Software licensing audits – five ways to get ahead of the game

Software is life. That is a big statement, but for many organisations software is critical. Without it, business stops or at the very least there are some very unhappy customers and staff. With this in mind, organisations need to ensure that they have a robust licensing posture and are equipped to deal with supplier audits.

Know what software you need

It always pays to be prepared. Before an organisation gets moving with any new contractual arrangements or renewed licences, it needs to have some level of confidence of its present and future software needs. That way, the organisation can enter these discussions with a view to what it requires and ideally purchase licences that support this. In planning for the future, if the pathway forward is clear (eg. future migration to different software) it may be preferable to set this out in the terms, otherwise it could be useful to incorporate a level of flexibility to manage future changes.

Understand the detail of your licensing

Software licensing can be complex. Technical, commercial and legal teams need to work together to decipher sometimes quite complicated licensing structures, categories, applications and limitations. Any uncertainties should be appropriately dealt with, and where necessary amendments made to the legal terms to document this. We have found this to be particularly important with core terms like "use", "access", "direct and indirect" and "user".

Another trip hazard can be the way the contractual suite is constructed, with software licensing and associated terms peppered throughout documents at various levels. It can also be helpful to specify fixed or capped costs for additional licences.

Tracking and managing your software use

A software asset management (SAM) tool will assist in managing compliance with licensing volumes. A SAM tool can be used to maintain a catalog of licensed software and installed software, tracking compliance issues (or alternatively, underutilised licences) and generating reporting on software inventory, usage and compliance. Reporting from a SAM tool can be used to demonstrate compliance (and potentially avoid an audit) and, sometimes, software vendors will require an organisation to use a SAM tool under their licensing terms.

Where you can, limit supplier audit

Terms should be carefully examined to confirm whether audit rights are specified and to ensure that these do not stretch too far. While often unavoidable, make efforts to craft reasonable terms with appropriate limitations. Be wary of pervasive audit rights and automated monitoring tools, and where possible require audits to be conducted by an independent third party.

Dispute mechanisms

Often, a licence agreement will specify the consequences of an over-deployment or other instance where licence rights have been exceeded. This can include requirements to cover the costs of the software vendor's audit and to acquire additional licences, which may be at rack rates, not discounted rates, and cover both historical usage periods and a future period that is co-termed with other licences. If specified, these outcomes can be negotiated before the licence agreement is entered into.

In the absence of this, we are endlessly hopeful that cool heads will prevail. A sensible dispute notification and resolution process is a must. Ideally software licensing concerns should be raised commercially first, with legal recourse taking a back seat. To ensure business continuity, organisations should also avoid any draconian supplier right to suspend software use and access.