As the established legal principle goes, a Licensee has a limited form of legal interest to the licensed property in question. In other words, the Licensee does not have an unfettered right to use the licensed property as it sees fit. These limitations are of course imposed on the Licensee by the Licensor. This concept is evident in the myriad of licensing terms imposed on the purchasers of software licenses. As such, many Software Vendors now insist on the inclusion of audit provisions within their software license agreements built on the premise, that such provisions are required to protect the Software Vendors Intellectual Property Rights.
A step too far?
It is arguable that Software Vendors have gone a step too far in imposing such onerous audit provisions on its customers and are straying beyond what’s considered fair a reasonable.
For example, take the audit clause from Quest Software:
Compliance Verification. In order to allow Provider to verify that Customer is not engaged in any Overuse of Products, Customer shall: (i) maintain and use systems and procedures that allow Customer to accurately and completely track, document, and report License Entitlements and Use of each Product; and (ii) allow Provider to audit Customer’s Use of the Products (the “Audit”). Audits may be performed by Provider or its designated agent. Provider shall provide at least ten (10) days prior written notice to Customer before the start of an Audit and will conduct the Audit during normal business hours at Customer’s facilities. Customer shall provide, and will require its Clients and Third Party Users to provide, their full cooperation and assistance with such audit and provide access to the applicable records and computers. (a) Confidentiality. Provider agrees that any Customer information gathered during the performance of an audit shall be Customer’s Confidential Information under this Agreement. Customer agrees that it will not require any further confidentiality or nondisclosure agreements to be executed by Provider or its designated agents in connection with the Audit. (b) Excess Use. If an Audit indicates that Customer has engaged in Overuse, then Customer will be invoiced for all Overuse quantities at Provider’s then current list price plus any applicable Overuse fees, which may include but are not limited to, interest on past due amounts and prior Maintenance Service fees. If the Overuse is more than five percent (5%) of the License Entitlements, then Customer shall reimburse Provider for Provider’s cost of performing the Audit
What’s the problem here?
In general, the vagueness of the drafting will potentially allow the Software Vendors to stray beyond the bounds of what’s considered fair and reasonable, the proverbial ‘Fishing Expedition’.
Specifically:
- The Vendor is putting the onus on the end-user to track its own entitlements.
- The Vendor can audit at will, in theory as many times as it wants.
- The cost to remediate the non-compliance, is rectified at the Vendors then-current list price (this could be considerably higher than what a customer originally paid for the software and no previously negotiated discounts will apply).
- The Vendor has the ability to charge in addition to the current list price an “Overuse Fee”, arguably, a penalty.
- Overuse fees are stated to “include but are not limited to, interest on past due amounts and prior Maintenance Service fees”
- Where the “Overuse” (in theory incorporating the Overuse Fees) exceeds 5% of the Licence Entitlements, the End User must pay the Vendors costs of performing the audit. These fees can be expensive as generally, Software Vendors are utilising the services of professional audit firms to conduct the audit on its behalf.
Pretty harsh – right? Is this fair and reasonable, particularly when one considers that the vast majority of software non-compliance is done without malicious intent? Is it purely designed to protect the Licensors IPR? What we can say for certain is that it provides the Licensor with scope to be disruptive to the Licensees business operations and to impose large fines and charges on the Licensee.
We can help!
There are certainly strategies around how to manage the above issues. Rest assured that Cunningham Solicitors has these strategies available for its customer. Not only that, where your company is being audited on similar terms as outlined above, Cunningham Solicitors also has the expertise to handle these situations and to introduce reasonableness/fairness in an audit situation.
For a no obligation consultation on negotiating license audit clauses please contact us today at dcunningham@cunninghamsolicitors.ie
The content of this article is provided for information purposes only and does not constitute legal or other advice.