Understanding License Terms & Conditions

Right to Audit Clause

Virtually all significant software licenses contain a right to audit clause. The clause generally reads something like this:

“The software publisher (copyright holder), or its representative, has the right to audit the licensee for compliance.”

There are several major problems with this clause—as it is written above. We'll step through a few of them.

Problem - First of all, the copyright holder wants the right to audit you for compliance. Technically, you do not need to permit this request. Permitting the publisher the right to audit for compliance clearly implies that the publisher does not trust you to use their product according to their license. It also implies that the publisher will confront you legally if it discovers licensing problems in your company--even if they're honest mistakes. The time to address this trust relationship is before you hand over the money for the product—in other words, during license negotiations.

Solution – Negotiate this clause out of your licenses. Yes, plenty of companies are successful in completely removing the right to audit from negotiated license agreements. Does your company have that level of clout? If you are like most of us, probably not. However, that doesn’t necessarily mean that you can’t modify the clause to make it more favorable to you. If all else fails, you might try to negotiate an addendum to the license minimizing your risk.

Problem – The copyright holder wants the right to send another individual, or another organization, in to conduct your audit or monitor your license compliance. This is represented in the clause by the phrase, "or its representative.”

Solution – Make certain that this clause does not permit anyone other than the actual copyright holder to audit you for compliance. How can this help you? Elimination of this right can effectively remove the power of the independent global or national compliance enforcement organizations--the most active of all enforcement auditing groups. Essentially, if only the copyright holder can audit you for compliance, you could easily cut your exposure to piracy audits by as much as 60%--in some cases, even as much as 90%. This is a clause worth killing!

Problem – While this clause gives the copyright holder the “right to audit (you) for compliance,” only a tiny fraction of software or copyrighted product licenses will include a clause that clearly defines what compliance actually is. In addition, very few (any?) licenses will define compliance audit, nor will they clearly document the audit process. How will this effect you? You will find yourself conducting a blind audit, the details of which you will not know until the audit commences. Also, you will not know, up front, what documentation or other justification materials you must maintain to pass a potential audit.

Solution – If the copyright holder holds you to their the right to audit clause, be sure to follow-up that clause with one that clearly forces them to define and limit the right to conduct an audit. Include another clause, or addendum, that clearly details the precise audit process—including all documentation you will be required to produce.

Failure to address these issues will virtually guarantee that you will lose any non compliance (software piracy or anti piracy) confrontation. Unless I miss my guess, it is impossible to comply with something you don't know...