Mar 10, 2017

SAP vs. Diageo: What You Need To Do Right Now About Indirect Access

SAP vs Diageo: Indirect Access

What was once unthinkable, is no longer a rare occurrence: SAP is suing its existing customers if they cannot come to a commercial agreement. In the most recent case, SAP charged global drinks company Diageo with indirect usage violations. In late February of this year, license cost for indirect usage was upheld by the Royal Courts of Justice (case no: HT-2015-000340).

Previously, SAP did not take such cases to court. But since new cloud products apparently haven’t been accepted across the market as initially anticipated, SAP is forced to develop alternate revenue strategies. SAP, the partner who once stood alongside its customers, no longer supports its customers.

The SAP community, especially in the UK and Ireland, are unsettled. Should SAP customers now assume that future contract disputes will be decided in court?

Additional named user licenses: yes or no?

In my experience, SAP always tries to find a commercial solution with its existing customers when it comes to purchasing additional licenses. It is very likely that would not have acted any differently in the Diageo case. However, SAP must have determined that Diageo’s SAP systems were being indirectly accessed and, according to SAP, this requires a license.

Diageo probably presented SAP with the two add-ons GEN2 and CONNECT (see case no. HT-2015-000340, paragraph 30 – “Process and Product Description [PPD]” provided by Diageo), with the assumption that SAP would confirm that this does not incur any additional costs.

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High risks carry high penalties

The opinions for a commercial agreement differed greatly, and SAP took its demand for £54,503,578 (approx. $66.4 M USD) to court. Its claim was based on the software license agreement with Diageo. It was justified as follows (see paragraph 36):

  1. A Named User is an individual representative of Diageo […“or a Group Company, or a Supply Chain Third Party …”], who is authorized to use or access the SAP software directly or indirectly.
  2. The Agreement does not entitle anyone who is not a Named User to use the SAP software or access it.
  3. The use or access to SAP software via SAP PI is not an alternative to authorization as a Named User […].

In particular, the third point suggests that Diageo had originally tried to argue its case to SAP. If not, SAP probably wouldn’t have mentioned this point in its claim.

Diageo’s arguments against additional license requirements are:

  1. Access to SAP software are covered by the “SAP PI” license. This also applies to add-ons.
  2. The agreement does not clearly state that users who access SAP software via SAP PI need an additional named user license.
  3. Diageo has already paid a total of £55-61 million since 03/11/2015 ($66-74 M USD) to SAP. In its case, SAP demands the same amount – which does not make any business sense for Diageo.

No matter how an outsider judges this case, it should be pointed out that Diageo’s arguments were not airtight and easily refutable. 

SAP vs. Diageo case: named user license required

How did Justice O’Farrell proceed in her judgment? The judgment can essentially be classified into a contractual and a technical assessment. The judge based the contractual judgment on the SAP agreement and SAP’s arguments. She concludes (see paragraph 49) that a named user license is required to access Diageo’s SAP systems. At Diageo, licensing is based only on the named user pricelist. Access via SAP PI is not permitted without a named user license. Thus, all Diageo’s arguments are irrelevant (found in paragraphs 45, 47 and 48 of the judgment).

SAP vs Diageo: Indirect Access

Full cost remains unclear

The technical evaluation details who can access SAP systems and how. Based on this, the license type needs to be determined. According to the judge, a named-user license is needed. Since the judgment does not mention the “SAP Platform User”, which figures in the list of prices and conditions for this kind of access, I can only assume that SAP required an “SAP Professional User” license for each access. The justice disagreed with that.

The additional amount Diageo must pay SAP has therefore not yet been set. First, the “right” named user license type must be defined and the exact number of users determined.

Lack of experience is expensive

Had the British drinks company been better advised, would it have initially sought an out-of-court settlement with SAP? Absolutely! Diageo should have had tapped an experienced SAP licensing consultant to perform a contractual and technical analysis. Instead, this process occurred in court.

Having the courts, which lack the necessary expertise and corresponding practice, review and make decisions on complex licensing agreements is not ideal. It would have been necessary to investigate each individual use (interface, add-on that access SAP systems) – in case of doubt, by involving an experienced IT software lawyer.

Only at the point when a commercial agreement cannot be made, should further steps be taken. 

Who will be next?

The court didn’t verify the overall validity of these contractual regulations in accordance with the EU software directive in its decision. So, it’s unclear exactly how this judgment might affect anticipated future EU cases.

Firstly, the judgment is a first-instance judgment. This means that it’s not even binding in other courts in the UK. Secondly, licensing arrangements in agreements must adhere to national and EU law. It will be interesting to see what happens in the first Germany and other EU court cases. How will the courts address SAP’s current licensing practices with regard to indirect use in relation to national and EU law?

Indirect use: time is running out

What is clear is that responsible SAP customers must take action now. Every single instance of indirect access needs to be tracked and checked. The question that each customer should ask, no matter what their country, is:

  • When were my SAP agreements concluded?
  • What are their T&Cs and P&Cs?
  • What contractual regulations apply to indirect use?
  • Which interfaces (add-ons) do employees and non-employees use to access my SAP systems?
  • Which cases involve “indirect use” and which do not?
  • Who are the indirect users and do they already have an SAP named user licence?
  • Are additional SAP licenses required and if so, how many and of which type?

Indirect access can cost millions for SAP customers, resulting in billions of revenue for SAP. Don’t get caught with risk. Platforms like License Control for SAP fully calculate what your indirect access might be so you understand the maximum financial penalties that you could face from SAP. By running your usage results against SAP’s mandatory LAW measurements, you will always stay compliant with your contract terms.

If you have questions about indirect access, we can help! Talk to one of our SAP licensing experts – and stay protected against future risk.

Want to learn more about SAP Indirect Access? Start here!

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Topics: Audit Defense, SAP




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