13 March 2017

Software licensees should review software licences to address risks of indirect use

Recently a UK court ruled in favour of the software licensor SAP against Diageo in a case concerning Diageo’s indirect use of SAP software. Particularly for software licensees, this case demonstrates the need for a careful review of current use of software and the relevant software licensing terms, especially making changes to the IT environment.

Separate software applications are often connected together in an effort to help employees, customers and suppliers interact more efficiently. For instance, a software application previously used only by employees may be used to provide input to an internet site for customers to more easily be informed, or software to support sales efforts may be linked to databases with lists of orders and stock through another application which also deals with orders and stock (for example, an ERP system). A user of one application may therefore also be indirectly using other applications. In licensing terms, this raises the question of whether the user also needs a licence to use that second group of applications. Most often, the user is not interested in that second group of applications (the user may even be unaware of them), but uses them only to access or store data. That second group of applications thus provides a gateway to data relevant to the use of the first application.

Depending on the wording of the applicable licences, and the technology used to connect the different applications, significant additional payments may be due to the relevant software licensors. Claims from the relevant software licensors are often unexpected, as the licensing implications of application integration and interaction are often not considered during contract negotiations with software licensors or during the execution of IT projects. Software licensors, on the other hand, use audits to translate this increased interaction and integration into licence non-compliance – meaning a business requires more licences than it currently has; creating a sales opportunity for licensors. Software licensors appear to have become more aggressive in their use of software audits.

Last month, the High Court of England and Wales (Technology and Construction Court) ruled on a dispute between SAP UK Ltd and Diageo Great Britain Ltd. Diageo had paid SAP between GBP 50 million and GBP 61 million in licensing and maintenance fees to use the mySAP Business Suite. Diageo then integrated the suite into software from Salesforce using SAP PI integrator software. SAP claimed GBP 54.5 million in additional fees based on the argument that users of the Salesforce software were also using the SAP software. The court found in favour of SAP; the total amount of compensation remains to be determined.

To assess whether licensing issues arise in a particular situation – and determine how to prevent them – there are three key questions to be considered:

  1. Does the relevant use constitute copyright infringement?

If it does, a copyright licence is required. This is particularly relevant if the existing licence agreement is silent about the details of the relevant use, or on the scope and limits of authorised use. Technology advances quickly, and new possibilities to connect different software applications may only become available after an agreement has already been concluded, with the result that these agreements may not contain provisions about the conduct at issue. On the other hand, many licence agreements prohibit any use other than that which is specifically foreseen.

However, while obtaining a copy of your own data held in a particular database constitutes use of the relevant database software, actually using that copy of your data generally does not. For example, if customers’ interactions through a website raise queries to an Oracle database, and such queries result in parts of the database software code being activated and thus copied, those interactions would typically constitute copyright infringement. However, if the queries only used a different database which also contained a copy of the relevant data, the customers’ actions would not raise copyright concerns in relation to the Oracle database.

  1. Does the licence agreement prohibit such use?

The reasons for obtaining a licence are generally twofold: to be legally permitted to use the software, (to get a copyright licence) and to have access to a copy of the software code, possibly with improvements made by the software licensor. While the licensor cannot use the copyright to prohibit use that does not constitute copyright infringement, he may use the agreement to restrict use of the software code, even for activities which would not constitute a copyright infringement (except when such use is permitted under statutory provisions).

  1. Does the licence agreement require payments for such use?

Again, while payments are often tied to use of the copyrights, this is not always necessary. For example, parties may agree that the licensee pays a sum per employee independent of usage, or pays a licence fee based on sales, or pays per “user”, where “user” is defined creatively. Often, this is the problem with indirect use. The parties may even agree that any use of data directly or indirectly originating from a database organised with particular software constitutes relevant use and requires additional licensing. In that event, each customer visiting a particular website may qualify as a “user” and therefore require a license, even if his or her actions do not lead to any reproduction or other copying of the database software.

This justifies a closer look at software vendors’ standard terms and licensing metrics, administering the licensing parameters and actual use, and considering the licensing terms when changes are made to the IT environment. As this goes to the core of software businesses, vendors continuously seek to improve their position by adding or changing relevant language in their general conditions.