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UK Court rules licence fees payable for "indirect" use of software

Emily Parris
02/03/2017
A recent judgment from the UK's Technology and Construction Court highlights how important it is for businesses to audit their use of third party software on a regular basis and to review licence terms before implementing systems changes that could impact use of existing applications.

A recent judgment from the UK's Technology and Construction Court highlights how important it is for businesses to audit their use of third party software on a regular basis and to review licence terms before implementing systems changes that could impact use of existing applications.   Over-use or use outside the scope of the licence can lead to claims against the customer for retrospective licence fees and/or damages.  In this latest case, the court ruled that under the terms of its licence, drinks company Diageo should have paid licence fees to SAP for "indirect" use of SAP software by Diageo's sales staff and customers.  This "indirect" use occurred when Diageo's sales staff and customers used new systems developed for Diageo on a Salesforce.com platform to interface with SAP software.  The judgment establishes that Diageo is liable, but the amount of retrospective licence and maintenance fees or damages that Diageo will have to pay will be decided at a future hearing.  SAP's claim is for £54.5m.

Businesses should check that all instances of use are compliant with the software licence terms.  Audits and reviews should cover:

  • use of the software by the business's own personnel as well as by customers, contractors, suppliers, and  

  • any type of access through APIs to licensed software or data on licensed systems.

SAP UK Limited v Diageo Great Britain Limited [2017] EWHC 189 (TCC)

This case concerned Diageo's use of mySAP ERP (Enterprise Resource Planning) software.   Diageo took a licence of the software in 2004.  In around 2011/2012, Diageo commissioned the development of two new applications - "Connect" and "Gen2" - for use by Diageo's customers and sales reps.  The applications were based on a Salesforce.com platform and interfaced with mySAP ERP via a SAP software engine – SAP PI.  SAP PI facilitates communication between different SAP systems or between a SAP system and a non-SAP system by translating messages from one application to another, mapping the messages and checking integrity to make sure that messages have not been corrupted during transmission.

Under the licence agreement between SAP and Diageo, licence fees were to be calculated on a per- user/named user basis. "Named User" was defined in the licence agreement as a person "authorised to access the Software directly or indirectly (e.g. via the Internet or by means of a hand-held or third party device or system)…" The court examined in detail the interactions that took place between Connect/Gen2 and mySAP ERP.  It concluded that the customers and sales reps were "indirectly" using mySAP ERP by means of Connect/Gen2 and via the software engine - SAP PI.   The court noted that the definition of "Named User" made clear that this type of use required a licence because the definition included, as a specific example, use or access "via… a third party …system".  SAP PI happened to be a SAP-owned software engine, but could equally have been provided by another provider.

Comment

It's important to bear in mind that the court's decision hinged on the precise interactions that took place between Connect/Gen2 and SAP as well as on the court's interpretation of the particular licence agreement.   The ruling does not mean that accessing software or data via an API or interface will always require a licence; but it is a concern for SAP users, because SAP's practice is to require indirect users to be licensed.

 

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