Forrester warns buyers on software licensing traps

Forrester Research has penned a research note to advise corporate IT buyers to pay closer attention to the legalese buried within contracts signed with their enterprise software vendors.

Analyst Duncan Jones claims to have heard from several clients falling foul of compliance audits from vendor partners, being billed for additional or unexpected costs after purchase, or being threatened over clauses that set unreasonable expectations on use of the software.

Jones wrote the note in the hope that corporate IT buyers would pay closer attention to such contracts before signing up.

The paper noted that vendors will often "insist" on sticking to template contracts for perpetual licenses to protect their intellectual property rights. Jones does not suggest that vendor's deliberately include misleading information, but rather he suggested that many of these template contracts are already decades out of date let alone flexible enough to anticipate future technological change.

The future impact of technologies such as virtualisation, business models such as cloud computing and methodologies such as Service Orientated Architecture need to be considered in future contracts.

Software sourcing professionals miss these key clauses, he said, because they feel "stuck between the internal customer that has the technical knowledge but runs away from legalese, the legal advisor that lacks the software domain expertise, and the software vendors that are percieved to be inflexible and unreasonable."

But Jones said software vendors desperate to make a sale will always "respond well to reasonable, well-argued requests" to alter the standard template agreement before the two parties sign.

And of course, like any contract, any promises the vendor makes are only good once on paper. Best get it in writing.

FOUR COMMON LICENSING TRAPS TO AVOID

DEFINITIONS

Jones' paper also advised end users to read the definitions used in contracts. He cited an IBM license, for example, in which "concurrent users" was not defined as commonly considered (the number of people assigned to use it) but on the peak number of database sessions.

Jones also noted that some vendors - the main offender being Microsoft - don't even include definitions on the contract itself, but refer to an external document called a Product Use Rights (PUR) guide that is updated at the vendor's whim.

LIMITS ON VIRTUALISATION

Many contracts also still apply licenses to each physical server on which it is installed, he said, without taking into account that an equal amount of applications today are deployed on virtual servers.

Buyers "should not assume that software houses will apply reasonable policies" in such situations, Jones said. "Some will enforce the letter of agreement" and even those attempting to pose as being reasonable will do so "if the customer signs a contract amendment and agrees to other conditions."

USAGE LIMITS

The paper also advises buyers to include the right to subsidiaries or third party hosting companies to use the same software licensed by the parent company signing the contract. It should also ensure it has an international right to use the software, not simply one for the country in which the deal was negotiated.

Jones also noted that some software vendors placed restrictions on what hardware or operating system an application ran on - with one business intelligence vendor charging a 33 percent premium on its license should an end user swap out for better infrastructure.

This, he said, was clearly "unreasonable" and should be struck from any contract.

IS THIS WHAT I PAID FOR?

Buyers should also be careful that the contract includes all the functions demonstrated during the tender and sales process, and that none of these are omitted when the price is bargained.