use in a specific territory and for a limited number of authorized users. In addition, although licenses could be acquired both in perpetuity and limited in time, most were contracted sine die.

When, in October 2013, Computer Associates terminated the agreement signed with The Software Incubator, the latter filed a lawsuit in court demanding compensation under the UK national law incorporating Directive 86/653.

For the compensation regulated in article 6.1 of Directive 83/653 to be applicable, there must be a contract or commercial agency relationship. For these purposes, the Directive defines in its article 1.2 the commercial agent as:

“Any person who, as an independent intermediary, is permanently in charge either of negotiating on behalf of another person, hereinafter referred to as the entrepreneur, the sale or purchase of merchandise, either of negotiating and concluding these operations in the name and on behalf of the employer. "

The defendant denied that the contract signed with the plaintiff was a commercial agency, considering that supplying a software program electronically together with a perpetual license for its use was not a “sale of merchandise” for the purposes of the definition of commercial agent under that directive. Among other reasons, it alleged that the term "merchandise" could only be applied to tangible personal property.

The court of first instance ruled in favor of the plaintiff and demanded that Computer Associates pay the compensation claimed. However, after the filing of the corresponding appeal by the defendant, the court of second instance rejected The Software Incubator's claims on the grounds that it did not hold the status of “commercial agent”. The plaintiff then went to the English High Court in a last attempt to obtain victory in this legal battle.

The question referred

At this point, the English Supreme Court asked the CJEU whether, from the perspective of article 1.2 of Directive 86/653, computer software that is supplied electronically constitutes a “merchandise” and therefore it can be considered that a “sale of merchandise takes place. ”If said supply is made through the granting of a perpetual license to use a copia of the program.

Resolution

The CJEU, which after Brexit was competent to rule on this issue until December 31, 2020 and the request for a preliminary ruling having been made within that period, jointly resolved the points raised in response to the following arguments:

The Directive object of the controversy when it uses the term "merchandise" does not distinguish according to its tangible or intangible nature. Therefore, this term must be interpreted under the case-law of the Court of Justice as any product that can be valued in money and as such can be the subject of commercial transactions. Software complies with these parameters, regardless of whether the supply is in physical form or electronically by download, both modes of transmission being equivalent.

To define the notion of "sale", the CJEU goes to its resolution of the "UsedSoft" case and indicates that it should be understood as a contract through which the property rights of a good - corporeal or not - are transferred in exchange for a price. In this way, making a copy of a software program available by downloading it and entering into the corresponding perpetual use license agreement constitute one thing and its legal qualification requires joint analysis. This is so because the downloaded copy would be of no use if you did not have the corresponding authorization for its use. Furthermore, the CJEU recalls that in the case of computer programs, said set implies the transfer of ownership of the copy of the licensed software.

In view of the foregoing, the CJEU considers that the electronic supply of software in exchange for a price and provided that it is accompanied by a license for perpetual use, can be framed within the concept of "sale of merchandise" within the meaning of the provisions of Directive 86/653.