Who’s in charge of your software licenses?

A recent, global sweep resulted in $10.5 million in enforcement action recoveries. At any given moment, the BSA has well over 500 active investigations in the United States. In 2001, the BSA collected more than $13 million from companies using unlicensed software. The companies involved range from auto sales companies to Web design firms.

Busted

In the wake of massive industry layoffs, recently fired I.T. employees are only too happy to unload the dirt about their former employers to the BSA.

“Typically, someone calls or reports something from a company that they either work with, or used to work with,” says Robert Holleyman, president and chief executive officer of the BSA. “They tried to get something done about it, but couldn’t. That’s when they come to us. Most employees would never think about stealing someone’s hardware. That’s too complicated, and besides, you wouldn’t want to bring that kind of attention to your company if you get caught. But many think nothing of stealing software. Our message is: You should. There’s a very real risk in getting caught.”

The results can be devastating. “This is the bomb in the closet of many hosting companies, and ex-employees have their hands on the detonator,” says David Bates, cochairman of the Technology Practice Group at Gunster, Yoakley & Stewart (www.gunster.com). “Failing to manage software licenses has been the nail in the coffin for many companies.”

Over the limit

It can be a no-win situation for hosts and service providers. Buying licenses is as tricky as buying insurance. Buy enough to cover what you need, and you have made a smart purchase. Buy too little, and you have potentially exposed yourself to uninsured damages. Buy too much, and it is the equivalent of purchasing $200,000 worth of renter’s insurance to cover a college student’s efficiency apartment. Still, the latter might be the lesser of two evils, says Mark S. Holmes, special counsel at the IP transactions practice group at Townsend and Townsend and Crew LLP (www.townsend.com).

Holmes recounts the experience of a hosting provider audited by a software company from which it had licensed several programs. The provider came up short on the needed licenses for one of the programs and was threatened with copyright infringement.

“In its defense, the provider found it had paid for more licenses than it used for another program with the same software company,” Holmes says. “While the software company rightly countered that overpayment on one of its programs did not make up for copyright infringement of another of its programs, the software company did take the argument into consideration in settling with the provider. The example highlights the dangers of failing to know what software the host provider has installed and whether the number of seats — or users it actually makes use of — is covered by a like number under its license.

“The software industry is becoming more vigilant and vigorous in its pursuit of unauthorized software use,” Holmes continues. “As the economy weakens and software companies look for new sources of revenue, finding unauthorized users becomes an increasingly attractive means of increasing revenue and meeting elusive sales figures.”

Holmes recommends a monitoring program for hosting providers. Such a program should list the program name, version number, serial number, number of seats, and expiration date.