201601.06
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Top Three Challenges in Standard IBM License Agreements

IBM software licensing can present an array of interpretive and compliance challenges for even the most sophisticated licensees. Here are three of the most important things to keep in mind when planning to license IBM products under the company’s standard-form agreements (which, for the vast majority of IBM customers, are essentially the company’s only agreements, since IBM generally is loathe to deviate from them).

  1. Document Soup. The first thing to know about IBM license agreements is that there is no single license of any single software program. Instead, IBM places applicable license terms within at least two – and sometimes more – documents. The two forms that apply in almost all cases are the International Program license Agreement (IPLA) (available here) and a program-specific License Information document (LI) (you can search for the LI pertaining to a specific product here). However, other documents may apply depending on how a product is being licensed. For example, most businesses that acquire IBM software do so under IBM’s Passport Advantage volume-licensing program, which entails a separate license agreement (the PAA, available here). Further, if a company wants to license IBM software on virtual servers, it may want to consider doing so under IBM’s sub-capacity licensing option. That option requires acceptance of yet another set of license terms (available here). Just keeping track of which agreements apply to which products can be a daunting task, and it is one that demands strict attention to detail if the customer wishes to avoid exposure from unlicensed or under-licensed software deployments.
  2. Mandatory Full-Capacity Licensing by Default. Many businesses want to run IBM software on virtual servers in order to reduce costs and to maximize the use of available processing resources. Many of those businesses also are aware that IBM offers a sub-capacity licensing option that can substantially reduce costs in instances where a product is to be deployed on one or more virtual servers with substantially less processing capacity than the physical server where they are hosted. However, the LIs applicable to sub-capacity-eligible products typically contain no mention of sub-capacity licensing, requiring instead that the software be licensed based on the capacity of the physical server where it is installed. In order to be eligible to license products on a sub-capacity basis, a business therefore must agree separately to the terms of the sub-capacity licensing attachment to the PAA (referenced above). Failure to do so (and to jump through the other, mandatory, sub-capacity licensing hoops) can result in substantial, unanticipated license and compliance-related costs in the event of an audit.
  3. Audits are Awful. The IPLA includes one of the most onerous audit-rights provisions that we see in standard-form license agreements. It requires the customer “to create, retain, and provide to IBM and its auditors accurate written records, system tool outputs, and other system information” intended to provide a basis for conducting compliance audits. It gives IBM the right to “verify Licensee’s compliance,” either directly or through the third-party auditor of its choice, without any limitation on frequency or timing, provided that the notice of the audit is “reasonable” and that the audit is conducted “in a manner that minimizes disruption to Licensee’s business” (though, IBM audits almost always are significantly disruptive to varying degrees). Finally, if software use in excess of license rights is discovered, the customer may be required to pay the “charges that IBM specifies” for: “1) any such excess use, 2) support for such excess use for the lesser of the duration of such excess use or two years, and 3) any additional charges and other liabilities determined as a result of such verification.” That essentially boils down to: “You will pay what we tell you to pay.”

Companies that license IBM software typically do so for mission-critical business purposes, which makes addressing these and other pitfalls associated with IBM software licensing both inevitable and vitally important. It may not be possible to negotiate away most (or any) of the terms giving rise to those pitfalls, but at the very least a business must be familiar with the obligations it is undertaking when acquiring IBM program licenses. For this reason, it makes a lot of sense to work with experienced licensing counsel at the outset of the license-procurement process.