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The Weaponization of Software License Audits

Low Barrier to Entry

Unlike a patent claim with a high burden of entry to pursue, a software license compliance audit and its respective claim have a low entry barrier. The vendors have a contractual right to audit you, and if you don’t comply, they can preemptively take away your right to use the software.

The patent trolls must engage lawyers or threaten litigation. The software license troll can send you a notice that usually has a very ominous tone and a legal representation that you no longer have the right to use the software. A software license troll could easily adjust your master service agreement in the electronic click-through contract as you downloaded or installed software. It could well be a year later in the midst of an audit that a customer unhappily discovers that they are being held to an entirely different standard than they initially understood. “While there are some exceptions, click-through licenses tend to be enforceable,” said Joel T. Much more of Beeman & Muchmore, LLP, a boutique law-firm dedicated to software license consulting. “As vendors have gotten increasingly savvy in creating enforceable click-through licenses, companies should assume the worst and ensure a lawyer in the mix.”

While many large software vendors aggressively audit their customers and put contractual obligations in place to protect their intellectual property, we should not consider them to be patent trolls. Similar to other reputable vendors, these large software vendors seek to increase their revenue and footprint in their clients’ license portfolios and ultimately pursue a long-term relationship. The more integrated they can become inside the client, the harder it will be for the customer to disentangle themselves from the vendor.

However, there have been cases where some established software vendors have been acquired and their new leadership has sought to exploit the existing customers using the very mechanisms that were put in place solely to protect the vendors’ intellectual property. Trolls also are often controlled by outside venture capital, and there can be a striking indifference to the client relationship as the company is steered to short-term profits. Trolls can be dangerous because, unlike some more prominent vendors, they are not afraid to sue their licensees to send a message to the market to make it easier to collect on penalties.

As a result, companies need to manage their software compliance. Since so many customers fail to do so, vendors are encouraged to increase the pace of their software license audits, and these customers can also become easy prey for emerging software license trolls.

How to Protect Your Organization From the Software License Troll

If you use software, you should expect to pay for it. More importantly, it is essential for every user of expensive software, which usually carries complicated licensing agreements, to manage those licenses and prepare for an eventual audit. Even the most careful customers can make mistakes, so each customer should consider engaging with a third-party company that has the discipline of managing software licensing at its core. To use a baseball analogy, you should be a major league hitter if you are planning on facing major league pitching.

“The era of the gentleman’s audit should be considered over,” said Arthur S. Beeman, also of Beeman and Muchmore. “Long gone are the days in which the full and unguarded release of information could lead to a mannered true-up. All licensees are targets from vendors of all sizes and should act accordingly.”

Start with an ounce of prevention. Put technology and processes in play to proactively manage your software license compliance. For some companies, this means implementing a software asset management solution from a company such as Flexera or Snow Software that provides an inventory of software deployments. Some organizations find it more advantageous to obtain a software asset management (SAM) managed service, which may include a SAM tool, access to consultants, education, or legal support. At a minimum, you should have a periodic proactive review of your software license compliance. Sticking your head in the sand means you are putting your business at financial risk and will be easy prey when the software license troll knocks at your door.

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