The Business Software Alliance (BSA) announced on March 28 that it had reached a $100,000 settlement with an advertising agency in Melbourne, Australia, based on the firm’s allegedly unlicensed use of BSA-member software products. However, unlike the majority of BSA settlements, which typically involve claims that a business has more installations of a particular product than its documented licenses permit, this case apparently included allegations that the company “was insufficiently licensed for its development environment and not properly licensed to provide hosting services for its customers.”

Software development and solution hosting both can present unique licensing issues for businesses that may not be accustomed to addressing them. It is not uncommon for businesses to overestimate the rights conveyed with certain license types, which can prove to be costly mistakes in the event of a software audit. Microsoft’s licensing rules are a good and fairly prevalent example:

  • Software Development. Many businesses recognize that a subscription under the Microsoft Developer Network (MSDN) program often represents an excellent value proposition. MSDN subscriptions include perpetual use rights for a vast array of Microsoft software. However, that software must be used exclusively in connection with the design, development, testing, and demonstration of new programs. In addition, and more importantly from a compliance perspective, each subscription must be assigned to a single software developer, with no sharing among team members, and if any software included in the subscription ever is used for any other, non-development-related purpose, then it must be licensed independently.
  • Solution Hosting. Most Microsoft license agreements do not permit users to host software over the Internet to their customers or to rent any software to third parties. Businesses that fail to heed those restrictions typically discover – in the context of a software audit – that Microsoft or the auditing entity (like the BSA) refuses to recognize licenses any erroneously purchased for those prohibited purposes. The most popular way to obtain valid hosting or rental rights is through a Services Provider License Agreement (SPLA) with Microsoft. However businesses considering SPLA licensing must be prepared for a much more involved contracting process with Microsoft and also for the requirement to submit monthly reports that identify all software deployed to customers under the SPLA.

Businesses concerned about their development or hosting entitlements – as well as businesses with reason to believe that those entitlements may represent a significant aspect of a pending audit investigation – should work with licensing counsel to identify any discrepancies from an early stage. Doing so can help to minimize exposure related to compliance deficiencies.