Software suppliers seek to bring opportunistic claims for increased licence user costs following court case

We are seeing an increasing number of our clients being hit by claims from software suppliers, including SAP, HPE, Micro Focus and Oracle. The suppliers allege that the interconnection of the client's IT systems with the supplier's software and databases (both internally and with third parties) means that the client has many more indirect users of the software than it had allowed for. Consequently the supplier alleges that the client needs to buy additional licences for use of that software, leading to substantial additional invoicing. These are often users that the client wouldn’t expect to have to buy a licence for, such as those using largely separate employee/HR or customer systems that only very indirectly interact with the supplier's software.

Suppliers are arguing that, following the recent case of SAP v Diageo, they are entitled to charge for such additional "indirect" users. However the position is far from clear-cut legally and we are seeing many instances of "try on" claims. We are also seeing some software suppliers send increased invoices for payment, off the back of this case, without prior discussion with clients. Sometimes these invoices are received by in-house IT or procurement staff who don't realise that they may have the right to reject the fee increases.

This case is potentially relevant to software relating to investment management, payroll, auto enrolment, and pensions administration, particularly where members/employees can login to that software or a connected system and where such software interfaces with back-office systems / databases to extract data.

AG is uniquely placed to assist clients who are subject to such claims as we represented Diageo on this case, which is the only reported case globally on these issues. SAP tried to claim an additional £55 MIL from Diageo based on relatively modest infrastructure/database connectivity changes that it made. We achieved very successful outcomes at liability trial and in securing settlement (on confidential terms). We have also worked with a number of other clients recently to substantially reduce and in some cases entirely eliminate such claims.

There is much that we can share with our clients about this, without any breach of confidentiality, given that the case is on the public record. The progress of the case was poorly reported, with few (if any) accurately summarising the outcome and significant success that it represented for Diageo – and the opportunities that it presents for other organisations to counter such claims.