The software licenses that come with your business’s software are legal instruments that are enforceable under contract law.
Licenses typically grant users the use of one or more copies of a software package and contain clauses allocating liability and responsibility between the two parties to the agreement. When your company is lax about ensuring that software licenses are current and that you’re only using the number of copies you’re allowed, it can find itself in serious legal trouble, with the possibility of fines and even criminal charges. Here are 5 scenarios that can cost your company dearly if you don’t manage software licenses properly.
1. Your Company Goes Through a Merger or Acquisition
Successful partnerships are based on transparency and honesty, and this is just as true in the corporate world as in personal life. If your company is merging with another or acquiring another, you don’t want to acquire that company’s software licensing problems in the process. During the merger / acquisition process, your legal team should ensure your company gets full documentation of software assets it’s gaining along with the other company. They will also need to determine whether existing licenses will be maintained separately, or if they will be packaged together and managed as a whole. The good news is that your company’s merger or acquisition may make it large enough to qualify for a less-expensive, high-volume contractual agreement.
2. Your Company Is Going Through a Divestiture
If your company is spinning off a division (or if your division is being spun off), the status of the parent company’s software licenses is of critical importance. If your division is spun off and your parent company never actually paid for the software licenses they transfer to you during the spinoff, the new company could be in for an unpleasant and expensive surprise. During a divestiture, the legal team has to specify who gets “custody” of the software. If retail software was purchased, physical transfer of the licensing agreement and financial records of the purchase should take place during the divestiture. Volume agreements could get complicated during a spinoff, particularly if the new companies are too small to qualify.
3. Your Company Starts Outsourcing
Several years ago, Nissan sued Software AG after the software publisher imposed big fees when Nissan wanted to make its software available to outsourcing partners. Software AG asked for a cool $3 million when Nissan hired Satyam, an Indian company, for development work in 2006. Nissan contended that Satyam’s access was covered under an earlier fee it paid Software AG when it outsourced some work to IBM. They ended up settling out of court, but the lesson was clear: if your company thinks it might outsource work in the future, find out how outsourcing is covered under your software licenses.
4. Your Company’s BYOD Policy Has Unforeseen Consequences
There are many benefits with the BYOD work environment, but there are risks as well due to blurring of the line between personal and work usage. Since the BYOD environment is new, answers to certain situations have not yet become clear. For instance, if an employee device is used both at work and at home, and that employee uses the device for illegal downloading, could the company be exposed to liability? Another instance could be an employee who owns a valid “Home” version of software and uses it in the workplace. Would that breach usage limitations? Companies with BYOD policies have to be aware of possible licensing risks.
5. Your Company Experiences a Flood, Fire, or Other Disaster
Software licensing must be part of your company’s disaster preparedness and recovery plan. Without proper licensing, you could face fines on top of all the other difficulties of disaster recovery. Your company’s disaster plan should address the following licensing concerns:
- Appropriate Licensing for Backup or Recovery Facilities — Servers you plan on restoring may have additional license requirements if you use tape agents or snapshot recovery tools.
- Licensing Requirements for Standby Equipment — You may or may not be required to have licenses on servers that are designated standby equipment, depending on the manufacturer.
- Application Software Licensing Agreements — Many enterprise-level apps allow use of a disaster recovery copy at no extra charge. But some require that each server with the app has its own licensed copy. Knowing this is critical to your disaster recovery plan.