Place of performance for the development and licensing of customized software
The question of whether the development and operation of software constitutes a service is of great importance for the question of the place of performance and thus for the place of jurisdiction in the event of a dispute. In the decision published on 28.11.2024 (C-526/23), the ECJ dealt with precisely this question, namely where the place of performance for software contracts is located.
Place of performance of customized software
Contracts for the development and ongoing operation of customized software generally fall under the concept of services under the Brussels I Regulation. The place of performance is therefore the place where the service is provided according to the contract in accordance with Art 7 No. 1 lit b Brussels 1 Regulation. But what does this mean in concrete terms: is this the place where the programming takes place or the place where the software is accessed and used?
The ECJ found that the place of performance of a contract for the development and subsequent operation of software – in the absence of contractual provisions – is the place where the software reaches the customer, i.e. where it is retrieved and used. If the software is used at different locations, the place of performance is the customer’s place of residence or registered office.
The legal classification of software contracts
The legal classification of software contracts therefore plays a key role in determining the place of performance. However, software contracts often cannot be clearly classified in legal terms. There is no uniform “software contract”. Instead, the classification depends on the purpose of the contract. Depending on the nature of the service, software contracts can be classified as service, rental, work or purchase contracts. In practice, it is recommended to define the specific performance obligations as precisely as possible.
Standard vs. customized software
On the one hand, a distinction must be made as to whether the transfer is permanent or not and, on the other hand, whether standard or customized software is owed. While customized software is developed specifically for the requirements of a particular client, standard software is designed to meet the needs of many users. According to the Supreme Court, the permanent provision of standard software in return for a one-off payment is to be assessed as a purchase agreement. In contrast, the purchase of customized software constitutes a contract for work and services.
Software-as-a-Service Contracts (SaaS)
In a software-as-a-service contract, the provider makes available all software resources and support required for execution. These contracts often have mixed contractual characteristics, whereby there is often a rental contract focus, to which service contract components may also be added. The ECJ does not classify such license agreements as service contracts, but assigns them to Art. 7 para. 1 lit. a Brussels I Regulation (ECJ 23. 4. 2009, C-533/07). In this case, the place of performance is where the software is made available.
Disclaimer: This article is merely general information and not legal advice from ATTYS 05 Rechtsanwälte GmbH; it cannot and is not intended to replace individual legal advice. ATTYS 05 Rechtsanwälte GmbH assumes no liability whatsoever for the content and accuracy of the blog post.
