Understand Your Software Licensing Liabilities, says Addleshaw Goddard

We get sent many press releases, and most we judge not to be particularly interesting for our readers. But there are exceptions, and one concerning software licensing, from law firm Addleshaw Goddard got our attention recently.

“Thousands of businesses in the UK risk wrongly paying millions of pounds for software licences because they don’t understand how many or which kind of licences they need”, the firm says. This is arising increasingly when companies use cloud-based software under licence, and then allow access to other users such as contractors via third-party software applications.

Some of the major software firms are claiming more for this than is actually due, by invoicing for so-called ‘indirect licensing’, and even raising court action against large customers. However, users are fighting back, given that the actual cost could be “in the low thousands, or even non-existent, highlighting how businesses should check their legal and technical position before paying out”.

Simon Lofthouse, partner at Addleshaw Goddard, said: “To put it simply, understanding licensing requirements is essential for a business, especially in a climate where software providers are looking at where they see the need for additional licences.

“A business that has assessed its systems, the number of relevant users, and the licences it has, can engage constructively and positively with the software vendor. By not being prepared, businesses can find themselves in a complicated position of misunderstandings, mistakes and unexpected costs. Any business negotiating or renegotiating a licence with a software vendor needs to have a full appreciation of the T&Cs - and seek to negotiate down or out the more onerous terms - before entering into an agreement. It’s also essential to engage with a software vendor’s pricing model, as vendors are changing the financial make up of deals in response to the digital revolution.”

But because firms don’t make an effort to understand the licensing agreements they need in place, and have a fear of penalties, many businesses are now overcompensating and paying out for significantly more or broader licences than they legally require.

Addleshaw Goddard is therefore urging procurement leaders, CIOs and others in businesses with a significant IT infrastructure to undertake an honest appraisal of how well they understand their current arrangement – to guard themselves against unnecessary costs. Bill Gilliam, partner at Addleshaw Goddard, said:

“Businesses should always read the small print before entering into a deal and carefully assess how many direct and indirect licences they need or might need in the future. The shifting landscape (of new versions of software agreements, purchase orders and updated T&Cs) have made understanding this very difficult for many businesses, but without this understanding businesses risk losing a great amount of money. Ensuring compliance is about making sure you have the correct number of the right licences for what's actually being done, so you don’t overpay and don’t put yourself at risk of huge claims”.

Of course, Addleshaw Goddard want to sell you their services – but this does look like an area where a bit of real, in-depth expertise might pay back many times over.

“Where we have worked with businesses to assess their technical solutions, licence T&Cs, types and numbers of users and potential risk areas, there tends to be more successful negotiations with software vendors who come knocking for additional fees. There are many examples where businesses discover that they are being asked to pay – or have paid - additional fees to software suppliers for licences that are simply not required. With advice on these issues at an early stage the return on investment in avoiding claims, making savings and reducing risk can be substantial.”

There is more on the firm’s website here – well worth a look before you get a threatening letter!

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