Avoiding the Pitfalls of the "Unlimited" License - Four questions you should ask

You're a CIO and a major software publisher proposes an "enterprise" or an "unlimited" license arrangement. Having made its way up the chain to your desk, you are told the deal looks promising. There can be pitfalls in any software deal. In "enterprise" or "unlimited" license arrangements the pitfalls can be devastating.

Asking yourself (and your staff) four basic questions may help you ferret out the risks and reduce your exposure to many of the big problems.

This is the first of four installments identifying and explaining each of these four questions. The first question is:

What does "enterprise" or "unlimited" really mean?

Every software license has limits, even those that purport to be enterprise-wide or unlimited. Misunderstanding the limits of what was touted as an "unlimited" license erodes the deal's value proposition and can be expensive as well as be embarrassing when justifying the additional expense necessary to pay for uncovered rights.

Without attempting to describe every limit, what follows are a few examples for your consideration and to demonstrate the need to understand what "enterprise" or "unlimited" really means when you are called upon to approve the deal.

It used to be, when publishers were more interested in knowing exactly who used their software, where it was used and on what machine, an "enterprise agreement" generally meant that anyone in the enterprise could use the product anywhere in the enterprise's geographic footprint so long as the software was only used on a specific machine. This seemed to work when IT was centralized. Today, however, some real difficulties can arise in the definition of the "enterprise" because of the decentralized fabric of an enterprise's IT operations. An enterprise may be defined in terms of usage by a specific company, a specific business unit within a company, or as a specific business footprint of a business unit, such as the "business footprint occupied by the XYZ business unit immediately prior to its integration into the ABC corporation" The reach of the enterprise definition might be further constrained by coupling one or more of these limitations with a limit on the geographic usage footprint.

Once you understand how the "enterprise" is defined, it is important to keep in mind that enterprise rights generally do not translate into unlimited usage or deployment rights. You must understand the specific usage and deployment rights as well. The license may permit anyone in your company to use the product across multiple geographies, but it may only allow use by a defined number of users (or processors, or a defined level of enterprise revenues). Your usage rights may be further constrained in other ways as well. For example, an enterprise license agreement may give you unlimited deployment rights for a product (e.g., a database), but only for a specific application or for a specific business process.

Once you understand how the "enterprise" is defined and whether or not you have "unlimited" deployment rights, there are still other seemingly elementary limitations you should explore and understand. Here are two examples of these elementary limitations.

  1. It is very unusual for unlimited usage rights to extend to every product offered by a publisher. Most unlimited license agreements will include a listing of the specific products to which unlimited deployment rights apply. It is important to understand the specific products that are included and socialize that list within your organization. A well-intentioned end-user or IT professional may assume that an unlimited database license covers all database products. However, if database products that are not listed in the license are deployed without first securing the additional license rights, the company could be responsible for additional (potentially significant) fees and/or be exposed to remedies for license violations. Unfortunately this is not uncommon and is, in part, the reason why vendors typically include an audit right in the license terms.
  2. In addition to the product listing, unlimited deployment rights are limited typically to a fixed term - usually three to five years. If it is your intent to purchase rights to cover the needs of an ongoing project or business function you should confirm that the deployment term covers the projected time frame for that project or initiative.

In summary, in an enterprise or unlimited license, it is very important that you understand exactly what usage rights are granted and how those rights match your needs. Like all purchases, ask enough questions to understand the full scope (and limitations) of the product before you procure it.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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