Software licensing: SAP terms and conditions are not above European law

The district court of Hamburg has ruled against SAP over its case against a German second-user software reseller

The district court of Hamburg has ruled against SAP, over its case against a German second-user software license reseller.

The court’s decision builds on a 2012 European Court of Justice landmark ruling on second-user software.

SAP attempted to sue Susensoftware for reselling second-user licences, but the Hamburg court stated that two clauses in SAP’s general terms and conditions for licensing and maintaining standard software were anti-competitive.

From a second-user perspective, the court stated that SAP’s clause which stipulated that it required written approval for software transfers, was not legally binding .

“To my knowledge this is the first time that elements of SAP’s general terms and conditions have been found to be anti-competitive. I hope this will result in more freedom for German companies that want to buy or sell current versions of SAP software,″ said Axel Susen, director of Susensoftware.

The Susensoftware case follows on from the European Court of Justice ruling in July 2012 in which Oracle sought to prevent the resale of its software by reseller, UsedSoft. The court stated: "Where the copyright holder makes available to his customer a copy – tangible or intangible – and at the same time concludes, in return for payment of a fee, a licence agreement granting the customer the right to use that copy for an unlimited period, that rights holder sells the copy to the customer and thus exhausts his exclusive distribution right."

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In a recent Computer Weekly article, Glenn Wilson, executive vice-president and general counsel of the International Association of IT Asset Managers (IAITAM), said the European Court of Justice ruling had implications beyond the software licence. "In addition to the purchase of the licence and product itself, existing contractual obligations transfer legally from seller to buyer," said Wilson.

"This includes maintenance and upgrade contracts that still recognise and uphold the licence in question. The implications are that resale seems to have no negative consequences for the buyer. This judgment brings a new perspective when discussing acquisitions, mergers and buyouts."

Double win

In the Forrester report, Navigating the used software market, Forrester analyst Mark Bartrick noted: "Enterprises with excess software license capacity can sell off their unused software assets to resellers who can then offer the used software for sale. Not only can enterprises make money by selling unwanted licenses, but they can also save money by buying cheaper used software to fill requirement gaps. It's a double win for software users and a loss for leading software vendors like Microsoft, Oracle, and SAP."

Paul Sheehan, partner, IT Asset Management Solutions, said: "In our experience, while a good number of IT managers say they would be happy to sell superfluous licences, provided all the right legal checks and procedures had been carried out, very few would be prepared to buy, even if they could save their business hundreds of thousands or even millions of pounds by doing so."

Clearly organisations can save many thousands of pounds buying second-hand and can free-up ongoing shelfware maintenance costs by offloading unused software to a specialist reseller. According to Forrester, organisations who are being put under pressure by their software suppliers can use the threat of buying used software as negotiation leverage.

Software asset management key in second-user market

Discount-Licensing has been selling second-user Microsoft software for a decade. Noel Unwin, managing director of Discount-Licensing, said: “The biggest obstacle in the secondary market is the software suppliers because they do not help us police the market. A good second user software reseller would make sure the [licence] paper trail was complete.”

IT departments may also be cautious not to affect their relationship with suppliers such as Microsoft. You may have a company that could net £100,000 in unused licences, but it may not want to create bad feeling with Microsoft.

According to Unwin, the hardest part for IT managers thinking of offloading unused licences to a company such as Discount-Licensing is proving they no longer use or own the software. "A new IT manager can lose track of licences," he said. From a software auditing perspective, Unwin recommended IT departments keep thorough records of all software assets.

Discount-Licensing has seen a surge in business since 2009. "Our business started to increase 30-40% year on year,” he said. “The recession has helped us out."

Obviously, from a product perspective, second-user software is exactly the same as new. Even client access licences can be bought and sold, Unwin said. From an auditing perspective, he said buyers need to fully understand their licensing position, in terms of the number of CALs they have. Discount-Licensing is then able to sell second-user CALs with a licence pack that Unwin said proves ownership in the event of a software audit.

The SAP case against Susensoftware shows software companies may try to find ways to limit the European Court of justice ruling. But the legal system is clear: once an organisation buys a perpetual licence, the supplier cannot prevent its resale, even if terms and conditions contradict this.

Not every organisation wants to risk the impact of an adverse software audit, which may result in heft fines, licence fee hikes or being named and shamed publicly. But, with tight software asset management, second-user software bought and sold through a reputable reseller can enable companies to pay only for the licences they use, and buy extra licences at a significant discount.

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