Money for old code?

Is your organisation on top of its software licensing? Check, double check, and set aside a few million pounds, just in case you're wrong, warn Fieldfisher's Sam Jardine and Liam Corrigan

In a recent UK legal ruling, the court ruled that drinks giant Diageo was liable to SAP for ‘indirect' licensing of software, in a claim worth almost £55m.

For legal junkies, the official judgement is here.

The UK courts are notoriously reluctant to interfere in the commercial arrangements between two businesses - meaning they won't get you out of a fix if your contract isn't clear

While the facts in this case are fairly unique, CIOs, chief technology officers and, especially, chief financial officers would be well-advised to audit continually their use of enterprise software (SAP and Oracle in particular), to ensure that all software-to-software interactions are fully understood and built-in to agreed pricing.

The UK courts are notoriously reluctant to interfere in the commercial arrangements between two businesses - meaning they won't get you out of a fix if your contract isn't clear - as Diageo found out.

The facts

Diageo purchased a licence for SAP's mySAP enterprise resource planning (ERP) software in 2004. In around 2011/2012, Diageo then commissioned the development of two new applications - called ‘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 Process Integration (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.

As enterprise-ready cloud models mature and gain traction, we are witnessing a quickening by some legacy vendors to monetise legacy enterprise systems in any way possible

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.

As enterprise-ready cloud models mature and gain traction, we are witnessing a quickening by some legacy vendors to monetise legacy enterprise systems in any way possible - some vendors deploying increasingly desperate and threatening renewal letters, scaring money out of locked-in customers.

The fact that multi-year legacy enterprise software is less switch-off-and-on-able than the cloud offerings means it's more open to ransom pricing

So, what can you do as a user?

If you're in a cloud/rental model, you probably have a good grip on monthly costs and the cost of a lift and shift, if necessary - and you'll have built data portability into your contract.

If you're in a legacy-style software contract arrangement and you've ever tried to read the contractual documentation - first, congratulations if you got to the end; and second, double congratulations if you're sure the vendor can't possibly come after you for any more than you think you owe.

The fact that multi-year legacy enterprise software is less switch-off-and-on-able than the cloud offerings means it's more open to ransom pricing.

And this is where it gets interesting: as artificial intelligence and robot process automation (RPA) interactions increase, will software licence claims increase exponentially?

As artificial intelligence and robot process automation (RPA) interactions increase, will software licence claims increase exponentially?

For example, would 1,000 robot packs - each interacting on a software-to-software level with an enterprise system (let's say, for workflow management purposes) five times a day - mean there are 1,000 new users, which should have been designated ‘named users' and charged accordingly? And are there 5,000 chargeable events in this example - or only 1,000? And that's one day, never mind what that might add up to annually…

Getting a grip makes a difference. Build pricing examples into your contracts and test hypotheticals. Time spent at negotiation stage could have saved Diageo a lot of money.

To conclude: as long as you know what you're in for, you'll probably be okay.

The uncertainty is unsettling though, isn't it?

Sam Jardine is partner and Liam Corrigan an associate in the Technology, Outsourcing and Privacy Group of law firm Fieldfisher LLP