Hot Topics: Software Licensing Disputes

Software licensing disputes are on the increase, a trend driven by customers implementing new technologies without examining how this affects pre-existing agreements.

Dispute triggers and battlegrounds

The main problem areas for customers include:

a) virtualisation intended to improve efficiency resulting in software licensed on a per-CPU or per-core basis either running or being capable of running on a vastly increased number of CPU/cores;

b) new front-end services making use of back-end software without the requisite licence; and

c) legacy contracts licensing software on a named user, per-CPU or per-core basis that are incompatible with cloud solutions, where these numbers cannot easily be ascertained or may not be representative of the level of use.

Suppliers also face difficulties when enforcing their rights, mainly relating to:

a) infrequent monitoring and audit of customer usage;

b) older contract terms which were not drafted with virtualisation in mind and are difficult to apply; and

c) unclear contractual consequences for excess use.

Prevention is better than cure

When adopting a new system, it is important in the design stage to consider what impact it may have on the rest of your IT estate. In some cases the design can be adapted and optimised to limit exposure, such as virtualisation architecture that uses partitions to restrict which software can be run on which cores.

Where older contracts do not make the position clear, it is sensible to have them analysed by lawyers in advance of implementation rather than waiting until a dispute arises. The courts will seek to interpret and apply existing contracts even where they may not expressly have anticipated a new technology, which could result in an order for payment of significant licence and/or maintenance fees. This can have a dramatic impact on the risk profile and cost/benefit analysis of implementation.

Customers can find themselves in a far better negotiating position if they identify the potential issue and approach a supplier to purchase an additional licence to cover the new usage rather than having to negotiate after the fact, once overuse has been discovered by the supplier.

From a supplier's perspective, ensuring audit and reporting mechanisms exist and are operated or enforced on a regular basis is key to catching issues at an early stage. 


For further disputes related know-how visit Disputes+ Bird & Bird's dedicated DR know-how portal.

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