Software licensing: SAP UK Limited v Diageo Great Britain Limited [2017] EWHC 189 (TCC)

What are the risks of “indirect” use of software?

The facts

Diageo had licensed mySAP Enterprise Resource Planning (ERP) software from SAP since 2004, using its functionality to manage the manufacturing, stock and supply chain, financial reporting and human resources requirements of its business.

Through to November 2015, Diageo paid SAP between £50million and £61million in licence and maintenance fees. Pursuant to the Software Licence and Maintenance Agreement between Diageo and SAP (the Agreement), the fees were priced by reference to the number of “Named Users” of the software. Named Users was defined in the Agreement as individuals who are “authorised to access the Software directly or indirectly”, depending on their user category as set out in a schedule to the Agreement. The Agreement also granted Diageo a licence to use SAP Exchange Infrastructure (SAP PI), which distributed messages between ERP and other SAP systems. Diageo paid an additional fee to use SAP PI based on the monthly volume of messages processed.

From around 2011, Diageo developed and introduced two new software systems, “Connect” and “Gen2”, using a platform provided by Salesforce. Connect enabled Diageo’s customers and distributors to place orders for products directly using an online portal, rather than through Diageo employees in a call centre. Gen2 was used to manage the operations of Diageo’s sales and services representatives.

Diageo accepted that Gen2 and Connect interacted with the ERP software via the SAP PI system, but disputed whether that interaction constituted use and/or direct or indirect access to the ERP software so as to give rise to the payment of additional fees. SAP claimed that Gen2 and Connect used and/or accessed the ERP software directly or indirectly, without SAP being appropriately compensated under the Named User pricing arrangement. As a result, SAP claimed additional licence and maintenance fees of £54,503,578, together with interest. SAP also sought an injunction to gain access to the SAP software held by Diageo and the equipment on which it was stored in order to verify the software usage.

The decision

The court sided with SAP on liability but did not make a ruling on the amount of compensation due, leaving this to be assessed later in the quantum stage of the trial (if not agreed before by the parties) by reference to the nature and extent of the usage and SAP’s price list.

The court rejected Diageo’s “gatekeeper” argument, finding that users of both Gen2 and Connect used and/or accessed the ERP software indirectly via SAP PI without having appropriate Named User licenses to do so. This amounted to a breach of the Agreement and SAP was entitled to additional licence fees as a result.

The court declined to grant SAP an injunction permitting it to access Diageo’s software and equipment, finding that Diageo had provided SAP with the necessary software usage information required by the Agreement. Furthermore, SAP was not entitled to interest under the Agreement, which provided that interest was payable on any undisputed sum (and Diageo had disputed all of the sums claimed).

Why is this important?

The judgment may embolden SAP and other software providers to pursue further litigation, and the potential liabilities for software customers who get this wrong can be very significant.

Any practical tips?

Customers should carefully consider their software usage, or future plans for usage, to ensure that they are not, or will not be, in breach of existing software licence
agreements. This is likely to be a particular issue where the customer’s software usage has changed over the course of an agreement or is about to change (eg to make uses  of new technologies). For example, with the Internet of Things now with us and the increasingly prevalent customisation and integration of software, providers should really focus on their licensing arrangements at the outset of new technology projects to ensure they do not inadvertently create a scenario analogous to this case.

When negotiating new contracts, customers should opt for a pricing arrangement which best reflects their actual or intended use of software, paying close attention to definitions like “Named User” (which should be limited if too broad). Customers should also check with their technology teams to understand the likelihood of any “indirect” access (although admittedly in this case the contract was signed when few would have foreseen connecting SaaS applications to on premise applications provided by a third party).