Is a software reseller a commercial agent?

Software manufacturers often use so-called "resellers" to distribute their software. The parties then enter into a "reseller agreement" (sometimes called a "partner agreement" or "distributor agreement") in which the "reseller" often receives a commission for each software license he can "sell" to customers.

The Court of Justice recently had to address the status of such ‘resellers,’ and specifically whether there can be commercial agency.

Commercial agency

If these "resellers" can be considered as independent commercial agents, they enjoy a high level of protection through the European Council Directive 86/653/EEC of 18 December 1986 on the coordination of the laws of the Member States relating to self-employed commercial agents which was converted into Belgian law in Book X, Chapter 1 of the Code of Economic Law.

Commercial agents enjoy a high level of protection in the sense that, on the one hand, certain minimum notice periods have to be observed when the cooperation is terminated and, on the other hand, they are entitled to a so-called compensation for recovery (i.e. compensation for the customers brought in). If the reseller is not a commercial agent but a mere reseller (a distributor), this legal regime does not apply.

Article I.11, 1° Code of Economic Law defines a commercial agency agreement as an agreement whereby one party, the commercial agent, is charged by the other party, the principal, without being under the principal's authority, on a permanent basis and in return for remuneration, with mediating and possibly concluding business in the name of and on behalf of the principal.

The essential difference between a reseller and a commercial agent is that a reseller sells goods in his own name and on his own behalf, while a commercial agent always acts in the name and on behalf of his principal. A reseller buys a stock of goods, keeps them in stock and sells them, setting his own prices and invoicing; he then takes a margin on the purchase and sales price. A commercial agent merely mediates a sale between his principal and the customer; the principal will invoice the customer and the agent receives a commission.

The Software Incubator case

According to the Commercial Agency Directive, a commercial agency exists only if the commercial agent sells goods. However, software is usually commercialized under the form of a license (a right of use) so that there is no actual sale, and thus no commercial agency under the Directive. The UK Supreme Court asked (before the Brexit date of 31.12.2020) the European Court of Justice whether the commercialization of licenses can be considered a sale of goods.

The Court of Justice replied in a judgment dated Sept. 16, 2021 that in certain cases there may indeed be a sale, despite the fact that there is talk of a license. Referring to its earlier ruling in the UsedSoft Case the Court ruled that when there is a perpetual license for payment of a one-time price, there is a transfer of ownership and thus a sale.

Implications of this ruling

This judgment has little impact on Belgian law. Indeed, the material scope of Belgian law is broader than the Directive. While the Directive is limited to the purchase and sale of goods, the Belgian regime deals with "business". This is a broad scope so that not only agency for the purchase and sale of goods, but also agency for services, rental agreements, construction agreements and thus also licensing agreements are covered.

When a software producer calls upon a "reseller" to mediate the conclusion of licenses, this "reseller" is always to be considered a commercial agent under Belgian law and the specific rules on commercial agency must be complied with.

However, if the reseller first purchases such licenses (in volume) and then resells them himself, then obviously there is no commercial agency.

How can we assist you as a lawyer?

We, as attorneys, assist both software manufacturers and resellers during contract negotiations that may lead to a cooperation agreement. We advise parties on the correct qualification of the reseller status and can draft a reseller agreement. We also assist parties when discussions would arise, e.g. in case of termination of cooperation.