Beware the Convenient “Intent” of Software Publishers

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Most software license agreements used by major publishers like Microsoft and IBM are in many ways vague with respect to license restrictions and metrics. This leaves licensees in the position of having to interpret the agreements based on whatever guidance may be available from the publisher or, often, simply based on the licensees’ own experience and understanding. Unfortunately, that often lands companies in trouble in the context of an audit.

A tactic that we are seeing increasingly with many software audits is for publishers (1) to announce that audited businesses have incorrectly interpreted their software license agreements and then (2) to explain what the publishers’ “intent” for the agreements really was. For example, a license agreement may prohibit using software for “commercial hosting” purposes without defining what “commercial hosting” consists of. Absent that guidance, a licensee may deploy the software in customer-facing environments but may do so in a way that, based on the licensee’s understanding of the word “hosting,” does not cross the line. Then, in an audit, the publisher informs the licensee that its “intent” for the prohibition was to stop just the sort of deployments used in the licensee’s network and that the licensee therefore was using the software improperly for “commercial hosting” purposes. In other words, while the publisher may have had an opportunity to make its “intent” clear in the license agreement, it instead promulgated a vague license and then used that vagueness as a sword to claim a windfall during the audit.

It is important to remember in such situations that contract law typically does not favor such arguments. For instance, in interpreting contracts, courts in Washington state (the laws of which control the interpretation of Microsoft’s license agreements, among others) “attempt to determine the intent of the parties by focusing on their objective manifestations as expressed in the agreement.” McGuire v. Bates, 169 Wn.2d 185, 188-189 (Wash. 2010). “The subjective intent of the parties is generally irrelevant if [courts] can impute an intention corresponding to the reasonable meaning of the actual words used.” Id. Moreover, to the extent that there exist ambiguities in a written agreement, those ambiguities will be construed against the party that drafted the agreement. Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1048-1049 (9th Cir. Wash. 1995). Therefore, to the extent that a court might find that there are no ambiguities in the licensing language in question, either party’s subjective intent for that language would be irrelevant. Conversely, to the extent that a court might find the language to be ambiguous, that ambiguity likely would be construed to be consistent with the licensee’s interpretation, not with the publisher’s interpretation.

For these and many other reasons, it is vital that a company’s legal counsel be involved in any software audit as soon as the company receives an audit notice letter. Software publishers often assert legal positions that are not supported by applicable law, and a company that coordinates its response among IT, procurement, SAM and legal team members stands the best chance of mounting an effective defense.