2. An Enterprise Approach to Critical Software Licensing Issue Identification and Acceptable Resolution

a. Typical Process

Many mid-sized to large organizations have a collection of software licenses, loosely "maintained" independently by individuals within the organization that have been involved in such transactions, that may be referred to in connection with future transactions. Some organizations have gone further and have preferred software license language for certain provisions or even template agreements that are to be used in software licensing transactions. But few organizations actually have procedures in place to insure that its corporate knowledge relating to software licensing, whatever the state of that knowledge, is consistently and systematically applied on behalf of the organization.

Unless an organization understands the many business and legal implications each software license transaction presents and has a corporate position or approach to handling those issues, it is not possible for its managers and other employees to deliver the best agreement achievable in most circumstances. Given the ability to significantly minimize business risks presented by software licensing transactions and cost savings achievable through a structured approach to such transactions, it is not surprising that companies are increasingly looking for and implementing process improvements in this area.

b. Process Improvement Recommendations

Enabling your business teams to access, at the point of need in a transaction, relevant business and legal insights that will help minimize risks, maximize opportunities, or highlight a need for assistance in connection with software licensing transactions should be the objective of all organizations. While there is no single method that is right for all businesses, the following common ingredients should be included in any effective software licensing issue identification, resolution, and negotiation strategy:

1. Senior Management Support

Senior management must support the importance to the organization of utilizing effective processes to manage issues surrounding software licensing by:

Appointing an individual or group to have overall responsibility for approving software license agreements throughout the enterprise with the right to establish and enforce requirements among business units;
Developing enterprise "best practice" software licensing positions and the business rationales supporting those positions, with input throughout the enterprise;
Providing tools to enable business teams to easily access "best practice" positions (all transactions do not carry equal levels of risk and "best practice" positions should take varying levels of risk into account);
Providing timely support to business units trying to implement the enterprise positions; and
Establishing the expectation that business teams will not deviate from "best practice" positions unless a manager is prepared to justify an exception request.

2. Develop tools

Leading organizations have implemented tools to facilitate the capture and dissemination of knowledge relating to software licensing best practices used in the organization. The tools used vary widely both in content and sophistication of delivery (e.g. paper-based to interactive) from organization to organization and include issue checklists, agreement libraries, form provisions, template agreements, annotated agreements, and extranet based knowledge delivery tools.

Checklists: Can provide an easy and effective method to spread best practices when they are focused on single subjects (e.g. Security diligence checklist) and are combined with discussions of the business issues that each item on the list is intended to address. For example, if a security checklist identifies a requirement for the vendor to permit penetration testing, the business reason supporting this enhanced level of protection should also be included (e.g., because we are a heavily regulated industry and are subject to high levels of accountability for the security of our customer's data, whether or not it is in our immediate control, we require vendors that will store customer data on their servers to commit to allowing us to conduct penetration testing both to meet our diligence obligations and to test the vendor's commitment to security within its organization). Finally, checklists that require affirmation of compliance with the subject matter directives in the checklist and approval of any material deviations by the designated oversight officer or group are far more effective at causing enterprise behavior to conform with those requirements.
Agreement libraries, form provisions, and template agreements: These tools vary from collections of agreements and agreement fragments maintained in the desk drawers of individual employees to databases searchable by type of agreement, vendor, or type of provision with links to PDF versions of the relevant agreements and amendments. With regard to form provisions and template agreements, just as in the case of checklists, discussions of the business issues relevant to the documents promote their effective use by your business teams. Thus, the authors favor annotated agreements which provide knowledge content with the template agreement. An example of a section from an annotated agreement from our technology contracting knowledge tool called KnowledgeGate™ follows:

SECTION 3.1 - LICENSE GRANT
Use Note

The best license for Customer to obtain is the broadest license; one that enables the use of the Software across the Customer enterprise and by all users authorized by Customer, including employees, both in their offices and at home (if applicable), and all affiliated entities and their employees.

In some instances, the parties will negotiate for some software products to be licensed on a perpetual basis (best for Customer) and other(s) to be licensed on a term basis (better for Licensor). In such a circumstance, the parties must clearly define the products in each category.

The language in Section 3.1 (License Grant), which is not bracketed, provides for the ideal license from Customer's standpoint. However, it may be difficult or prohibitively expensive to achieve this scope of license, so the bracketed portion, which creates a "Concurrent User" license, may be required. By licensing the software on a Concurrent User basis, the Licensor is assured that as there is growth in the number of users, it will receive additional payment.

Many Licensor licenses are written in terms of allowing the Customer to use the software for "its internal purposes only." Such a restriction will likely not encompass all of the uses to which the Customer may want to put the software. A better, more encompassing approach is to draft the license in terms of permitting the Customer to use the software for "its business purposes."
1. License Grant
  - [Perpetual License Example] Licensor grants to Customer and its Users a perpetual, non-exclusive license to use the Licensed Software for Customer's and its Users' business activities [subject to the Concurrent User requirements, if any, of this Agreement.]
    
    [Term License Example] For those items of Licensed Software identified in Exhibit B (Licensed Software) as "Term Applications," Licensor grants to Customer and its Users a non-exclusive license to use such items of Licensed Software for Customer's and its Users' business activities for the periods identified in Exhibit B (Licensed Software). [Such license shall be subject to any Concurrent User limitations set forth in Exhibit B].

3. Provide Support

The business teams that are responsible for implementing technology within the organization may be accountable to managers placing conflicting demands on the team. The manager of the business unit sponsoring the acquisition of software may be placing pressure on those negotiating the license to "just get it done - so we can start implementation." At the same time, legal or procurement may be demanding that certain steps be followed or contract concessions be obtained, with must less sensitivity to the project time impacts. This type of conflict rarely leads to the best overall solution for the organization and can frustrate efforts to develop effective licensing management solutions across the enterprise. To minimize such conflicts, it is important that the business team charged with implementing the organizations' licensing best practices is also provided with timely support from legal and other departments so that both the organization's project timeline and licensing management objectives can be met.

The payoff to your organization of harnessing, distributing, and applying relevant licensing knowledge can be significant. Use the suggestions above to get started and improve your licensing outcomes.