A recent case, SAP UK Ltd. v. Diageo Great Britain Ltd., emphasizes the importance of thoroughly understanding how a licensee will utilize the software it licensees and whether the license grant allows to licensee to use the licensed software in the manner contemplated by the licensee.
In Diageo, Deloitte developed two systems for Diageo based on Salesforce software. One, “Connect”, permitted customers to place orders directly through an on-line portal instead of through a call center. Diageo licensed SAP’s Process Integration (PI) software to allow Connect users to access and process certain data stored in mySAP ERP which was licensed to Diageo on a “named user” basis.
SAP brought suit seeking approximately $68M in damages, claiming:
Connect used SAP’s PI software engine to indirectly access data in mySAP ERP, and
Diageo’s customers who used Connect to order through the on-line portal were not “named users” for mySAP ERP and thus did not have a license to access the data on mySAP ERP
The court considered the plain meaning of the recitals in the license and the license grant:
“The extent of the licence is defined by Introductory paragraph A and clause 3.2 which state that the usage authorised by the Agreement is set out in the Exhibit….”
“The plain and obvious meaning . . . is that only Named Users are authorised to use or access the mySAP ERP software….” (emphasis supplied) And found:
“. . . the interactions . . . between the Connect customer and mySAP ERP constitute use of, or access to, the mySAP ERP software.”
if a call center employee submitting an order to the mySAP ERP system was required to be a “named user,” a customer submitting an order to the mySAP ERP system should also be a “named user”.
usage by Connect customers was not authorized under the mySAP ERP license agreement entitling SAP to additional license and maintenance fees.
What does SAP v Diageo mean?
Licensors will likely take a more aggressive stance in claiming unpaid license fees;
Licensees may receive unexpected claims for additional license fees;
License grants should be explicit and address indirect access; and
Licenses should clearly disclaim using any recitals in interpreting the license.
What should prudent licensees do?
Understand how the software will be used and by whom;
Understand the license terms;
Ensure the license clearly grants the licensee and it customers, if appropriate, the rights it needs;
Avoid ambiguity;
Consider using vendors with customer friendly terms; and
Carefully consider/exclude the language in the recitals in interpreting the license.
Note that in some states recitals involving a statement of fact are conclusive evidence of the facts stated. See e.g. Detroit Grand Park Corp. v. Turner, 25 N.W.2d 184 (Mich. 1946). Thus, prudent parties should avoid having the other party insert self-serving/superfluous recitals.