Who are winners as focus changes on licence challenges?

In the run up to the millennium, Computer Weekly ran a successful two-year campaign for fair play on software licensing. Today, licence issues continue to demand attention, especially as new technologies blur old boundaries and create added complexity


Creating a stronger focus on user needs in the drawing up of software licences, an end to any hint of sharp practice in applying the terms of the contract, and greater clarity in the wording of contracts were the main aims of Computer Weekly's Stamp Out Stiffing campaign, which ran for two years from the summer of 1998.

That was a boom time for IT suppliers as dotcom start-ups were flying high and IT departments were preparing for the millennium bug. This created a bullish attitude from certain suppliers in applying the terms of their licences.

In particular, businesses began to notice that small changes in their use of software could be used as an excuse for a massive price hike from the suppliers.

There were plenty of examples of how this worked in practice. A major critic of such behaviour was Roy Hunt of IBM's software business, who publicly attacked the practice of "stiffing" or sharp practice in the software industry.

Although they kept strictly legal, he pointed out, some suppliers would fail to play fair with users by taking a minor change in software use or business circumstances as a pretext to create a massively disproportionate price increase.

Hunt cited real-world examples, including a 400% price increase for software run on new hardware, even though it was within the performance parameters of the licence terms. He also detailed a seven-figure price hike when a company was sold - even though the use of the software was unchanged.

After the launch of Computer Weekly's Stamp Out Stiffing campaign, users became more open about their dissatisfaction with how they were treated over software licences. A Computer Weekly survey showed that among companies that had been stiffed:

  • 59% lost up to £10,000
  • 20% lost between £10,000 and £100,000
  • 1% lost between £101,000 and £250,000
  • 2% lost more than £250,000.

User group leaders also became more vocal on the topic. Geoff Petherick, then chief executive of the UK Computer Measurement Group, said the bills may start arriving when a company restructures or is involved in a merger. He revealed one case of a company being charged £1.6m "just for changing names".

But users could also fall prey to something as simple as loading software onto new hardware, or allowing contractors access to the software.

Petherick acknowledged that users had to share some of the blame for signing the agreements in the first place, but he pointed out, "If you badly need that software, frequently a licence is signed very quickly. It may be particular software that you need for which that is the only supplier on the market."

Another problem was "legacy" contracts, where licences had been drawn up several years ago and incorporated terms inappropriate for the contemporary marketplace. Today, new technologies such as multi­core processors are drawing fresh attention to this issue (see Technology advances add to licensing).

By the time Computer Weekly brought its Stamp Out Stiffing campaign to an end in 2000, 12 suppliers had signed up to a Software Licence Code, created with the help of law firm Hammond Suddards (see box). Participants included IBM, Tivoli, Amdahl, Compuware and Bull.

And in September last year, a range of large IT user groups created the Strategic Supplier Relationship Group to improve understanding between software companies and business users.

However, as our focus on licensing in this issue of Computer Weekly shows, problems over the clarity and suitability of software contracts persist. And with the promotion of software as a service rather than a product, and the licensing dilemmas posed by technologies such as multicore processors and virtualisation, how users pay for essential software in a cost-effective fashion will remain a challenge.


How Asda led the charge for users

In August 1998, retailer Asda lashed out at software companies using the impending Millennium Bug deadline as an excuse for stiffing users.

"We have a couple of examples of software companies asking for excessive payment for a new version of the software to make it millennium-compliant," said John Lister, then IT procurement director at Asda. "This type of behaviour is unethical and we will resist it very fiercely."

Asda had already reacted strongly to one of its software suppliers which originally told the supermarket chain it would have to buy a new Y2K-compliant version of its product, which was vital to Asda's operations, costing the company several hundred thousand pounds.

"The supplier has now substantially modified its position and come back with a far more palatable offer," said Lister at the time.


How much has changed?

Software licensing remains a major concern for many user organisations, but the ground has shifted since Computer Weekly's successful Stamp Out Stiffing Campaign.

Our investigations and interviews with IT directors from across the board of UK business show that the proliferating complexity of different licensing models and the management administrative burdens they impose have become the prime sources of concern, rather than the sharp practice of some suppliers at the start of the decade.

Some of the insights and advice Computer Weekly carried during the original campaign are available again online. Many things have changed, but these articles offer as many insights and useful pointers today as when they were first published.



Computer Weekly's anti-stiffing guidelines

Below is an abridged version of the Software Licence Code drawn up in 1998 by Computer Weekly and law firm Hammond Suddards. Twelve major IT suppliers signed up to these anti-stiffing guidelines in 2000.

Plain English
All software licences should be written in plain English, particularly the restrictions on the scope of use and any schedule or order form in which the software is listed.

Restrictions on location
Provided the software is being used within the European Union, the supplier's consent should not be required and there should be no charge to change the physical location of the use of the software.

User restrictions
Where the use of software is restricted to a number of users, the supplier should make it clear whether that is concurrent users or named users (see full guidelines at www.computerweekly.com/sos for definitions). Where it is named users, restrictions (if any) on changing named users should reflect normal staff turnover within an organisation.

Employee restrictions
Use of the software should not be limited to employees only, as many companies "employ" contractors who should be entitled to use the software for the benefit of the business.

If a business outsources its IT services, the supplier must agree to the assignment of the licence to the outsourcing supplier unless the outsourcing supplier is a direct competitor of the software supplier or if the outsourcing supplier has in the past committed a serious infringement of the software supplier's intellectual property rights.

Term and termination
Software suppliers should only terminate the licence for serious infringements of the software supplier's intellectual property rights or non-payment of licence fees which are undisputed.

Price structure
Whether the price structure depends on number of users (named or concurrent) or hardware sizing, the pricing structure should be clearly set out so that the user is aware at which point they will be liable to pay additional licence fees.

Where testing of the software is necessary on a separate platform (for example, Y2K or regulatory compliance) such testing shall be permitted subject to the software supplier being notified.

The continuation of a licence should not be dependent upon the continued payment for maintenance. Where maintenance is provided, the supplier should explain in advance what the maintenance service is, the structure of maintenance payments and how maintenance fees may vary over time.

How do your suppliers measure up to these guidelines? Let us know at [email protected]

Campaign milestones

  • August 1998
    Computer Weekly launches Stamp out Stiffing campaign after a senior IBM executive explains the tough practices used by some software suppliers to squeeze more cash from users. Law firm Hammond Suddards produces software licensing fair practice code for Computer Weekly.
  • November 1998
    Computer Weekly/Banner survey highlights the cost of software sharp practice to UK IT users. It finds that nearly a third of user companies with 500 or more staff believe they have fallen foul of sharp practice.
  • November 1999
    First group of leading software suppliers sign up to fair dealing code of practice, including IBM, Lotus, Tivoi, Amdhal, Bull, Compuware, Intentia Software and Beta Systems.
  • May 2000
    Twelve major software suppliers have signed up to the licensing code of practice initiated by Computer Weekly.


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