Software: the risks of insufficient licensing

Find out more about software licensing, your exposure and what you can do about it in our 2017 report together with Cerno.

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Stephen Drew
Published: 12 Jul 2017 Updated: 13 Jun 2022

New pressures on the largest software companies have resulted in their looking more intensively at existing customers for additional revenue.

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Although these companies are always searching out new business, the easier call is to check that their existing customer base is fully licensed and, if not, to issue the demands for license fees and arrears of support and maintenance.

These checks — ‘license reviews’ or ‘software audits’ — have been very effective, yielding substantial income from customers that, even if they consider the demands unreasonable, have a continuing dependency on the technology: they cannot readily move to another provider.

The sums sought in such reviews are often very high: earlier this year, Anheuser-Busch disclosed in an SEC filing that it was in arbitration with SAP over a US$600m claim for license fees. Such claims are rarely publicised but the liabilities still exist and are often latent in many organisations.

Claims for license fees are common even in the most well-resourced business. And the values — often at list price and with overlays of back-support, penalties and support costs going forward — can be material in accounting terms. There are continuing risks here and boards, professional advisers and statutory auditors should consider what responsibilities exist to first identify these latent liabilities and then take steps to remediate, or mitigate against, the exposure.

Find out more about your exposure to insufficient licensing and what you can do about it in our 2017 report with Cerno.

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.


This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.