The Commercial Court in Kompaktwerk v LivePerson [2024] EWHC 2278 (Comm) has ruled that a time-limited subscription to Software-as-a-Service (“SaaS”) is not a “sale of goods” as a matter of law. This is a landmark judgment of substantial importance in the software market.
SaaS is a cloud-based software delivery model where computer applications are hosted online and made available to customers over the internet. Examples of such software include Microsoft Office 365, Dropbox and Zoom.
In Computer Associates UK Ltd v The Software Incubator Ltd (Case C-410/19) [2021] Bus LR 1442, the Court of Justice of the European Union (“CJEU”) held that a customer obtaining a perpetual licence to download and use computer software constitutes a “sale of goods”. The question posed in Kompaktwerk v LivePerson was whether a time-limited subscription to a SaaS application also constitutes a “sale of goods”?
The defendant, LivePerson, offers a SaaS product called LiveEngage. LivePerson engaged the claimant, Kompaktwerk, to market this software to businesses.
Kompaktwerk sought to introduce (by way of an amendment) a claim that it was a commercial agent for the purposes of the Commercial Agents (Council Directive) Regulations 1993, and that it was therefore entitled to substantial compensation due to the parties’ arrangement coming to an end. Kompaktwerk argued that there was no practical difference between the SaaS model and the traditional model of purchasing and downloading computer software, and so the Court should follow the CJEU decision in Software Incubator.
LivePerson submitted that this claim had no real prospect of success, because the SaaS model does not involve any “sale of goods” and therefore Kompaktwerk was not a commercial agent. LivePerson argued that there was no sale, and that the SaaS model involves an ongoing service, not goods. LivePerson also argued that the Court should “grasp the nettle” and decide this point at a preliminary stage, without the need for a trial.
Christopher Hancock KC (sitting as a High Court Judge) accepted LivePerson’s arguments in full. The Judge held that:
- A “sale” involves a “permanent divestment of the seller’s interest” in the product. In this case, there is no “sale” of goods because customers only obtain a limited, 12-month licence to use the online software, which could be renewed periodically. “This is akin to a rental and not a sale”: see para 69(6).
- Further, the SaaS software involved “the provision of services rather than the sale of goods”. The customer was “given access to a product which was held on the servers of the Defendant”, and thus the “heart of the product was the service to which the customer subscribed”: see para 69(7).
- Although there were certain disputes of fact between the parties, the “really important documents in this case are the contracts” (para 78(2)). The factual points raised by the Claimant did not militate against the conclusions reached on the “sale of goods” issues, and the Judge was therefore able to grasp the nettle and decide the issues.
This is the first case to grapple with the SaaS model and whether it fits within the “sale of goods” category as a matter of English law.
Alexander Brown appeared for the successful defendant, LivePerson, instructed by Kirkland & Ellis LLP.
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