Over recent years, we have seen an increase in software licensing disputes in the Middle East. In a common scenario, a software supplier audits a customer for the first time in years and tells them they are under-licensed. The supplier may demand a fee for the historic under-licensing as well as future increased license costs, which can run to multi-millions of dollars that were not budgeted for.
One reason for the increase in such disputes is out-dated software license terms that do not take account of changes in technology or organisational changes.
If software is licensed on a 'per user' basis, as an organisation grows, the number of users may increase and new licenses will need to be bought.
Software licenses may be limited to a named company or specific geographic location. If the customer later outsources some of its IT function, moves part of its operations offshore, or changes its name or corporate structure, this may lead to a breach of software license terms, even if the outsourcer or offshore staff are using the software for the benefit of the named licensed company.
Software license agreements may be signed before a technological advancement was envisaged.
The UAE and other Middle East courts will generally try to enforce the terms of a contract even if its terms were drafted before a new technology was envisaged, which could result in an order for payment of significant licence fees that were not foreseen by the customer at the time of buying the software.
When implementing an IT efficiency project such as virtualisation or outsourcing, an organisation will budget for the implementation costs and anticipated cost-savings to be gained from efficiencies; but failing to factor in the increased software licence costs may change the cost/benefit analysis entirely.
One issue that can arise from technological advancements is so-called 'indirect use' by other systems. If the customer implements new software that 'talks to' the existing software, this may result in a dispute about whether interactions between the existing and new software counts as 'users' or not. The potential cost of this issue was highlighted in a 2017 case in the English courts between SAP v Diageo, in which SAP successfully claimed c. £55 million for 'indirect access' to its software.
Where software is licensed on a 'per CPU' or 'per core' basis, charges are based on the amount of computer processing resource available to use the software. If an organisation later moves from a traditional physical server environment to a virtualised or cloud-based solution intended to improve efficiency, this may have the unintended consequence of hugely increasing the number of (virtual) CPUs or cores that can access the software.
Customers wanting certainty of software licensing costs should consider the following:
For suppliers, we recommend that you:
Both suppliers and customers in the Middle East and beyond should keep their software license agreements under constant review and identify any technology and organisational changes that may affect software use and licensing.
If any potential effect on software licensing is identified, both customers and suppliers should take early action to address this, both for financial certainty and to maintain relationships.