The question of whether an Oracle licence covers virtualisation is one that many CIOs face.
Oracle licence contracts are unclear on soft partitioning and virtualisation, so it is important for IT leaders to get to the licence negotiation table to extract the best deal.
As such, an IT strategy that involves consolidating datacentre hardware and running a virtual server environment on VMware vSphere may not be compatible with the wording Oracle uses in its licensing whitepaper.
While it is straightforward to run Oracle on dedicated virtual machines, a VMware paper noted: "VMware enables you to pin a virtual machine to certain CPUs inside the host (using CPU pinning or CPU affinity). We believe this technology is every bit as robust and reliable as hard partitioned technologies... Unfortunately, Oracle does not recognise this approach as a valid hard partitioning for its licensing mechanism."
But Judica Krikke, an ICT lawyer at international law firm Stibbe, said Oracle contracts do not actually say anything about partitioning.
"They only say that you need to licence for all processors where the software is installed. But it is technically impossible to install software on a processor. Oracle gives this a certain meaning and uses a licensing whitepaper to say if you do soft partitioning you have to buy licences for all processors," said Krikke.
She argued that this whitepaper is only a policy document, and so is not contractually binding: "It is not a contract document. The only contract line is the line is about the processor, and this requires interpretation."
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Krikke advised IT departments not to take Oracle’s word for granted, advising them instead to "do your investigation, measure usage and challenge the audit".
Oracle contract negotiations
Experts have recommended that CIOs and heads of IT who continue to renew and expand their Oracle licences should be prepared to ramp up their licence negotiation efforts, especially if their IT strategy includes any form of virtualisation or soft partitioning.
The Key risks in managing Oracle licensing study by the Campaign for Clear Licensing, published last November, warned: "Senior management should be aware that any Oracle purchase includes a significant management overhead and should budget accordingly."
Daniel Hesselink, managing partner at License Consulting, a company which specialises solely in Oracle licensing, argues the case for negotiating licence fees down rather than accepting a settlement if there is a licence discrepancy.
Speaking of his experiences of negotiating with Oracle, Hesselink cited an occasion when he was called in to an audit result where Oracle was making a £10m claim. "The internal IT procurement team may be able to negotiate down to £2m, but we then get the final fee down to £200,000," he said.
Another licence dispute he consulted on involved a city-wide Oracle licence. "It was hundreds of millions of euros under discussion, but a one-way conversation. We analysed the architecture going forward, identified the core systems and notified Oracle before it was in place. We implemented rules in software to ring-fence the core system. We believed our Oracle licence was in compliance and our only correspondence was with Oracle legal," he said.
In Hesselink's experience, Oracle always gets back to customers through its sales and audit teams, rather than its legal team. "We had a meeting with our legal team and Oracle's legal team and the auditors and we agreed to disagree," he said.
The client now gets a call every six months from Oracle sales saying it owes €600m. "We said, 'take us to court. This is a city licence. We are spending taxpayers' money and you are asking for one-third of our annual IT budget. You have to do better'."
He said Oracle would not want to take it to court.
Hesselink urged IT procurement staff and IT departments to ensure their use of Oracle complies with the wording of the Oracle contract: "Do your homework and have a clean sheet on which options you have ever used – so the negotiation is only about virtual machines.
"I always start with the contract, but what is written in the contract states the customer must license the processor where the Oracle software is running."
When an organisation begins to virtualise its servers, Hesselink said it becomes difficult to define which processor the Oracle software is running on.
"Oracle License Management Services is very good at spreading fear, uncertainty and doubt, but if you confront Oracle legal, they will say nothing about this because they know very well there is no wording in their contract," he said.
Read more about software contracts
Hesselink argued that the IT department should not have to prove, in any way, that the Oracle software is running on more processors than it should. "You are innocent until proven guilty. It should be up to Oracle to prove," he said.
But Hesselink urged IT leaders to think about Oracle licensing at the start of any project.
"If you have a two-processor licence and you have Oracle installed on a cluster with hundreds of processors, you need to acknowledge the processors where the Oracle software will run and take the step to ring-fence them to ensure Oracle can only run on two processors," he said.
The question for IT is how far to escalate the discussions with Oracle. If there is a licence discrepancy, the starting point will often be the full licence fee owed, which can amount to millions of pounds if it involves a significant enterprise agreement.
According to Eric Chiu, a director at HW Fisher’s IT Asset Consulting practice, from here IT can offset some of the licence fees owed against future purchases. There are no set rules; each negotiation is unique. But given the lure to book new orders, and the prospect of large remunerations, Oracle sales may well take the bait.