Kompaktwerk GMBH v Liveperson Netherlands BV

This is the Claimant’s application by Application Notice dated 12 August 2023 to re-amend its Claim Form and its Particulars of Claim (the “POC”) to introduce a claim under the Commercial Agents (Council Directive) Regulations 1993 (the “Regulations”). The only issue between the parties is whether that claim has any real prospect of success. As such, this is also an application by the Defendant for reverse summary judgment.

The factual background is common ground between the parties, and is set out in the following paragraphs.

On 26 August 2013, the parties executed a Master Partner Agreement (the “MPA”). Later, on 18 September 2013, the parties executed an Addendum to the MPA which incorporated a referral partnership into the MPA (the “Referral Exhibit”).

Clause 1 of the Referral Exhibit outlines that the Claimant was expected to introduce clients to the Defendant in order to “explore a sale by LivePerson of its products or services (“LivePerson Services”)”. The subject of these sales was LiveEngage, “a software package which is licensed on a subscription basis and is centrally hosted (SaaS product)”. While the exact nature of LiveEngage is disputed, the broad outline is that:

The POC was filed in December 2018. The claim was not progressed beyond June 2019 pending the outcome of the Supreme Court’s request for a preliminary ruling in the ‘Software Incubator’ matter, which I deal with below.

The CJEU gave judgment on 16 September 2021. In Software Incubator, the CJEU noted that: (i) “sale of goods” is an “autonomous concept of EU law”, the scope of which cannot be “determined by reference either to concepts known to the laws of the Member States or to classifications made at national level”; and (ii) its meaning should be determined by reference to the words’ “usual meaning in everyday language, while also taking into account the context in which they occur and the purposes of the rules of which they are part”.

In essence, the draft re-amended POC (the “DRPOC”) adds three elements:

The relevant parts of the Regulations which are engaged are:

Regulation 2(1): In these Regulations—

“commercial agent” means a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the “principal”), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal; […]

“commission” means any part of the remuneration of a commercial agent which varies with the number or value of business transactions; […]

Regulation 7: (1) A commercial agent shall be entitled to commission on commercial transactions concluded during the period covered by the agency contract—

(a)

where the transaction has been concluded as a result of his action; or

(b)

where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind.

(2)

A commercial agent shall also be entitled to commission on transactions concluded during the period covered by the agency contract where he has an exclusive right to a specific geographical area or to a specific group of customers and where the transaction has been entered into with a customer belonging to that area or group.

Regulation 11: (1) The right to commission can be extinguished only if and to the extent that—

(a)

it is established that the contract between the third party and the principal will not be executed; and

(b)

that fact is due to a reason for which the principal is not to blame.

(2)

Any commission which the commercial agent has already received shall be refunded if the right to it is extinguished.

(3)

Any agreement to derogate from paragraph (1) above to the detriment of the commercial agent shall be void.

Regulation 17: (1) This regulation has effect for the purpose of ensuring that the commercial agent is, after termination of the agency contract, indemnified in accordance with paragraphs (3) to (5) below or compensated for damage in accordance with paragraphs (6) and (7) below.

(2)

Except where the agency contact otherwise provides, the commercial agent shall be entitled to be compensated rather than indemnified.

[…]

(6)

Subject to paragraph (9) and to regulation 18 below, the commercial agent shall be entitled to compensation for the damage he suffers as a result of the termination of his relations with his principal.

(7)

For the purpose of these Regulations such damage shall be deemed to occur particularly when the termination takes place in either or both of the following circumstances, namely circumstances which—

(a)

deprive the commercial agent of the commission which proper performance of the agency contract would have procured for him whilst providing his principal with substantial benefits linked to the activities of the commercial agent; or

(b)

have not enabled the commercial agent to amortize the costs and expenses that he had incurred in the performance of the agency contract on the advice of his principal.

[…]

(9)

The commercial agent shall lose his entitlement to the indemnity or compensation for damage in the instances provided for in paragraphs (2) to (8) above if within one year following termination of his agency contract he has not notified his principal that he intends pursuing his entitlement.

Regulation 17 compensation falls to be assessed in accordance with the principles in Lonsdale (t/a Lonsdale Agencies) v. Howard & Hallam Ltd. [2008] Bus LR 788. In that case, Lord Hoffman, with whom the rest of the House of Lords agreed, explained the rationale for compensation and the methodology for assessment of such as follows:

“9.

As this part of the directive is based on French law, I think that one is entitled to look at French law for guidance, or confirmation, as to what it means. Article 12 of the French law says that the agent is entitled to “une indemnité compensatrice en réparation du préjudice subi”. The French jurisprudence from which the terms of the article is derived appears to regard the agent as having had a share in the goodwill of the principal's business which he has helped to create. The relationship between principal and agent is treated as having existed for their common benefit. They have co-operated in building up the principal's business: the principal by providing a good product and the agent by his skill and effort in selling. The agent has thereby acquired a share in the goodwill, an asset which the principal retains after the termination of the agency and for which the agent is therefore entitled to compensation: see Saintier and Scholes, Commercial Agents and the Law (2005) at pp 175–177.

10.

This elegant theory explains why the French courts regard the agent as, in principle, entitled to compensation. It does not, however, identify exactly what he is entitled to compensation for. One possibility might have been to value the total goodwill of the principal's business and then to try to attribute some share to the agent. But this would in practice be a hopeless endeavour and the French courts have never tried to do it. Instead, they have settled upon compensating him for what he has lost by being deprived of his business. That is the “préjudice subi.” The French case law makes it clear that this ordinarily involves placing a value upon the right to be an agent. That means, primarily, the right to future commissions “which proper performance of the agency contract would have procured him”: see Saintier and Scholes, op.cit , pp. 187–188. In my opinion this is the right for which the directive requires the agent to be compensated.

11.

Having thus determined that the agent is entitled to be compensated for being deprived of the benefit of the agency relationship, the next question is how that loss should be calculated. The value of the agency relationship lies in the prospect of earning commission, the agent's expectation that “proper performance of the agency contract” will provide him with a future income stream. It is this which must be valued.

12.

Like any other exercise in valuation, this requires one to say what could reasonably have been obtained, at the date of termination, for the rights which the agent had been enjoying. For this purpose it is obviously necessary to assume that the agency would have continued and the hypothetical purchaser would have been able properly to perform the agency contract. He must be assumed to have been able to take over the agency and (if I may be allowed the metaphor) stand in the shoes of the agent, even if, as a matter of contract, the agency was not assignable or there were in practice no dealings in such agencies: compare Inland Revenue Commissioners v Crossman [1937] AC 26 . What has to be valued is the income stream which the agency would have generated.

13.

On the other hand, as at present advised, I see no reason to make any other assumptions contrary to what was the position in the real world at the date of termination. As one is placing a present value upon future income, one must discount future earnings by an appropriate rate of interest. If the agency was by its terms or in fact unassignable, it must be assumed, as I have said, that the hypothetical purchaser would have been entitled to take it over. But there is no basis for assuming that he would then have obtained an assignable asset: compare the Crossman case. Likewise, if the market for the products in which the agent dealt was rising or declining, this would have affected what a hypothetical purchaser would have been willing to give. He would have paid fewer years' purchase for a declining agency than for one in an expanding market. If the agent would have had to incur expense or do work in earning his commission, it cannot be assumed that the hypothetical purchaser would have earned it gross or without having to do anything.”

There were two relevant contracts, namely the MPA (the contract between Claimant and Defendant) and the MSA, which was the contract which was then entered into between the Defendant, LivePerson, and the end user of the software.

For present purposes, I only need set out the relevant terms of the MSA, which were as follows:

“1.

Services. LivePerson will provide to Company (a) the professional consulting services (“Professional Services”) as described on Exhibit A attached hereto and other mutually agreed written statements of work entered into by the parties from time to time (each, a “SOW”); and (b) the hosted services identified on the Order Form attached hereto (“the Hosted Services”)….

2.

Fees and Payments. Company agrees to pay the fees as set out on the Order Form attached hereto and as otherwise set forth herein in accordance with the payment terms in this Agreement. Invoices for Hosted Services will be payable in advance, and invoices for Hosted Services will be mailed on or about the first of each month for that month’s Hosted Services. Invoices for Professional Services will be invoiced upon execution and payable as set forth in the applicable SOW…. LivePerson reserves the right to increase fees up to five (5%) percent per each Renewal Term (defined in Section 3 below) and/or modify its fee structure for the Services….

3.

Term. The Initial Term of this Agreement shall be effective from the Effective Date set forth in the Order Form and continue for so long as the Order Form is in place between the Parties. Following the Initial Term, this Agreement shall renew for consecutive (12) month (each, a “Renewal Term”) unless either party provides written notice to the other party at least (90) days prior to the expiration of the current term (the Initial Term and all subsequent Renewal Terms collectively referred to as the “Term”). Upon request, Company shall acknowledge the commencement of each Renewal Term in writing. …

5.

Use of Brands: Marketing. Each party may use the other party’s name, trade name, trademarks and icons (collectively, the “Brands”) solely (a) in connection with the Services provided hereunder and only for so long as this Agreement remains in effect and (b) for certain marketing and promotional purposes as mutually agreed upon in writing by both parties….

6.

Licence Grant: Restrictions.

6.1

. Subject to Company’s obligations herein, LivePerson hereby grants to Company during the term of this Agreement a limited, revocable, non-exclusive, non-transferable, non sub-licensable license to (a) access and use in the Territory the Hosted Services and any software provided by LivePerson to access those Hosted Services, solely for purposes of (as applicable) communicating with, engaging with and delivering offers to, visitors to Company’s website; and (b) use any Professional Services deliverables provided by LivePerson pursuant to an Order Form or SOW solely in connection with the applicable Hosted Service referenced in such Order Form or SOW….

6.2

. Company acknowledges and agrees that Company’s rights in and to LivePerson’s Intellectual Property (as defined in Section 9) are solely as described in Sections 5 and 6.1 above and do not include any rights of ownership in any of LivePerson’s Intellectual Property. Company is not permitted to change or modify LivePerson’s Intellectual Property. Without limiting the foregoing, in the event of any change, modification, extension or correction thereof, Company hereby irrevocably assigns to LivePerson by way of present and future assignment with full title guarantee any and all rights it may be deemed to have in any such change, modification, extension or correction, and agrees to execute all documents necessary to implement and effect such assignment…. Company shall not misappropriate any of LivePerson’s software, technology or other services or use the Services, or permit enable or assist and third party, to create competing products or services, or modify LivePerson’s Intellectual Property or use any of LivePerson’s Intellectual Property unless otherwise agreed to by LivePerson in a signed writing.

7.

Acceptable Use of the Services.

7.1.

Company agrees that it will not (a) modfy, copy, decompile, disassemble or reverse engineer, or cause any other party to modify, copy, decompile, disassemble or reverse engineer, LifePerson’s software, technology and/or other services; (b) sublicense any of LivePerson’s intellectual Property to third parties or sell, resell, rent, sublicense or lease the Services to third parties; (c) otherwise violate the license grant or restrictions set forth in section 6 above; (d) use the Services to store or transmit malicious code; (e) interfere with or disrupt the integrity or performance of the Services or third party data contained therein; (f) attempt to gain unauthorised access to the Services or their related systems or networks; (g) alter, copy, move or delete any tags or code placed as part of the Services except as provided for in Section 4; (h) place tags on website pages not pre-approved by LivePerson in writing; or (i) misappropriate any of LivePerson’s software, technology or other services or use the Services or permit, enable or assist a third party to create competing products or services…

9.

Intellectual property rights. Company shall retain all rights to the intellectual property provided to LivePerson by Company, including all of its rights to its Brands, technologies, trade secrets, know how, and other intellectual property created by Company, including without limitation any modifications, enhancements and derivatives thereof (but specifically excluding any of LivePerson’s Intellectual Property). LivePerson shall retain all rights to Services and software (including without limitation any materials or code provided as part of the Professional Services), Brands, technologies, information, trade secrets, know how, intellectual property, information and data generated by LivePerson or LivePerson’s systems, whether pre-existing or created after the Effective Date, including any modifications, enhancements and derivatives thereof (including, without limitation, metrics, data and information generated by such Services and software)(collectively, “LivePerson’s Intellectual Property”). No implied licenses are granted herein.”

In addition, it may be of assistance to consider the Order Form referred to in the contract. An example of one such, involving Deutsche Telekom, is annexed to this judgment. Of particular note is the term of the contract in the Order Form. As presaged in the MSA, there is an Initial Term of 12 months from the Effective Date (with a right to terminate during that Initial Term), followed by Renewal Terms. The contract automatically renews for twelve months at a time unless terminated at least 90 days before the end of the relevant period. When it renews, a further payment is due from the customer.

The Application is made pursuant to CPR 17.1(2)(b), i.e. an amendment requiring the permission of the Court (and thus also engages CPR 17.3 insofar as required), and/or CPR 17.4(2).

The test for amendment under the applicable rules of the CPR is well-known. The Court has a broad discretionary power to grant applications to amend. In summary, where (as cannot be in dispute here) the new claim arises out of the same facts as the extant claim, the Court ought only to refuse permission to amend where the applicant seeks to raise a case which has no real prospect of success.

The Claimant contended that this is the same as the test which applies to applications for summary judgment, citing CNM Estates (Tolworth Tower) Ltd v Simon Peter Carvill-Biggs Freddy Khalatschi [2023] EWCA Civ 480 (“CNM Estates”), §75, and further contended that this “imposes a comparatively low burden” on the party seeking permission to amend their statement of case: see CNM Estates at paragraph 19.

The Claimant also accepted that various of the usual factors applied in amendment applications would apply equally here. Thus:

Under CPR 17.1(2)(b), the Court may give permission for a party to amend its statement of case where the amendments have a real prospect of success, i.e. the same test as applies to summary judgment applications under CPR 24.3. In this regard, the Defendant also relied on the CNM case.

Where such an application turns on a discrete point of law or construction, the Court should decide that point: see Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) (“Easyair”), per Lewison J (as he then was) at [15(vii)]:

“...it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better.” (Footnote: ⁵)

Where the Court decides a point of law on such an application, the usual balance of probabilities test applies: see On the Beach Ltd v Ryanair [2023] EWHC 2694 (Comm) at [74]:

“Where the Court does decide to 'grasp the nettle' and finally decide a point of law, then it must follow that the Court decides the issue on the balance of probabilities rather than simply on the basis of whether the applicant has a real as opposed to a fanciful prospect of success.” (Footnote: ⁶)

The Claimant’s skeleton argues (for the first time) that the Court should not resolve the discrete points of law on which this Application depends, and asserts that the issue of whether the LiveEngage platform is “goods” is “not appropriate for resolution at this stage.” That is the wrong approach. The principal facts here, says the Defendant, are common ground, and the point of law can be stated very shortly: is the grant of a limited licence to use computer software hosted online a “sale of goods” within the meaning of the Regulations? The Defendant contends that the answer to that question is ‘no’ based on the authorities and that the Compensation Claim is therefore bad in law. In the words of Lewison J, the Court should “grasp the nettle” and decide this point of law on the Application.

Put another way, there is no reason to suppose that oral evidence is needed to determine whether the Regulations apply in this case. In Sagal v Atelier Bunz GmbH [2009] Bus LR 1527 (CA) at [16-17], Longmore LJ held that the application of the Regulations should be resolved by the terms of the contractual documents (even where “counsel are able to argue that the effect of the documentation is (or may be) equivocal”), and that the court should avoid hearing oral evidence on the issue: “Permission to adduce further documents or oral evidence should only be granted where the judge is satisfied that the matter cannot be fairly decided on the basic documentation alone” (at [16-17]). In the present case, the Court can, and should, determine whether the Regulations apply on the basic documentation (the MPA and the MSA) alone.

For the most part, the parties are in agreement on the test for permission to amend. I am content to adopt the oft-cited observations of Lewison J (as he then was) in Easy Air, (approved by the Court of Appeal in Ward v Caitlin, as noted above) which were, for ease of reference (and in their entirety) as follows:

“The correct approach on applications by defendants is, in my judgment, as follows: 

i)

The court must consider whether the claimant has a “realistic” as opposed to a “fanciful” prospect of success: Swain v Hillman [2001] 2 All ER 91 ;

ii)

A “realistic” claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8] 

iii)

In reaching its conclusion the court must not conduct a “mini-trial”: Swain v Hillman 

iv)

This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10] 

v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550 ; 

vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63 ; 

vii )On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725 .”

I turn to apply these principles, starting with the application to amend to add the claim for compensation under Regulation 17. In this regard, in my judgment, there are two issues which arise. The first is whether, on the basis of the material currently before me, the amendment stands any real prospect of success. The second is whether the material before me is sufficient to enable me to reach such a conclusion, or whether it is reasonably likely that further material will be available at trial which means that the trial judge will be better placed to determine this issue. This latter question reflects considerations (v) and (vi) in Lewison J’s summary of the relevant principles. It is under this latter head that I will consider whether it is right to determine this point now, as opposed to allowing it to go to trial.

I start therefore with the Regulation 17 claim, or the Compensation Claim. In this section, I set out the parties’ respective submissions, before turning to my conclusions on the point. Thereafter, I turn to the second of the two issues that I identified in the preceding paragraph.

I start with the Defendant’s primary position, which was that the amendment to introduce a Compensation Claim should be rejected in its entirety.

The Defendant’s starting point was that the Regulations only apply to “commercial agents”, as defined in Regulation 2(1), which states as follows:

“‘commercial agent’” means a self-employed intermediary who has continuing authority to negotiate the sale or purchase of goods on behalf of another person (the ‘principal’), or to negotiate and conclude the sale or purchase of goods on behalf of and in the name of that principal…” (emphasis added).

Thus, the Regulations apply where an agent has the authority to negotiate the “sale … of goods” on behalf of a principal. The Defendant submitted that:

The Defendant further submitted that where there is a written agreement between the parties, the determination of whether the Regulations apply is to be made solely by reference to those terms, as at the time they were made – and not by reference to the manner in which the agreement was performed: see Sagal v Atelier at [16-17]; Crane v Sky at [77]; and Smith v Reliance Water Controls [2004] ECC 38 at [22]. (Footnote: ⁷)

Turning to what constituted goods, English case-law has consistently held that only tangible property can be “goods”, and that computer software therefore does not constitute “goods”: see e.g. St Albans DC v International Computers Ltd [1996] 4 All ER 481. However, this issue was recently considered in Computer Associates UK Ltd v The Software Incubator Ltd (Case C-410/19) [2021] Bus LR 1442, where the CJEU held, in summary:

In summary, the facts of Software Incubator were as follows:

The CJEU at [23] and [26] referred to the questions posed by the Supreme Court. The CJEU specifically identified that the software was supplied “by a licence granted indefinitely”, and that the issue was whether the concept of “sale of goods” in the Directive applied to computer software which was supplied by “the grant of a perpetual licence”.

At [30], the CJEU held that the concept of “sale of goods”:

“must be given an autonomous and uniform interpretation throughout the European Union, in the light of the need for the uniform application of EU law in conjunction with the principle of equality. That concept therefore constitutes an autonomous concept of EU law and its scope cannot be determined by reference either to concepts known to the laws of the member states or to classifications made at national level.”

In light of the above, the CJEU posed the key question at [32] as follows:

“… it must be determined whether the concept of “sale of goods” in article 1(2) of Directive 86/653 can cover the supply, in return for payment of a fee, of computer software to a customer by electronic means where that supply is accompanied by the grant of a perpetual licence to use that software” (emphasis added).

In other words, the CJEU judgment was specifically concerned with understanding the concept of “sale of goods” in the context of a customer paying a fee to download computer software and receive a perpetual licence to use that software.

In relation to “goods”, the CJEU held that they could be either tangible or intangible, and therefore software can in principle be classified as “goods”, “irrespective of whether it is supplied on a tangible medium or, as in the present case, by electronic download” (at [36]). The CJEU held that there was a “functional equivalen[ce]” between the sale of a computer program on a CD-ROM and an online sale where it is downloaded from the internet (at [38]).

In relation to “sale”, the CJEU held at [40-43]:

“40.

In the second place, according to a commonly accepted definition, a “sale” is an agreement by which a person, in return for payment, transfers to another person his rights of ownership in an item of tangible or intangible property belonging to him (Usedsoft GmbH v Oracle International Corpn, para 42).

41.

In the particular case of the sale of a copy of computer software, the court has held that the downloading of a copy of a computer program and the conclusion of a user licence agreement for that copy form an indivisible whole. Downloading a copy of such a program is pointless if the copy cannot be used by its possessor. Those two operations must therefore be examined as a whole for the purposes of their legal classification (see, to that effect, Usedsoft GmbH v Oracle International Corpn, para 44).

42.

Accordingly, the court has taken the view that the making available of a copy of computer software by means of a download and the conclusion of a user licence agreement for that copy, intended to make the copy usable by the customer, permanently, and in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which it is the proprietor, involve the transfer of the right of ownership of that copy (see, to that effect, Usedsoft GmbH v Oracle International Corpn, paras 45 and 46).

43.

Consequently, in the light of the wording of article 1(2) of Directive 86/653, it must be held that the supply, in return for payment of a fee, of computer software to a customer by electronic means where that supply is accompanied by the grant of a perpetual licence to use that software can be covered by the concept of “sale of goods” within the meaning of that provision” (emphasis added).

The CJEU thus held that a sale of computer software takes place where a seller “transfers to another person his rights of ownership” so that the buyer has the right to use a copy of the software “permanently”. The “grant of a perpetual licence” is therefore a sale.

The CJEU concluded at [51]:

“It follows from all of the foregoing considerations that the answer to the questions referred is that the concept of “sale of goods” referred to in article 1(2) of Directive 86/653 must be interpreted as meaning that it can cover the supply, in return for payment of a fee, of computer software to a customer by electronic means where that supply is accompanied by the grant of a perpetual licence to use that software” (emphasis added). (Footnote: ⁸)

The CJEU’s analysis in Software Incubator, the Defendant argued, as to the “sale” of computer software was drawn directly from its earlier decision in Usedsoft GmbH v Oracle International Corpn (Case C-128/11) [2013] Bus LR 911. In Usedsoft v Oracle, the CJEU considered Article 4(2) of Directive 2009/24/EC (the “Computer Software Directive”), which provides that once there has been a “sale” of a copy of a computer program by the rights holder, their distribution rights in relation to that copy are exhausted within the EU. This is known as the doctrine of ‘exhaustion’.

In Usedsoft v Oracle, the CJEU had to decide whether the provision by Oracle of a perpetual licence to use its computer software, in return for a fee, constituted a “sale” under Article 4(2) of the Computer Software Directive, and thus whether Oracle’s distribution rights were exhausted. The CJEU held at [42-46]:

“42.

According to a commonly accepted definition, a ‘sale’ is an agreement by which a person, in return for payment, transfers to another person his rights of ownership in an item of tangible or intangible property belonging to him. It follows that the commercial transaction giving rise, in accordance with Article 4(2) of Directive 2009/24, to exhaustion of the right of distribution of a copy of a computer program must involve a transfer of the right of ownership in that copy.

43.

Oracle submits that it does not sell copies of its computer programs at issue in the main proceedings. It says that it makes available to its customers, free of charge, on its website a copy of the program concerned, and they can download that copy. The copy thus downloaded may not, however, be used by the customers unless they have concluded a user licence agreement with Oracle. Such a licence gives Oracle’s customers a non-exclusive and non-transferable user right for an unlimited period for that program. Oracle submits that neither the making available of a copy free of charge nor the conclusion of the user licence agreement involves a transfer of the right of ownership of that copy.

44.

In this respect, it must be observed that the downloading of a copy of a computer program and the conclusion of a user licence agreement for that copy form an indivisible whole. Downloading a copy of a computer program is pointless if the copy cannot be used by its possessor. Those two operations must therefore be examined as a whole for the purposes of their legal classification (see, by analogy, Joined Cases C-145/08 and C-149/08 Club Hotel Loutraki and Others [2010] ECR I-4165, paragraphs 48 and 49 and the case-law cited).

45.

As regards the question whether, in a situation such as that at issue in the main proceedings, the commercial transactions concerned involve a transfer of the right of ownership of the copy of the computer program, it must be stated that, according to the order for reference, a customer of Oracle who downloads the copy of the program and concludes with that company a user licence agreement relating to that copy receives, in return for payment of a fee, a right to use that copy for an unlimited period. The making available by Oracle of a copy of its computer program and the conclusion of a user licence agreement for that copy are thus intended to make the copy usable by the customer, permanently, in return for payment of a fee designed to enable the copyright holder to obtain a remuneration corresponding to the economic value of the copy of the work of which it is the proprietor

46.

In those circumstances, the operations mentioned in paragraph 44 above, examined as a whole, involve the transfer of the right of ownership of the copy of the computer program in question” (emphasis added).

In short, a ‘sale’ of computer software involves a “transfer of the right of ownership” in relation to a copy of that software, so that the buyer has the right to use it “for an unlimited period”, i.e. “permanently.” This is the analysis that was adopted in Software Incubator.

It is clear from both Usedsoft and Software Incubator that a ‘rental’ of computer software, i.e. the right to use it for only a limited period, is not a “sale”. The exhaustion doctrine in the Computer Software Directive does not apply to the mere rental of a computer program, as is made clear by the terms of Article 4(1)(c) of the Directive, which grant the copyright holder the exclusive right to “any form of distribution to the public, including the rental, of the original computer program or of copies thereof”, and Article 4(2) itself, which expressly excepts from the exhaustion doctrine the “right to control further rental of the program or a copy thereof.” The term ‘rental’ is defined in Recital 12 as:

“the making available for use, for a limited period of time and for profit-making purposes, of a computer program or a copy thereof.”

In other words, EU law has drawn a sharp distinction between:

Copinger and Skone James on Copyright (18^th ed, 2022) [26-389] puts the point shortly:

“...the right is exhausted only in respect of perpetual licences. Licences granted for a finite period of time do not fall within the court’s definition of sale”.

In short, providing a limited licence to use software (e.g. by way of a subscription or a SaaS cloud-based model) is the rental of a computer program, and does not constitute a sale. Tritton on Intellectual Property in Europe (6^th ed, 2022) summarises this point at [4-147]:

“[The decision in Usedsoft] has resulted in advice to legal advisors advising their clients to switch to subscription or cloud-based business models which avoid the transfer of ownership as a result of sale and are more akin to the rental of computer programs. The Computer Software Directive specifically excludes the application of the exhaustion right to the rental of computer programs.”

Tritton cites A. Nicholson, “Old Habits Die Hard: Usedsoft v Oracle” (2013) 10:3 SCRIPTed, which considers the Usedsoft decision and its ramifications. It concludes at §4.4:

“To appreciate fully the potential ramifications of UsedSoft it is therefore perhaps also highly beneficial to consider how players “on the ground” are currently reacting. This is arguably best done by examining reactions to the decision found in legal advice memos posted by commercial law firms and reports of the case in the commercial press. The most common advice given to copyright proprietors by such services was to switch to subscription based or, ideally, cloud and Software as a Service (“SaaS”) based business models. Such sources were keenly aware of the Court’s focus on exhaustion taking place where ownership is permanently transferred as the result of a sale. All sources explained that where media is provided over the cloud it is accessed purely over the internet: neither files nor ownership change hands, pulling the principle rug out from under the Court’s feet. That this approach is probably a legitimate exception to the UsedSoft ruling has been confirmed by articles in numerous academic journals ...” (emphasis added).

The analysis from Usedsoft was adopted and applied in Software Incubator on the basis that there is an autonomous EU definition of “sale of goods”.

Taking into account the above, the Defendant submitted that EU law on the sale of computer software (including in the context of the Directive) could be summarised as follows:

Turning to the application of the law to the facts, in summary, the Defendant’s primary submission was as follows:

Applying Software Incubator and Usedsoft (as summarised above), it is clear that a limited, revocable licence is not a “sale” for the purposes of EU law, including the Directive. It is the rental of the software for a limited period. The CJEU repeatedly stated that it was concerned with a perpetual licence: see [19], [24(2)], [26], [32], [43], [51] and the ruling in [52]. Further, this was a vital part of the CJEU’s reasoning and its reliance on the Usedsoft decision and the Computer Software Directive, as explained above.

Once the CJEU decisions in Software Incubator and Usedsoft are properly understood, said the Defendant, it is clear that the Claimant’s Application has no prospects as a matter of law as the grant of a limited, revocable licence to use computer software is not a “sale” under EU law.

Extending the concept of a “sale” of computer software to the grant of a limited, revocable licence would make no sense and would cause immediate and extensive problems in IP law vis-à-vis the doctrine of exhaustion: if a mere rental of computer software for a limited period constituted a sale then it would trigger the exhaustion doctrine, and thus prevent a rights-holder from making a further sale (or rental) of the software. The whole artifice of software subscription and SaaS models would be rendered impossible.

The Defendant then sought to deal with what it termed was the Claimant’s other attempt to fit its Agency Claim within the Software Incubator analysis, which was to refer to the auto-renewal of the licences. Mr Feldmann states that:

“I re-iterate that licences auto-renewed unless terminated by either party. In practice, and prior to LivePerson terminating the MPA, the vast majority of customers allowed the licences to auto-renew, treating them as effectively unlimited.”

The short point, said the Defendant, is that auto-renewal is irrelevant:

The second point that the Defendant made was that, even if the grant of a limited licence could be considered a “sale” under the Regulations (which it cannot), the LiveEngage product which the Claimant marketed was not “goods” under the Regulations – it was a service.

Under the terms of the MSA, customers were only permitted to access the “Hosted Services” (i.e. the LiveEngage platform) – a service hosted by the Defendant. The customer did not receive a copy of any software that it could use by itself. At all times, the LiveEngage platform was hosted on the Defendant’s servers and the customers were merely granted access to those servers. That was a service provided by the Defendant.

An apt analogy would be a gym, where a customer purchases a membership pass that permits him or her to attend the gym and use its equipment. The gym is not selling any “goods” to the customer – it is selling a service, i.e. access to the gym’s facilities.

The whole point of the SaaS model (software as a service) is that a customer is obtaining the right to use a particular computer program as a service, hence the name. The customer has access to the service provided by the SaaS provider, rather than its own copy of the software. This is a fundamentally different model to a traditional arrangement, where a customer would make a one-off purchase for a particular computer program, which it would then install on its own computer systems and use without any further involvement of the seller.

Turning to the gym analogy again:

As to the Claimant’s arguments in this regard, the Defendant submitted as follows:

I turn to the Claimant’s submissions.

The Claimant began by making reference to the purpose of the Regulations, which were enacted to protect agents by giving them a share of the goodwill which they have generated and from which the principal has benefitted after the agency agreement has been terminated: see Nagel v Pluczenik [2017] EWHC 1750 (Comm) at [42]. When construing a legislative instrument which is intended to give effect to a Directive, such as the Regulations, the Court should interpret it so as to accord with the purpose and intention of the Directive and its interpretation by the CJEU: see Tamarind International v Eastern Gas (Retail) Ltd Times 27 June 2000; [2000] Eur LR 708 at [21]; PJ Pipe and Valve Co Ltd v Audco India Ltd [2005] EWHC 1904 (QB) at [145].

It was in this regard that the Claimant took issue with what was said by Gloster LJ in the case Software Incubator case in the Court of Appeal. The Claimant argued that, far from giving a strict interpretation to the Directive, the Court should give a broad purposive construction. The Claimant also relied on the fact that, at paragraphs 43 and 44 of the judgment of Gloster LJ, she relied on the earlier decision of Popplewell J in Nagel v Pluczenik [2017] EWHC 1750 (Comm), a decision, which, the Claimant pointed out, was overturned by the Court of Appeal at [2018] EWCA Civ 2640. In the Court of Appeal, the Claimant pointed out, Leggatt LJ (as he then was) identified the need to give the Regulations a purposive construction, in order to give effect to the policy end sought to be achieved.

The Courts have held that “negotiate the sale” should be interpreted in the widest sense of dealing with and conducting or managing discussions between the principal and the purchaser: see PJ Pipe & Valve & Co Ltd. v. Audco India Ltd [2005] EWHC 1904 (QB) at paragraphs [154] – [155]. Hence, an agent does not have to do much beyond the introduction of a customer in order to be able to fall within the definition. On the evidential material before the Court, the Claimant’s activities under the MPA clearly fall within the definition.

The Claimant therefore submitted that the principal issue between the parties was thus whether the products being sold were “goods” within the meaning of Regulation 2(1); and whether there had been a sale of such “goods”. In summary, the Claimant submitted that the Compensation Claim met the relevant test.

In more detail, the Claimant submitted as follows:

I start with a consideration of whether, on the basis of the materials before me, the Claimant’s Compensation Claim has a real prospect of success.

I have concluded that, in this context, the Defendant’s case is to be preferred. I reach this conclusion for the following reasons, which mirror to a large extent the submissions made by the Defendant. In essence, I have concluded that the contract in this case did not involve a sale of goods, because there was no permanent licence granted by LivePerson to the third party end user; and, secondly, I have concluded that the product which was marketed in this case was a service, not a good.

In more detail:

For all of these reasons, I have concluded that the claim under Regulation 17 does not stand any real prospect of success on the basis of the evidence before me.

The Claimant submitted that both expert and factual evidence was relevant and necessary in order for me to reach a final conclusion in relation to this proposed amendment. In this regard, the Claimant made the following points.

First, the Defendant’s evidence came from its solicitor, Mr Boynton, a partner in Kirkland and Ellis. He had no first hand knowledge of the manner in which the Defendant’s software functioned, being dependent on the information provided to him by his client’s in house Counsel, Ms Greenberg and Ms Aach. This evidence was, said the Claimant, not a satisfactory basis for me to proceed on.

Secondly, the Compensation Claim is underlined by factual disputes which cannot be disposed of at this stage. The parties have witness statements which contradict the other on the following matters:

The Defendant, for its part, contended as follows.

First, the evidence of Mr Boynton was based on the evidence of those who did have first hand knowledge of the manner in which the system worked; and in any event, was background material, only.

Secondly, what was of real relevance was the terms of the contracts, which were clear and beyond argument.

Thirdly, the factual disputes referred to by the Claimant were peripheral, even to the extent that there was dispute. Even if the Claimant’s accounts were correct, then this would not prevent me from determining this application fairly.

I have concluded that in this case it is appropriate to determine the matter on a summary judgment application. I reach this conclusion for the following reasons.

I do not think that any of these considerations militate against the conclusions that I have reached. It is my view that here what was provided was services, not goods, and that those services were provided on a temporary basis only (being provided year on year), and not sold.

As an alternative to its primary position, the Defendant adopts an alternative position, on the basis that a relationship of commercial agency existed, in which case it wishes to seek to exclude from the valuation of the agency so-called VBP contracts, associated professional services and Managed Success Fees. In view of my conclusion in relation to the Defendant’s primary case, I do not need to express a view on these arguments.

In its original claim for fees, the Claimant seeks certain allegedly outstanding fees. Paragraph 41 of the RAPOC seeks the same relief under Regulations 7 and 11, but without particulars.

Regulation 7, quoted above, provides that a commercial agent is “entitled to commission on commercial transactions concluded during the period covered by the agency contract (a) where the transaction has been concluded as a result of his action; or (b) where the transaction is concluded with a third party whom he has previously acquired as a customer for transactions of the same kind.” Regulation 11 (also quoted above) relates to the extinction of such a right.

The Defendant submitted that Regulations 7 and 11 do not apply in the present case. The Claimant’s entitlement to fees is expressly set out in the MPA and its exhibits. The parties disagree on the facts as to whether the Claimant is entitled to particular fees, and the original claim for fees needs to go to trial to resolve that dispute. If the Court finds that the Claimant is not entitled under the MPA to certain fees, there is no basis for saying that the Claimant is nevertheless entitled to them under Regulation 7. The Claimant has not explained its position on this issue, beyond a bare assertion in the Claimant’s skeleton that if commission is not due under the MPA, then “it would be due under Regulation 7”. That is not right, and no authority or analysis is provided in support.

The Claimant’s skeleton also incorrectly asserts that Regulation 7 cannot be excluded by the parties’ contract; it can: see Ingmar GB Ltd v Eaton Leonard Inc (formerly Eaton Leonard Technologies Inc) [2001] CLC 1825 at [30]. The right to commission cannot itself be excluded, but the parties can choose the mechanism for such commission in their contract.

The Claimant submitted that this claim stands and falls with the issue of whether there is a Reg. 2(1) agency under the MPA. If, as the Defendant claims in its primary defence, the commission were not due under the extant breach of contract claim under the MPA then it would be due under Regulation 7. At the hearing, the Claimant submitted that this was an entitlement which cannot be ousted by contract, by virtue of Regulation 11(3), cited above. However, following the hearing, my attention was drawn to a decision of the CJEU after Brexit, in which the Court decided that this right under Article 7 could be ousted contractually Rigall v Bank Handlowy (Case C-64-21). Although I am not bound by that decision, I am entitled to take it into account.

In my judgment, the Claimant is correct in saying that this issue stands or falls with the question of whether there is a Regulation 2(1) agency under the MPA. If, as I have held, the Claimant is not a commercial agent within the meaning of that phrase in the Regulations, then there cannot be a right to commission under that Regulation.

Accordingly, I hold that there is no tenable claim for commission under the Regulation. Any claim for commission must be based on the terms of the contract applicable to this case.

The Claimant was entitled to purchase and “resell” the Defendant’s services under the Resale Exhibit – see paragraph 3(a) of the Preamble to the Resale Exhibit. The Claimant was entitled to purchase the Defendant’s Services at a 30% discount. The Defendant would then “invoice the [Claimant]”, which would be “solely responsible for payment of fees” to the Defendant.

The Claimant was then entitled to “sell the LivePerson Services”. The Claimant was entitled to “determine from time to time, in its sole discretion, the retail price that [the Claimant] shall charge to Customers for individual purchases of the LivePerson Services.”

Accordingly, the Claimant would enter into a contract directly with the customer, in its own name. The Claimant would be responsible for its own contractual relationship, including invoicing that customer for payment.

As already noted, the Regulations do not apply where a person resells goods in his own name, as the person is not acting “on behalf of another” under Regulation 2(1): see Sagal v Atelier at [12]. That is precisely what happens under the Resale Exhibit. It is only the Claimant’s activities as a commercial agent which are part of the ‘agency’ under the Regulations and in respect of which a claim can be brought.

Whilst Mr Feldmann says that “there was little difference between sales conducted under the Resale Exhibit and sales conducted under the Referral Exhibit” the legal analysis of these two situations is quite different:

Mr Feldmann also claims that, in practice, the Claimant did not set prices at its “sole discretion” and that the Defendant “heavily dictated” the terms of the Claimant’s agreements with its customers. The Defendant does not accept this as a matter of fact, but ultimately it does not matter for two reasons:

The Claimant’s skeleton at §34 relies on Mercantile International Group plc v Chuan Soon Huat Industrial Group Ltd [2002] CLC 913. That case is of no assistance to the Claimant:

Accordingly, the Claimant’s activities in relation to the Resale Exhibit did not come within the definition of ‘commercial agent’ and were not part of the “business of the agency”. The Claimant’s Agency Claim in relation to such activities does not have any real prospect of success.

The Claimant’s evidence is that in practice the arrangements were highly regulated and akin to the practice under the Referral Agreement. Thus, everything was highly regulated by the Defendant. (Footnote: ¹⁰) The Defendant had the ability to refuse to approve a potential customer and thereby prevent a sale; the ability to require terms and conditions to be used as between the customer and the Claimant which were to the benefit of the Defendant and for which there was no need as regards the relationship between the Claimant and the customer; and very significantly a requirement that the Claimant give to the Defendant disclosure of all details of its arrangement with the customer, including as to pricing and payment terms. This was far from a “normal” reseller situation.

This was therefore in substance exactly the same process as occurred under the Referral Contract and in reality the Claimant was not free to sell on its own account, but rather the contracts were being placed with the Claimant as a matter of form, not substance. The position is therefore akin to the one in Mercantile International (op cit), where the Court of Appeal considered a situation where there was an agreement with clear wording describing the relationships between the parties, whereby direct contracts were brought into existence between the defendant principal and the purchasers through the agency of the claimant with the authority and knowledge of the defendant principal. The defendant principal sought to argue that notwithstanding this clear wording, because of the way the relationship worked in practice, and in particular that the claimant charged more to purchasers than the claimant had confirmed as the price to the defendant principal, the claimant keeping the difference for itself and obtaining no remuneration in the form of commission or otherwise from the defendant principal, this was not actually an agency relationship. The defendant principal argued that the claimant was operating as a distributor who undertook the obligations of a principal in a chain as buyers of goods from the defendant principal and as seller to the purchasers. The Court of Appeal rejected this argument, saying that the question of markup being applied was merely one factor which in other cases had assisted in a finding of fact that the basis on which the parties did business was that of sale and resale. By contrast to the other cases it considered, in the case before it the documents indicating there was an agency could not be regarded as a sham, but reflected the true relationship. It held that the effect of the parties’ course of dealing was as if they had expressly agreed that the claimant could keep as its commission as an agent the mark-up which it was able to negotiate.

The Claimant contended that, at the very least, there is a real prospect that this point will succeed and that it requires a trial of the evidence, so that the amendment should be allowed.

I have concluded that, once again, the Defendant’s case on this aspect is to be preferred. I have reached this view for the following reasons.

First, as I understand it, the claim which the Claimant wishes to add under the Resale Agreement is premised on the hypothesis that its services pursuant to that Agreement entitle it to compensation under the Regulations. As such, it is relevant to the quantum of its Article 17 claim. As I have held that this claim does not have any real prospect of success, it follows that any claim under the Resale Agreement must also fail.

Secondly, as the Defendant pointed out and as I have noted above, the Resale Agreement involved the sale to Kompaktwerk and resale by Kompaktwerk of the product to a third party, in contrast to the referral agreement, which involved the bringing together of the Defendant and potential customers with a view to LivePerson selling the product to the third party. This latter was an agency relationship. On the face of it, the former was not.

The Claimant argues that despite this fact, various factual matters indicate that, despite the appearance of the contractual documentation, the resale agreement in fact worked in exactly the same way as the referral agreement, so that it should be treated as an agency arrangement. In this connection, reliance is placed on the Court of Appeal decision in Mercantile International Group PLC v Chuan Soon Huat Industrial Group Limited [2002] EWCA Civ 288. However, that reliance is, in my view, misplaced. In that case, the contracts expressly stated that MIG were acting as agents. In the absence of an allegation that these contracts were a sham, the fact that the contract stated that MIG was an agent with authority to bind its principal was conclusive. Here, the position is the opposite. The Claimant argues that the fact that the resale contract does not state that it is an agent can be ignored, and instead, the court can look behind what are on the face of things the contractual arrangements and hold that what appears to be a purchase and resale transaction is in fact an agency arrangement. In my judgment, this is impermissible.

For both of these reasons, I hold that the application for permission to amend to introduce reference to the Resale Agreement should be dismissed.

I would be grateful if the parties could draw up an Order to give effect to this judgment. If any consequential matters cannot be agreed, I will deal with those at a further short hearing.