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.
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.
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.
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.
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.
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.
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.
A: The most common mistake we encounter in software audits is the failure to compile and produce accurate installation information.
A: Here are the vendors we encounter the most in our practice: Microsoft, Autodesk, Adobe, IBM, Oracle, SAP, and Borland.
A: A request for a software audit is a legal matter that should be handled by your company’s inside or outside legal counsel.
A: Software audit investigations generally involve:
- Automated discovery of the relevant software products
- License entitlement review
- Technical use case review for each product
- Application of the licensing rules to the facts
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.
- Rule 408 Protections for Audit Materials
- Access to Information
- Time-frames for information sharing
- Audit Deliverables
- True-Up Provisions for any Compliance Findings
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.
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.
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.
Here is what you should consider before filing litigation in a software audit:
- Amount in controversy
- Switching costs
- Probability of success
- Impact on internal resources
- Legal fees and expenses