Article 10 March 2017

UK: High Court's ruling in SAP's indirect licensing case will lead to closer examining of ICT contracts

The High Court has ruled in favour of SAP in a case determining the right of software providers to charge license fees of indirect access to their software. The opposing party in the case, Diageo, may face significant additional fees, since SAP has claimed over £50 million based on API access to its software by third-party users who access the software indirectly. The judge will determine the final amount of the award later on. The case may have implications on SAP licensees also outside the UK.

SAP has won a significant court case against alcohol beverage company Diageo in the Technology and Construction Court of The High Court of Justice of England and Wales. The question was whether software users should pay license fees for indirect access to SAP generated data.

Diageo had integrated mySAP enterprise resource planning (ERP) software on a platform using SAP Process Integration (PI) in order to enable online self-service for customers rather than placing orders through Diageo's call centre.

SAP claimed that Diageo's systems accessed the mySAP ERP software directly or indirectly. Therefore, SAP wanted Diageo to pay additional fees for this third-party access to SAP generated data.

To win SAP had to demonstrate that the contract with Diageo was to be interpreted in a way that it allowed SAP to charge additional fees for indirect third-party access. Diageo argued, in turn, that the data was transferred to, and that the SAP PI was acting as a "gatekeeper" for the data rather than providing a means to access the data by third-party users.

The High Court's ruling confirmed the applicability of licence fees for indirect access to Diageo's business customers.

A significant ruling for user-licensed software customers

Diageo had paid SAP between £50 million and £61 million by way of licencing and maintenance fees to use the mySAP Business Suite. The license fee was calculated by the number of "Named Users" of various categories identified in the agreement between SAP and Diageo.

"Named Users" were defined in the agreement as

"An individual representative (e.g. employee, agent, consultant, contractor) of the Customer, a Group Company, an Outsource Provider or a Supply Chain Third Party who is authorised to access the Software directly or indirectly (e.g. via the Internet or by means of a hand-held or third party device or system). The extent to which a Named User is authorised to use the Software depends upon his user category as set out in the schedule."

The "Schedule" described the characteristics of each category of "Named Users". The judge concluded that even though the agreement did not contain any category for users of third-party software interacting with SAP applications, the "plain and obvious meaning of the agreement" was that only "Named Users" were allowed to access mySAP ERP.

In addition, the judge rejected Diageo's view that the SAP PI functioned as a "gatekeeper". The High Court aligned with SAP that Diageo's systems were accessing indirectly SAP business process functions and information from the database for the purpose of ordering products and managing their personal accounts.

The judge concluded that there was basis for additional license and maintenance fees for the third-party users accessing the software indirectly. However, the actual amount of award will be established later on.

SAP users concerned of the consequences of the ruling

The SAP UK and Ireland User Group expressed its concern over the ruling. In his statement to Computer Weekly, Philip Adams, chairman of the User Group, said that the case highlights how there needs to be greater clarity from SAP on what constitutes indirect usage and the implications for licensing. "We have also warned all our members to be vigilant and consider their individual licensing positions," stated Adams.

It is unsure, whether this case will be a significant precedent for charging license fees for indirect access to software and trigger more claims around indirect access or not. Moreover, it has to be kept in mind that this was only the first act and, while the amount of additional license fees is yet to be determined, Diageo will likely appeal this verdict.

However, we recommend using an experienced IT licensing lawyer when entering into SaaS-contracts and paying close attention to the definition of "Named Users", especially in situations where the software may be accessed indirectly by a larger number of users. In addition, we recommend that SAP users keep an eye on the case as it may cause significant aftermath.

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