Q
How prevalent is it to negotiate such audit restrictions that you have been discussing up front into the license agreement?

A
Negotiated audit terms and audit forbearance are concepts that come up frequently when negotiating software licenses.  The best time to re-balance one sided provisions in license agreements is when new purchases or renewals are taking place. Many of our larger clients have standard audit clauses that they include as redlines in all software deals.  

Q

I have publishers that have started audits but did not complete them. Some stopped when I asked them to sign our NDA and others stopped after we provided our inventory data. Is it possible to reach back to them to close the audit without waking the tiger to continue the audit?

A
We generally do not suggest going back to the vendors on the dormant audits.  There is too great of risk of resurrecting the audit and not much upside in terms of a close letter.

Q
Should you have a detailed Scoping Document agreed with Auditor (if its a big 4 accountancy firm) before you allow audit to commence? Should this be legally binding and therefore executed by you and appointed auditor?

A
The most common pre-audit document we see when the big 4 are involved is the Non-Disclosure Agreement (NDA).  We generally edit the NDA to include some scoping details, most particularly a review period after the findings are made but before it is shared with the vendor.  Other details regarding scope are generally beyond the purview of what auditors can agree to and are therefore usually negotiated directly with the vendor.  We recommend that a pre-audit NDA be signed by the parties in all audit matters.

Q
How have Software as a Service (SaaS) subscription licensing approaches changed the audit process?  Are audits 100% focused on downloaded software?

A
Subscription licenses have changed the software industry landscape in a number of ways.  Most SaaS solutions are easier to account for from a compliance perspective and therefore traditional audits focused on deployments and entitlements are not as common.  In some instances there are still disputes over whether or not the licenses are being used consistently with the license grant, i.e. geographic scope, no third-party access.  In other cases, audits revolve around licensing metrics such as revenue, number of employees, etc.  In short, while the topics differ from audits of on-premises software, there seems to be plenty to fight over in the Cloud. 

Q
If your client gets a software audit "request" and declines to agree to allow it, what are the likely consequences?

A
Different situations would have different likely consequences.  Eventually, the client could face license termination, refusal to process orders for new business, or in rare cases litigation.  None of these consequences would be an immediate response to a polite request to cancel or postpone an audit request and we frequently advise our clients to do just that because fair amount of audits can be avoided all together. 

Q
What happens if we ignore a request for a software audit?

A
Companies targeted for audit are not required to cooperate with the trade associations or publishers, but resolution without litigation is highly unlikely without an agreement from the target company to participate in a voluntary audit.

Q
What types of software audit matters should be handled by legal counsel?

A
In light of the highly specialized issues that arise in software audits, unrepresented or underrepresented clients generally make a series of common mistakes that jeopardize their legal position.

Q
What is the most common mistake company’s make in responding to a software audit?

A
The most common mistake we encounter in software audits is the failure to compile and produce accurate installation information.
Q
Which software vendors are most likely to audit our company?

A
Here are the vendors we encounter the most in our practice: Microsoft, Autodesk, Adobe, IBM, Oracle, SAP, and Borland.
A
How should my company respond to a request for a software audit?

A
A request for a software audit is a legal matter that should be handled by your company’s inside or outside legal counsel.

Q
What are the best practices for conducting an internal investigation regarding software license compliance?

A
Software audit investigations generally involve:

  1. Automated discovery of the relevant software products
  2. License entitlement review
  3. Technical use case review for each product
  4. Application of the licensing rules to the facts
Q
Why is a self-audit better than a third-party audit conducted by Deloite, KPMG, or E&Y?

A
All software audits involve the gathering and validation of information regarding the use of computer software. In a self-audit the customer conducts an investigation and represents to the publisher that it is true and correct. In publisher audits, a third-party conducts an audit and the customer invariable challenges the findings. The self-audit is more efficient and is fairest to both sides.

Q
What are the key provisions to include in a pre-audit agreement?

  1. ARule 408 Protections for Audit Materials
  2. Access to Information
  3. Time-frames for information sharing
  4. Audit Deliverables
  5. True-Up Provisions for any Compliance Findings
Q
Our internal investigation is still pending, is it possible to determine the amount in controversy in our software audit?

A
Yes, in certain instances, it is possible to gauge the amount in controversy before an internal investigation is completed. Factors we% 20consider include: recent settlements with the same vendor on a similar issue; specific product and deployment counts; the strengths and weaknesses of the legal points on both sides.

Q
We received an unreasonable demand from a software vendor, what process should we follow to develop our counter offer?

A
You should respond by developing an analysis of what your company would owe assuming you would prevail on all legal arguments and offer that number as your initial counter-offer.

Q
What happens if we are unable to negotiate a business resolution to our software audit?

A
We are usually able to negotiate an out-of-court resolution to most software audit disputes. Occasionally, there are cases that do not settle and one side or the other files litigation in a federal district court.

Q
What are the most important business considerations when considering litigation in a software audit dispute?

A
Here is what you should consider before filing litigation in a software audit:

  1. Amount in controversy
  2. Switching costs
  3. Probability of success
  4. Impact on internal resources
  5. Legal fees and expenses