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High Court rules for SAP, against Diageo in indirect licensing case

Judge rejects Diageo’s submission that SAP PI is a “gatekeeper” licence for gaining access to the SAP suite of applications and database

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The High Court in London has ruled in favour of SAP and against Diageo in an indirect licensing case concerning the use of mySAP enterprise resource planning (ERP) software on a Salesforce platform.

The case, SAP UK v Diageo Great Britain, adjudicated by Mrs Justice O’Farrell, concerned Diageo’s use of mySAP ERP software for the management of manufacturing, stock and supply chain, financial reporting and control, and human resources.

According to the text of the judgment, the drinks company and SAP had begun their software licence and maintenance agreement in 2004, and came into dispute after Diageo deployed two new third-party systems in 2012.

The first, Diageo Connect, allowed Diageo’s customers to place orders online, rather than through a call centre, by way of a Salesforce.com system that utilised data held in an Oracle database but also associated with an SAP software engine, SAP XI (SAP Exchange Infrastructure), now called SAP PI (SAP Process Integration).

The second system, Diageo Gen2, allowed Diageo’s sales staff to use an iPad to access, via a Salesforce.com application, customer data in an Oracle database associated with the mySAP ERP software.

SAP maintained that Diageo’s customer IT platforms, though based on Salesforce technology, connected back into mySAP ERP software and, accordingly, all Diageo’s ultimate customers (5,800 individuals) needed to be licensed as “named users”. 

SAP brought its claim against Diageo in October 2015, seeking £54,503,578 in licence fees, in addition to £3,955,954 in interest, fees for back support and maintenance, and an injunction.

Yesterday’s judgment by O’Farrell confirmed the reach of licence fees for this “indirect access”.

She said: “I reject Diageo’s submission that SAP PI is a ‘gatekeeper’ licence for gaining access to the SAP suite of applications and database. [There is] a separate basis of pricing for the SAP PI software engine and adapters, which applies even where there is a named user licence for mySAP ERP… Therefore, it is clear that it is an addition, rather than an alternative, to authorisation under a named user licence.”

She concluded: “Only named users are authorised to use or access the mySAP ERP software directly or indirectly. Named user pricing is the only basis on which the mySAP ERP software was and is licensed to Diageo.”

O’Farrell found that “usage by Gen2 sales representatives is not authorised… [and so] SAP is entitled to additional licence and maintenance fees”.

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However, it would seem the judge was unable to ascertain the category of user licence required by Diageo. She said: “In my judgment, there is no applicable named user category for the Connect customers… They do not have access to source or object code. They do not have access to the functionality provided by mySAP ERP in support of the wider operation of Diageo’s business. They access business process functions and information from the database for the purpose of ordering products and managing their own personal accounts only.”

Although the judge ruled that Diageo’s business customers and sales representatives were within the ambit of SAP’s licensing controls, she resisted SAP’s full demands, declaring that such usage did not need to be licensed at professional user level – £9,400 per user including VAT, as demanded by SAP – but rather as other types of users that could not be identified and were not listed in SAP’s price lists.

Commenting on the case, lawyer Robin Fry, director at software licensing advisory firm Cerno Professional Services said SAP’s licensing controls ran much further than most major software suppliers.

“Any business using SAP is now exposed to substantial SAP penalties and ongoing maintenance charges unless they obtain licences not just for their internal users but also their customers and suppliers,” he said. “The danger arises where there is any flow of data from the systems via customer portals to individual customers – even indirectly.  

“Theoretically, the requirement to license ‘indirect access’ covers any consumer accessing a price on a website or placing an order or tracking delivery if any of the information has been generated by, or delivered through, any SAP software, however indirectly. Although SAP at present appears to be only pursuing B2B usage – for example, by distributors and sales reps – SAP’s wide licence terms can extend to B2C customers.

“It is dangerous to assume that account managers for the main software suppliers know the correct contract position – the terms are very opaque. Relying on SAP’s assertions here would have cost Diageo over £59m. In fact, even after 16 months of litigation and a lengthy trial, we still do not know either the category of user licence required or its price.”

Fry said that, in his view, businesses must interrogate the contractual consequences of their software usage before any technology change. “If a corporate as responsible as Diageo can be hit with a £59m claim, then many corporates and public sector organisations will inevitably be carrying latent liabilities for software licence costs,” he said.

The exact amount of the award in favour of SAP will be determined at a later date. ................................................................................ ...............................................................................

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I think the judge made an error in this case by accepting the proposal that "Only named users are authorized to access the ERP software directly or indirectly."

It is actually true that Salesforce is accessing ERP software? A CRM system reads and uses customer records and sales history. That is data stored in the ERP system. It is an integration between two systems. 

Here is the important question. If Diageo purchased SAP CRM, then would Diageo have had to have purchased the same number of user licenses? If the answer is no. If by purchasing CRM then Diageo would have been covered, then the indirect access claim by SAP is bogus. 
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It used to be the case that in effect, SAP themselves proposed licensing PI (or PO) to avoid licensing named users when connecting through technical interfaces. But this fact was never written in paper. May be in this case Diageo had the same information but couldn't prove it on Court. SAP is particularly offended that this customer went to Cloud competitors like Salesforce. A sure fact is that if the customer had invested in SAP instead of Salesforce, they would have never sued them. License audits in search of indirect access are the weapon SAP uses when there is no pipeline with a customer.
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Agree.

A sure fact is that if the customer had invested in SAP instead of Salesforce, they would have never sued them. License audits in search of indirect access are the weapon SAP uses when there is no pipeline with a customer.

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SAP does have separate category of license for B2C (in this case). The license is called 'Sales Order Processing' and is meant for this purpose only. The cost of license is very cheap compared to named user.
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