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Software licensing – ‘direct and indirect access and use’ SAP UK Limited v Diageo Great Britain Limited

  • United Kingdom
  • Outsourcing and offshoring
  • Technology
  • Technology, Media and Telecoms - Technology

27-02-2017

Précis

On 16 February 2017, the High Court ruled in favour of SAP UK Limited (“SAP”) in respect of a software licensing dispute with Diageo Great Britain Limited (“Diageo”). SAP claimed £55m from Diageo due to alleged unauthorised direct and indirect access and use of SAP’s software via two applications developed using a software platform provided by Salesforce.

The decision is significant to any organisation using or considering to use SAP. Steps should be taken now (rather than waiting until audit time or renewal) to undertake (i) a technical review of how SAP is accessed and used throughout the organisation, including internally and by third party suppliers, customers and outsourced providers; and (ii) a factual and legal review of relevant licensing terms (including all variations), prior audits and the parties’ dealings over time. Such reviews should be led and co-ordinated by in-house and/or external legal support so that legal professional privilege can be sought.

What?

In 2004, Diageo and SAP entered into a Software Licence and Maintenance Agreement, which was varied several times thereafter (the “Agreement”). In 2012, Diageo deployed two applications, known as “Connect” and “Gen2”.

Gen2 enabled Diageo sales representatives to collate relevant data to assist with the management and tracking of sales, primarily to pubs and clubs. Connect enabled Diageo’s customers and distributors to place orders for products directly using an online portal (i.e. self-service), rather than through Diageo’s employees in a call centre. Diageo acknowledged that Gen2 and Connect interacted with mySAP ERP and did so via SAP Process Integration (“SAP PI”).

In October 2015, SAP brought a claim against Diageo seeking £55 million in licence and maintenance fees, together with interest. SAP also sought an injunction to access the applications to verify use. The Court determined only issues of liability, not issues of quantification.

The decision – what constituted direct or indirect access or use

The terms “use, “access”, “direct” or “indirect” were not defined in the Agreement. The Court found that the plain and obvious meaning of “use” in the context of the Agreement was “application or manipulation of the mySAP ERP software” and in respect of “access”, the Court held that it meant “acquiring visibility of, or connection to, the mySAP ERP software”. In respect of “directly or indirectly” some assistance was given in the definition of “Named User”, which referred to use or access directly and indirectly “(eg via the Internet or by means of a hand-held or third party device or system”).

The Judgment identified and summarised a number of interactions between Gen2 and Connect with mySAP ERP via SAP PI. For the purposes of establishing Diageo’s liability the Judge focused on categories of individuals and what access and use of mySAP ERP their actions triggered.

In respect of Connect:

  • There appeared to be no real dispute that (a) business administrators who created data and settings within Salesforce so that customers could access and use Connect; and (b) users who were responsible for managing the transactions on mySAP ERP in support of data to be sent to Salesforce as part of Connect, were using and accessing mySAP ERP (indeed some were already Named Users).
  • The key issue in dispute was in respect of Diageo customers who carried out self-service transactions using Connect (“Connect Customers”). They were found to be accessing and using mySAP ERP.
  • The Court’s conclusion was based on the fact that at each step of the order process, the Connect Customer was accessing or using mySAP ERP indirectly through SAP PI. The fact that some of the interactions between Connect Customers and mySAP ERP was asynchronous was found to be irrelevant.
  • Given the above access and use, the Court then considered the calculation of any additional fees payable by Diageo. Under the Agreement, in the first instance, these were to be calculated in accordance with Diageo’s corporate price list. The relevant pricing levels were set out against various categories of Named User. The categories were not well defined and were found not to cover Connect Customer use. This meant that SAP was entitled to additional licence fees by reference to the nature and extent of the usage and SAP’s price list.

In respect of Gen2:

  • There were a number of different types of user of Gen2 and each was considered by the Court. Those found to be accessing or using mySAP ERP (indirectly through SAP PI) were:
  • Business administrators, as they create and maintain master data, including users, customers, products, territories and business roles, when it is extracted from mySAP ERP to Gen2. These business administrators were found to be Professional Users (as defined).
  • Sales representatives, who (a) plan and undertake visits to outlets; and (b) capture and update data related to the outlet and the actions that are carried out within a visit or call. The Court found that they access and use mySAP ERP when they log in to Gen2 via their mobile device for specific data entry tasks. The data is read in batches of 100 and sent to SAP PI where they are translated and sent to mySAP ERP for validation and subsequent processing.
  • No category of Named User was found to apply to sales representatives and so they were to be assessed, for the purposes of what additional fees were payable, in the same way as Connect Customers.

The decision – what did not constitute direct or indirect access or use

  • In respect of Gen2, the Court found that there was no evidence that the following users of Gen2 used or accessed mySAP ERP:
  • Business administrators who created and maintained transactional data, including products or activities that were specific to certain customer or user groups, tasks and surveys that are executed by the sales representatives when visiting customers;
  • Users who work in a call centre and take inbound calls from customers related, mainly, to queries or quality issues that the customers need resolving, but also to identify sales opportunities to be followed up.
  • Users who provide technical support for the Gen2 system.
  • Sales representatives when they retrieve data for the purpose of their calls or visits to outlets, such as product data. This was because they use commercial reports prepared by other Diageo employees for information on outlets and do not have access to business customer pricing or order history (however, their use in other ways was enough to need to be licensed).

The decision – other points

  • The Court found that on the plain and obvious meaning of the Agreement only Named Users were authorised to use or access the mySAP ERP software and there was no other basis on which the software was licensed to Diageo.
  • The Court rejected Diageo’s argument that SAP PI was a “gatekeeper” licence for gaining access to the SAP suite of software. SAP PI was licensed separately under the Agreement and applied in addition to Named User licences, not as an alternative to them.
  • SAP was not entitled to an injunction to compel access to Diageo’s systems. This was because Diageo had supplied SAP with usage data based on SAP’s monitoring tools as required by the Agreement. There was therefore no breach of the Agreement in that respect. To the extent that SAP required further information to assess usage based on the Court’s judgment then SAP could request it.
  • SAP was not entitled to interest under the Agreement. This was because the Agreement provided that interest was payable on any undisputed sum. Because Diageo had disputed all of the sums claimed, no interest was payable under the Agreement. However, the Court still had a discretion to award interest.
  • Although SAP raised in correspondence a claim for IPR infringement, it did not pursue this through the Court proceedings.

So What?

This case highlights the importance of managing software licence deployments, both at go-live and over the lifetime of the platform. In addition, prior to licensing or between audits/renewals, it is vital to map possible access/use cases and check those against permitted access and use terms, as well as securing clarity and flexibility from the licence at the outset. The judgment provides useful insight into the Court’s (first instance) determination of whether a number of scenarios constituted use and/or access.

It is possible that other businesses using SAP (or indeed packages from other enterprise software vendors) could be exposed to substantial licence fees and ongoing maintenance charges unless they maintain rights of use in accordance with applicable licence metrics. The requirement to licence this type of “indirect access” could cover not just distributors and sales representatives but, for example, a consumer accessing product details on a website, placing an order or tracking delivery if any of the information has been generated by or delivered through a SAP application. Prior to this judgment, the issue of “indirect access” was already known to and a contentious issue between SAP and its customer base. This judgment is likely to generate more interactions.

However, it should be noted that the Court’s judgment is highly dependent on the particular facts and on the particular clauses of the Agreement and its amendments. In addition, it focuses on individuals’ use, not automated use, and understandably a number of use cases were not considered. It is likely that a number of use cases may well not constitute access and use of SAP software and so organisations should undertake a thorough technical, factual and legal assessment of their position, as highlighted at the beginning of this note.

 

SAP UK Ltd v Diageo Great Britain Ltd [2017] EWHC 189 (TCC) (16 February 2017)

Mrs Justice O’Farrell sitting in the Technology and Construction division of the High Court.

 

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