The High Court has ruled that “only named users” are authorised to use or access SAP’s mySAP enterprise resource planning (ERP) software directly or indirectly.
It found that Diageo had broken this agreement after the company’s implementation of a system for its sales reps using a Salesforce application that connected to SAP.
The system, called Gen2, which was developed by Deloitte, uses Salesforce to allow Diageo sales representatives to collate relevant data to assist with the management and tracking of sales, primarily at outlets for sales of drinks to consumers, such as pubs and clubs.
Diageo then deployed a further system, called Connect, to enable its customers and distributors to place orders for products directly using an online portal, rather than having to order via the Diageo call centre.
When the Gen2 or Connect applications interact with mySAP ERP, they do so via middleware called SAP PI (Process Integration).
In the High Court, Mrs Justice O’Farrell stated: “In my judgment, the interactions identified above between the Connect customer and mySAP ERP constitute use of, or access to, the mySAP ERP software. The login process triggers a connection with mySAP ERP via SAP PI. Each stage of the order process requires the customer to initiate the transmission of a message from Connect to mySAP ERP and a corresponding response to be received from mySAP ERP. A customer’s order cannot be completed in Connect; submission of the order initiates transmission of the same to mySAP ERP, where the final processing and completion is carried out. At each stage of the order process, the customer is accessing or using mySAP ERP indirectly through SAP PI.”
Following the ruling, Martin Thompson, chairman of the Campaign for Clear Licensing, organised a conference call with 15 large corporates. He says all were fearful about the Diageo case. “It is grossly uncompetitive,” he says. “Diageo was trying to explore how to use Salesforce, and it is very uncompetitive.”
Unable to ask SAP
For Thompson, the issue many customers face is that they are unable to ask SAP directly for advice. “Some users go to Gartner, some speak to others, but few actually go to SAP,” he says. “The customers don’t want to speak to SAP because it will raise a sales order. Indirect access remains unclear, and it is a honey trap. SAP is profiting from the vagueness of the licensing. You should have the right to explore things yourself.”
The court ruling has the potential to include other forms of indirect access. People who know SAP systems are now questioning whether applications that communicate with the ERP back end may be subject to indirect access licensing. A classic example is e-commerce, where a customer is presented with stock availability. This information, derived from a back-end SAP system, is made available to the customer. Should every user visiting the e-commerce site be regarded as an SAP user, since each one is being presented with stock availability information, made available from an API call to the SAP back end?
A software asset management expert contacted by Computer Weekly highlights the risks that e-commerce operations could now face. “Go to the Apple AppStore and look at which apps are using a back end to get stock information,” he says. “If this information originates from an SAP system, then you have to pay a full SAP licence.”
Strictly speaking, it is not SAP but the user company or its supplier that is the originator of such information held in the SAP system. But that will not stop SAP from trying to justify the value added by its intellectual property.
Legacy contracts out of touch
The challenge for both SAP and customers is that licensing contracts signed many years ago do not reflect modern IT usage. The Diageo ruling specifically highlighted mobile access. In 2004, when Diageo signed the original contract with SAP, mobile phones would not have been considered rich computing devices, capable of being operated as full-featured front ends for SAP. Diageo considered its mobile sales force “light users” of SAP.
According to the court filings, a mobile user is “a named user who uses SAP-developed solutions and/or SAP software that give access to business process functionality via hand-held or other mobile devices only”.
The court ruled that Diageo’s Gen2 sales representatives do not fall within any identified category of named user. The judge said: “Usage by Gen2 sales representatives is not authorised usage under the agreement.”
Rob van der Marck, managing director of the Dutch SAP user group VNSG, has been leading an internationally co-ordinated initiative across SAP user groups (in SUGEN) looking at indirect usage. He says: “For the user groups, indirect usage has been an issue we want to discuss with SAP.”
The users groups’ goal is to make SAP indirect licensing transparent and predictable. “The licence model is the basis for a software contract, and it has to evolve,” says Van der Marck.
Since 2004, there has been a lot more integration of applications, and with the advent of cloud computing, companies are also integrating on-premise apps with cloud apps. And in the near future, the internet of things (IoT) trend will increase this further, he adds.
Van der Marck suggests using internal experts or external experts to help with licensing, “but you need to understand process flows between SAP and non-SAP systems”.
Pay for what you access
Duncan Jones, principal analyst at Forrester, recently blogged about the Diageo case. His perspective is that companies need to pay for the software they access, irrespective of whether that access is direct or through middleware or a third-party application.
Jones wrote: “It doesn’t matter how many layers of middleware you put between the human and the server, it is still access to SAP if the user interface needs SAP to be available and connected in order to complete his task. I’ve seen many tweets saying ‘SAP licence fees are due even for indirect users’ – that’s not news. The court didn’t consider the question of whether or not the alleged users logged into SAP themselves, or used its UI, because those details are irrelevant. You shouldn’t need a High Court judge to tell you that you’re not allowed to abuse someone’s intellectual property by merely sticking your own UI on top of it. The core of these so-called ‘indirect access’ disputes is always whether or not they are ‘access’, not whether or not they are ‘indirect’.”
Jones told Computer Weekly that the court case actually brings some clarity, but he feels a few areas of the ruling need to a closer look. “The judge used the word ‘interaction’ – we ought to set a universal consensus that software requires interaction between a human and the computer. But the judge talked about interaction where it involved three hours of synchronisation.”
Asked about the fallout from the ruling, Jones says: “Businesses may rely on their system integrator to know what they are doing and may make false assumptions about their software supplier.”
Developers generally assume that built-in software licensing control is sufficient, he says. “They don’t necessarily look at the contract.”
But Jones adds: “Evading licence controls is not OK. There is still a licence. For instance, it is not OK if we all use the same user ID.”
Generally, procurement in most large companies buys licences at the best price. “But it is not their job to say how many licences are required,” says Jones.
So there tends to be a gap between the software licence contract and business development, insofar as how the use of licensed software underpins business initiatives.
In Jones’ view, the ruling against Diageo undermines customer trust and makes SAP unfit to be used as a cloud provider. “SAP is being excessive in its demands,” he says. “It is making an excessive and ridiculous claim, even though Diageo infringed the agreement.”
SAP’s goal has previously been to get businesses to use its software to run as many business processes as possible. Jones says he has spoken to one customer that found itself in a similar position to Diageo. “They were told that if they bought Hybris [the e-commerce suite from SAP], they would not have to pay further fees [for the unlicensed software]. This is an anti-competitive stance.”
Making sense of SAP licensing
Joachim Paulini, lead SAP developer at Snow Software, says: “One of the ideas behind its licensing is that SAP gets a share of the business value. This is based on either the number of users or the kind of user.” This usage licensing ranges from professional users, though limited professional, to workers, to shopfloor users. All have different prices.
On top of this, Paulini says SAP also charges for its software engines. Customers have to pay for usage of the software engines, such as the order management engine based on the number of orders processed. “It is a licensing jungle,” he says. “SAP licensing means you have to pay for every type of usage – even indirect usage.”
In Paulini’s experience, a lot of customers are thinking about reducing their SAP usage by running processes that do not require any SAP system to be touched. But given the nature of the SAP system, it is not easy to migrate business processes to another platform.
In Diageo’s case, it originally used a call centre to take new orders. This only required licensing the call centre agents, says Paulini. But this all changed when the company decided to provide an indirect link via Salesforce.
The experts say all organisations using SAP should look at how the software is being used, in case it infringes any licensing rights. “Everyone should look at their own IT architecture and assess where indirect use could be an issue,” says VNSG’s Van der Marck. “If the licence model is not clear, you still have to discuss the specific usage and what is a fair price for the licence.”
For SAP and its customers, the Diageo case now paves the way to all-out licence bartering. Jones says: “SAP publishes a guideline, where ‘use’ is whatever it chooses it to mean. Sales people then make it up on the fly to fit licensing obligations. The problem for SAP is that it has allowed this problem to get out of hand.”
For businesses using SAP, now could be the time to run an internal audit to reduce licences and perhaps reallocate them, where necessary. “Analyse the SAP situation with usage and optimise to free up direct licences, which can be traded in for indirect access,” says Paulini.