The recent Commercial Court judgment in Kompaktwerk v LivePerson 2024 has provided comfort for Software as a Service (SaaS) providers. The judgement confirms that SaaS is deemed to be a ‘service’ (not a ‘good’), provided there is a time limited or renewal element to the service agreement. 

SaaS is a term used to describe software solutions which typically connect to or use the cloud. This software is still managed and updated by the cloud service provider and not the end user, unlike traditional software sales. Well known SaaS products are Microsoft 365, Zoom and Google workspaces. Another common characteristic of SaaS products is that these services are provided on a subscription basis and are continually maintained by the service provider.  

Background

Kompaktwerk v LivePerson is the latest in a line of cases that have considered SaaS subscriptions and whether they are ‘goods’ within the Commercial Agents (Council Directive) Regulations 1993 (Regulations). 

This case is based on a software package called LiveEngage, which was licensed on a subscription basis. LiveEngage allowed businesses to communicate with consumers through their business website, with LiveEngage being purchased via a 12-month licence which renewed annually unless terminated. 

The case questioned whether the time-limited subscription constituted a ‘sale of goods’ as this would determine whether Kompaktwerk was a commercial agent under the Regulations. If Kompaktwerk was a commercial agent under the Regulations, Komparktwerk would have been entitled to commission and compensation due to the relationship coming to an end. 

The Decision

The judgment refers to the previous case Software Incubator Ltd v Computer Associates 2016 which held that the provision of software by way of a grant of a perpetual licence can constitute a "sale of goods" under the Regulations.  

In the present case, the Judge considered LiveEngage to be a service and not a sale of goods because of the time-limited nature of the agreement. This analysis did not change because of the auto-renewal feature of the licence, noting that payment was required to renew and the service would not have been provided if payment was not made. The Judge therefore found this was similar to a rental or the provision of services and not a sale of goods. 

The judgment sets out the analogy of a gym where customer purchases a membership to access and use the gym, here the gym is selling a service. If the gym closes down, the customer cannot do anything about this and the customer has not received any "goods" and has no rights over the equipment in the gym. This translates to the provision of SaaS where if a company closes down and stops providing the service the customer cannot do anything about this as the customer has not received the software to use itself going forward and is reliant on the provider continuing to host and provide the software. On this basis, it was held that LiveEngage was a service and that Kompaktwerk was not a commercial agent under the Regulations. 

This decision clarifies that only where software is provided for perpetual use would it be considered a ‘good’ under the regulations. 

The Future of the Regulations

On another note, the Government has proposed plans to abolish the Regulations and has recently held a consultation requesting feedback on these plans. 

For businesses that are or may become commercial agents under the Regulations this will be an important change and may result in the removal of the protections provided by the Regulations.  

The Government are currently reviewing the responses to the consultation before deciding on how to proceed. 

If you have any queries on the above article, please contact Martin Cook.

This passle was drafted by Beth Jewell and Abbie McGregor.