back to article UK Court of Appeal settles reseller's question: Is software a good?

Software is not a good, the Court of Appeal in London, England, has ruled. More specifically, software is not a "good" as defined in the Commercial Agents EU Regulations, said the civil court in a ruling that overturns an earlier decision granting reseller The Software Incubator Ltd a cool £475,000. Back in 2016, a UK High …

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  1. msknight Silver badge

    So....

    Rather than argue about the software itself, they've chosen to argue about the medium on which it is supplied.

    What a f**ked up mess.

    1. Warm Braw Silver badge

      Re: So....

      The judge referred to previous cases that had been decided on the basis of whether software was supplied on a physical media and said that distinction made no practical sense.

      He also said:

      For the purposes of my conclusion, I find it relevant that the legislature opted to create a sui generis obligation – the supply of digital content - rather than widening the meaning of "goods." The novel legislative solution demonstrates to my mind that this is clearly an area in which reform must come from the European legislature and/or the UK parliament and not via judicial interpretation.

      In other words, parliament decided that "digital content" was something distinct from either goods or services and if they specifically want it to be one or the other then only they, not the courts, have the power to change the law accordingly.

      1. S4qFBxkFFg

        Re: So....

        Is it just me, or do the judge's words: "novel legislative solution" seem like a euphemism for "A barely half-baked excrescence of law that should never have darkened my desk."?

    2. Phil O'Sophical Silver badge

      Re: So....

      Rather than argue about the software itself, they've chosen to argue about the medium on which it is supplied.

      I think it's more that they've decided that the two are not the same thing.

      There's precedent for that. I remember many years ago (pre-EU rules) the UK company where I then worked getting a copy of some software (the SPICE simulator, IIRC) from the US. It was supplied on ½" magtape, and the excise people took the view that the software was not a tangible good, and so not subject to import duties. The physical tape, however, was dutiable. The result was that we had a short period, 2-3 weeks, during which we could temporarily import the tape and then export it again without being expected to pay duty. If we kept it past that period we'd have had to pay. My first task on getting it was to copy the tape & send it back.

      I'm guessing that the assumed value of the tape was calculated as the total product cost, I can't imagine the duty on a blank tape spool being high enough for all the hassle, so none of it really made sense. Them's the rules, though.

      1. Robert Carnegie Silver badge

        Re: So....

        I once dutifully contacted UK Customs because I was buying software for personal use from overseas, would it attract duty equivalent-ish to VAT? i.e. between 15 to 25 percent.

        At the tire I think I was told that since they were actually just supplying a licence key code by e-mail in return for the payment, to use with software that I had downloaded already, there was not tax. Since it was quite a long time ago, it's probably changed, so don't take my word for it.

        The purchase price was less than £100 but I thought I still could get into trouble and I didn't want to.

    3. Jason Bloomberg Silver badge

      Re: So....

      Rather than argue about the software itself, they've chosen to argue about the medium on which it is supplied.

      They argued about what the law says, what that means, and how this case fits with what that is.

    4. heyrick Silver badge
      Pirate

      Re: So....

      "they've chosen to argue about the medium on which it is supplied."

      Alternative screwed up interpretation : it is no longer "illegal" (unlawful) to pirate movies and such. Why? Because if it's just a download link with no physical media then no tangible "goods" were transferred therefore nothing was "stolen" so.......?

      1. Dr. Mouse Silver badge

        Re: So....

        Alternative screwed up interpretation : it is no longer "illegal" (unlawful) to pirate movies and such.

        I think this shows the lunacy of the situation.

        However, I don't think your interpretation would fly in court. There's probably loads of other laws which relate to it: computer misuse, copyright violation, etc.

        FWIW I strongly disagree with the phrase "copyright theft" and with the "you couldn't steal a car" style adverts. Pirating movies (by torrents etc) doesn't deprive anyone of a physical possession. In fact, it only deprives anyone of anything if you would otherwise have bought the movie/music/whatever. If not, nobody has lost anything.

        1. Yet Another Anonymous coward Silver badge

          Re: So....

          Especially since theft is "to permanently deprive the owner" which is why the need for "taking without owners consent" offences

        2. Stevie Silver badge

          Re: So.... [Dr Mouse]

          "In fact, it only deprives anyone of anything if you would otherwise have bought the movie/music/whatever. If not, nobody has lost anything."

          Still stealing.You stole it so you don't have to fork out to experience it.

          If you download it, by definition you want to experience it. If there's a cost involved in that transaction normally, bypassing that is still theft.

          By the same line of thinking I could wardrive your WiFi and hijack it for my own downloading and streaming needs, and I wouldn't have stolen from you because I would never have bought bandwidth from your provider (data throttling and overage charges notwithstanding).

          The "only if I would have bought it" argument is bankrupt and obvious to everyone.

          1. Dr. Mouse Silver badge

            Re: So.... [Dr Mouse]

            "By the same line of thinking I could wardrive your WiFi and hijack it for my own downloading and streaming needs"

            Actually, in this case you would be depriving the person paying for the bandwidth of that bandwidth. If you are using the bandwidth, they cannot, hence "stealing".

            I (no longer) pirate material. However, I still maintain the point. Look at the maths:

            - I do not purchase and do not pirate. Amount the IP owner gains from me: £0.

            - I do not purchase but pirate the material. Amount the IP owner gains from me: £0.

            There is a difference to me, as I get to experience something I otherwise would not. However, the IP owner experiences zero difference.

            I'm not saying it's morally right to do so, but the pure fact is that it doesn't make a jot of difference to the IP owner. In fact they are likely to benefit from it. An example is that Microsoft strengthened their stranglehold on the desktop OS market through piracy, because those who would not normally have paid for their OS could get it for free and therefore didn't bother looking elsewhere. In the case of a movie, it means more people have seen it and talk about it, leading to more sales (as long as it was actually a good movie).

      2. Anonymous Coward
        Anonymous Coward

        Re: So....

        it is no longer "illegal" (unlawful) to pirate movies and such. Why? Because if it's just a download link with no physical media then no tangible "goods" were transferred therefore nothing was "stolen" so.......?

        Legally that's not theft, it's fraud, different laws.

    5. John Smith 19 Gold badge
      Coat

      Sounds like it *could* have gone either way, depending on the method of delivery.

      So, really needs a change in the law.

      IE Parliament has to make the call because IRL It's either (or both).

  2. Queeg

    I suspect

    this will be one for the European court of fudge and wriggle

    1. Charlie Clark Silver badge

      Re: I suspect

      Not really: the important aspect that software licences can be traded has already been settled by the ECJ as a result of action in the German courts.

      This case really seems to hinge on the specific relationship between manufacturer and agents.

      1. Yet Another Anonymous coward Silver badge

        Re: I suspect

        So if software isn't a good, and the trade agreements only covers goods, and your country was about to start relying on WTO rules on export of goods - your software industry might be getting a little worried

  3. msknight Silver badge

    goods.

    *) possessions, especially movable effects or personal property.

    *) articles of trade; wares; merchandise:

    *) canned goods.

    *) Informal. what has been promised or is expected:

    *) to deliver the goods.

    *) Informal. the genuine article.

    *) Informal. evidence of guilt, as stolen articles:

    *) to catch someone with the goods.

    *) cloth or textile material:

    *) top-quality linen goods.

    *) Chiefly British. merchandise sent by land, rather than by water or air.

    They are articles of trade. You exchange money for the software.They have also been paid for and promised, and are expected. They don't count as a service. The service is the electronic means (download link) by which the goods (software) are delivered.

    This is going to run, and run, and run. Ultimately, I think CA is on a losing wicket with this one.

    1. DavCrav Silver badge

      Did you find that in a dictionary or a legal textbook? Because only one of them is important for the law.

    2. Brewster's Angle Grinder Silver badge

      A computer program is just a very long number. Can a number be counted as goods? ("Here's my number twelve and here's my copy of pi...")

      What's special about these particular numbers is they explain to a binary slave how to perform a service. It's a way of mapping electrical inputs into outputs; a configuration file that configures your computer to serve you in a particular form.

      (That said, the original judge was right. There are no perpetual services. The only things that can serve you for as long as you own them are goods.)

      1. TechnicalBen Silver badge

        If a paper receipt of goods can be counted as goods, then a long number representing those goods can also be.

  4. Doctor Syntax Silver badge

    "The idea that this latter situation would fall under the regulations, while the former would not, appears illogical."

    I other words, HMG being told to sort it out.

    1. DavCrav Silver badge

      "I other words, HMG being told to sort it out."

      You mean the EU, but yes.

      1. Remy Redert

        No, HMG. The distinction that's making the judge rule that software is not goods is one issued by the UK government, not from the EU. The law that is being sued over is EU-wide and specific to goods.

        Either the UK can amend their local version of it to fit their local issue of Software being defined as not goods because they've got a separate definition of it. Or the EU can pre-empt them and rewrite the original law to include Software specifically. The question is, is this an issue in any other EU countries?

        We've already got rulings here in the Netherlands holding that a perpetual software license is treated as a good in all ways applicable to it, including right of sale and transference. AFAIK Germany and France have similar rulings.

        1. DavCrav Silver badge

          "We've already got rulings here in the Netherlands holding that a perpetual software license is treated as a good in all ways applicable to it, including right of sale and transference. AFAIK Germany and France have similar rulings."

          That's weird. This appears to be an EU Regulation rather than a Directive, in which case it's not a transcription issue (as EU Regulations are not transcribed into local laws, they apply directly, so there's no issue there). There's a possible issue in the translation of the Regulation into different languages (this can sometimes cause a problem) or in the interaction between the Regulation and other UK-specific laws. I suspect a quick trip to the ECJ might be necessary, as this really should have a single definition EU-wide.

    2. Doctor Syntax Silver badge

      "I other words"

      I really have to get this key - err, the key between b & m sorted out.

    3. Ken Hagan Gold badge

      I'm fairly sure that *some* judges in the past would have taken that situation and said "This is absurd. Parliament are not idiots. Therefore, Parliament cannot have meant this. Let's reconstrue the laws in a way that isn't daft.". For example, the judge in the lower court appears to have done exactly that.

      But yes, HMG shouldn't be relying on judges to patch up their crappy legislation with sensible case law. (Indeed, they tend to get uppity when that happens, although usually it is no more than they deserved.) They need to sort this out. Happily, they don't seem to have anything else on their plate at the moment, at least judging by their general inactivity and silliness.

  5. Zog_but_not_the_first Silver badge
    Trollface

    A digital watch?

    What pray, is a digital watch?

    1. Professor Clifton Shallot

      Re: A digital watch?

      One with fingers instead of hands?

    2. Charlie Clark Silver badge

      Re: A digital watch?

      The deluxe version is the one with the real hair…

    3. Anonymous Coward
      Anonymous Coward

      Re: A digital watch?

      CCTV camera with a hard drive.

    4. David Nash Silver badge

      Re: A digital watch?

      A pretty neat idea!

  6. Missing Semicolon Silver badge
    Unhappy

    Bugger.

    Does that mean that software is not covered by the Sales Of Goods Act?

    1. Phil O'Sophical Silver badge

      Re: Bugger.

      Possibly why that legislation is now known as the "Consumer Rights Act" since 2015.

  7. Dabooka Silver badge

    Not a 'good' until it suits them

    When it plainly becomes one.

    If being purely tangible defines the definition, I wonder how many loop holes will be played out around that then, how many contracts could theoretically be ripped up (as this one) with little to no comeback.

    I love it when the law keeps up with the times.

  8. Geekpride

    I understand that the Court of Appeal has to work with the law as it is, so I'm not criticising them. But it seems that the distinction between software and goods is somewhat arbitrary and artificial. Take a piece of art, for example. This rule seems to imply that a digitally created artwork can't be a good, even if it's printed out on paper; on the other hand, a piece of art produced on paper is a good, even if it can be digitally scanned in.

  9. Dodgy Geezer Silver badge

    If you don't...

    ...believe that such a thing as Intellectual Property exists, then how do you interpret this ruling?

  10. JeffyPoooh Silver badge
    Pint

    Here, some related conceptual points...

    Definitions are easy. Everyone can give examples of "software", "hardware", "goods", and so on. But defining the precise *boundaries* of those classes is infinitely more difficult. Far too much muddled thinking caused by people not being cognizant of the important distinction between defining something versus being able to define its precise boundaries.

    Spectrums and attempted bifurcation. Many parameters are to be found in a continuous spectrum. Attempting to break a spectrum into two sections (e.g. hardware vs software) can be difficult, especially if those involved haven't yet hoisted aboard the boundary definition issue described above.

    Trifurcation can help with spectrums and fuzzy boundaries. Imagine how many wars would result if clothing only came in two sizes, SMALL or LARGE. The invention of MEDIUM has saved countless lives. Providing a middle option assists greatly. Avoid arbitrary bifurcation. Minimum three, to allow compromises to be agreed.

    Boundaries are attractive. There is a great deal of profit to be found by placing new products precisely on the existing boundaries. E.g. Crossover vehicles. New paint colours that are precisely aimed into the gaps. CPUs chips with embedded microcode. Programmable hardware like FPGAs. Boundaries to market planners are like a bright light for moths. They're not trying to annoy, they're just filling gaps and combining approaches. Plan your regulations and definitions for inevitable boundary cases.

    There's so much more. This margin is too small...

    1. John H Woods Silver badge

      Re: Here, some related conceptual points...

      ... paraphrasing, "Examples are easy, definitions are hard"

      see also Wittgenstein

  11. Col_Panek

    Richard Stallman is right

    Proprietary software is not "good".

    1. Daniel von Asmuth Bronze badge

      The good, the bad, and the ugly

      Software that contains one or more bugs should be classified as "a bad".

      1. aks Bronze badge

        Re: The good, the bad, and the ugly

        No software was ever created without bugs, if you include its ability to fail in an unplanned for situation.

        The classic example from 52 years ago on IBM mainframes was the IEFBR14 single-instruction program that simply returned to the caller. It should have set a return code showing that it was successful.

        That's the story I grew up with but am prepared to believe this is an urban myth after reading the following http://www.miketaylor.org.uk/tech/oreilly/more-iefbr14.html#gsc.tab=0

        That said, it does show how it's almost impossible to produce bug-free code for all situations.

        On the other hand, I'm quite happy with the change of title from 'good' to 'bad'.

        1. Anonymous Coward
          Anonymous Coward

          Re: The good, the bad, and the ugly

          "No software was ever created without bugs" = lie

          I write software all the time without any bugs, it isn't difficult you just have to know what you are doing.

          Here is an example written in BBCBASIC for the BBC Micro Model B, there are no bugs at all

          10 PRINT "Hello World"

          "fail in an unplanned for situation" = software used out of designed context = not bug

          If you took my BBCBASIC example and tried to run the saved binary on a PC as an EXE it would not perform as expected but this is not a bug nor is the code is wrong. Neither would it be if you run my example on a machine that is faulty, non-standard or intentionally broken in any other manner such as not having an output device to view the result.

          I know my example is not complex and is only intented for a simple system but the fact remains that if all parts of a well design system work correctly and as expected then so will the entire system.

          Where you get problems with the PC is that the hardware and operating system have their own bugs, the actual system specification is too loose and the user's typically unworthy of admin rights result in developing for the PC is a bit like Russian Roulette.

          Now if I created something that doesn't work as advertised within it's designed context and sold it as a finished product then in all areas except IT I would be held accountable. In IT I would not necessarily be held accountable because the idea that selling code with errors still present, is okay. The reason for this is IMHO the repeating of comments such as yours and results is people accept crap as gold. So please stop repeating the lie, it is possible to produce code without errors but why would a bad company bother when they are allowed to sell crap as gold instead.

          Your lies and everyone else's acceptance of bad code is IMHO killing and robbing people, decades since a well know name said "the carpenter gets paid so why shouldn't I" code is still crap and people are still buying it. I know who to blame even if you do not

        2. Jack of Shadows Silver badge
          FAIL

          Re: The good, the bad, and the ugly

          @aks

          Wrong. There are quite a number of software engineers in this world that use formal methods to engineer software that is bug free, as it must be when dealing with safety critical systems. Planes that crash themselves are not acceptable. And in the instances where this does occur, failure analysis methods are used to determine why the formal methods failed. Every case with which I am familiar, we've found that it was the failure to completely apply formalism that was the causative agent.

          No one has ever found a bug in my software and that's going on thirty years now, across multiple platforms. Believe, you will hear about it as a number of people will end up quite dead with a few billion dollars in damages.

          1. Ken Hagan Gold badge

            Re: The good, the bad, and the ugly

            "use formal methods to engineer software that is bug free"

            You mean, "software that meets the spec". Yes, that's a significant improvement in many cases, but it is only workable in situations where writing a complete spec is less effort than writing the program that meets it. Your formal methods may be as rigorous as a mathematical proof, but the history of maths is full of cases where proofs were undermined by someone noticing an unwarranted assumption.

  12. TRT Silver badge

    Surely it is the spirit of the act...

    that determines its application. If the agent has a physical stock of something, has to find warehousing, find a means of disposal, provide security, provide power etc etc. and thus has incurred an overhead with an expectation that said overhead would be recouped through the sale of the something, then there is a case to say the law applies to protect that investment and recover that outlay when the value is reduced by an outside agency that one has a contract with. Further, that would apply to, say, warehousing digital copies of serial numbers to activate the software - an existing expense that one would expect to recoup.

    Consider, then, a loss of expected income when one has expended nothing of monetary value. Was the spirit of the Act to afford protection in this scenario?

    This Act is, I think, not applicable to software per se, with it considered as intellectual property and a traceable commodity, but rather to the nature of the relationship between agent, supplier and customer.

    I wouldn't like to have to have judged that one.

    1. Anonymous Coward
      Anonymous Coward

      Re: Surely it is the spirit of the act...

      isn't there also the issue that if software becomes defined as a "good", then a consumer's rights change and things start having to be of merchantable quality, fit for purpose, free of material defect, etc? Half of the "get out" clauses in EULAs would not longer be possible?

      1. TRT Silver badge

        Re: Surely it is the spirit of the act...

        Well the Consumer Protection Act 1987 deals in 'products' rather than 'goods', and helpfully includes a definition which should help one considering the tangibility of articles covered by the Act...

        “product” means any goods or electricity and [...] includes a product which is comprised in another product, whether by virtue of being a component part or raw material or otherwise;

        The Consumer Rights Act 2015 specifically deals with Digital Content, Services etc. and defines 'goods' as...

        “Goods” means any tangible moveable items, but that includes water, gas and electricity if and only if they are put up for supply in a limited volume or set quantity.

    2. Doctor Syntax Silver badge

      Re: Surely it is the spirit of the act...

      No, it's the letter of the law that matters. You and I may have different ideas about what the spirit might be but what the Act actually says is beyond dispute - it's the text that emerges from the Westminster Gas Works and that's what the courts have to work with, even if they're not happy with it, as here. All the court can do is drop a big hint.

      1. Vincent Ballard
        Coat

        @Doctor Syntax, actually that's not true. Where there is a reasonable ambiguity over the interpretation of the letter of the law, judges can look at the debate surrounding its passage through Parliament to work out what the intended spirit was.

        1. Charles 9 Silver badge

          And if the debate just blurs the line even further?

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