Businesses should forcefully challenge unjustified claims of breach by software companies, says expert

Specialist in resolving software licensing disputes Martin Walsh of Pinsent Masons, the law firm behind Out-Law.com, said that some software businesses are using licensing audits of companies as a guise for raising licensing breach claims in a bid to boost revenues.

He said he had seen examples where claims being brought were for "technical or trivial breaches of licence terms" but valued at "many times" the value of the licensing contract.

Walsh was commenting after Channel Web reported the criticisms of one software reseller of terms contained in an Oracle licensing contract.

The terms permit Oracle to terminate their licensing agreement with customers and cut off their supply of software and services if businesses are found to be in breach of contract and fail to correct the breach within 30 days of written notification of the breach from Oracle.

The contract states that where Oracle exercises its contractual right to termination in such circumstances then businesses are obliged to "pay within 30 days all amounts which have accrued prior to the end of this agreement, as well as all sums remaining unpaid for programs ordered and/or services received under this agreement", according to the Channel Web report.

The licensing terms also state that businesses signed up to the contract agree that they are prohibited from using the software and services they have ordered from Oracle where they are "in default" of the licensing agreement.

Walsh said other software suppliers use similar terms to those used by Oracle.

"The heavy handed tactics of software suppliers are a regular source of complaint," Walsh said. "Suppliers using 'routine' audits to drum up revenue is a well known practice, and the sums claimed can be astronomical – we have seen one claim for 60 times the original contract price, backdated for six years. These claims can run into tens of millions of pounds, and clearly no business is going to be able to pay that on 30 days notice."

"The key issue is whether the supplier can actually 'switch off' the software so as to prevent the customer using it. If this is not possible then the customer might carry on use and dispute the supplier's claims. Either way the threat certainly gives the supplier huge commercial leverage. However customers should never pay out against unjustified claims as suppliers can back down if challenged forcefully," Walsh said.

In cases where software is business-critical or where its potential removal by a supplier would cause major harm to their business, businesses can go to court to ask for an injunction preventing suppliers from switching off their access to that software, Walsh said.