Software: Goods or services?
Author: Michelle Sherwood
Software is an elusive product when it comes to determining whether supplying it should be classified legally as goods or as services.
The position under English law is not that clear and there is little case law to add clarity. This makes it difficult for suppliers to know what terms have been implied into the contracts for the supply of the software and accordingly what remedies may be available to the consumer if there is a problem with the software.
The issue was recently considered by the Court Appeal in the case of Computer Associates UK Ltd v Software Incubator Ltd ("Computer Associates v Software Incubator"). In this case, Software Incubator Ltd were seeking to rely on the protections available to commercial agents under the Commercial Agents (Council Directive) Regulations 1993 (SI 1993/3053) (the "Regulations"). The Regulations apply to agents who sell or purchase goods on behalf of their principal, but not to the sale and purchase of services. The Court determined that when software is supplied electronically and not on any tangible medium it does not amount to 'goods' for the purposes of the Regulations, and Software Incubator were therefore unable to benefit from the protection afforded by them.
The definition of 'goods' under the Consumer Rights Act 2015is stated to mean 'any tangible moveable items'. This definition encompasses the traditional 'off the shelf' packaged software. It is clear that when a consumer enters a shop and physically buys a disk (or other format), that consumer has the benefit of the Consumer Rights Act 2015implied terms - for example satisfactory quality - and is entitled to a variety of remedies if the products are not of satisfactory quality. These remedies include the right to request a repair or replacement or a refund of the purchase price. However, the position is less clear when the software is purchased over the internet and downloaded directly to a consumer's computer. In this scenario no physical disk is sent to the consumer. The absence of a physical product has meant that similar transactions have tended to be classed as a supply of services. However, whilst this classification is by no means certain, it seems likely that the approach of the Court in Computer Associates v Software Incubator will be applied in relation to other legislation regarding the sale of goods, and in particular the Consumer Rights Act 2015.
Contracts for services are also covered by the Consumer Rights Act 2015, which implies a term that the services must be carried out with reasonable skill and care, a lower standard than that of satisfactory quality as implied in relation to the sale of goods. Remedies available to consumers for breach of these terms are a claim for damages.
The legal treatment of software in this way may not fit comfortably with how both suppliers and consumers would imagine the supply of software to be classified. However unless and until this gap is filled by legislation, whether you are supplying or receiving software, you should seek to ensure that express provisions are made in the contract stating exactly what remedies are to be available in the event of a problem occurring.
Shoosmiths has advised clients on the supply of software to consumers, and is well placed to assist you in determining which law regulates the supply of your software and your obligations under those contracts.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.