19 Feb

SAP vs Diageo in £54.5m Indirect Access Court Hearing

Hight Court Judge rules in favour of SAP in Indirect Access court hearing with Diageo

On Thursday 16th February 2017 high court Judge Mrs Justice O’Farrell MBE, ruled that Diageo were liable to pay SAP additional licensing fees as a result of what is broadly known as Indirect Access. Diageo could now face a significant bill for licensing fees potentially in the tens of millions.

SAP brought the case against Diageo in October 2015, looking for £54,503,578 in licence fees, whilst seeking £3,955,954 in interest and back-dated software maintenance charges. Whilst the actual amount due has not been settled yet the case reaffirms the significant risk associated with indirect access licensing for SAP customers, particularly when interfacing third-party applications with SAP ERP.

This case centres around Diageo’s deployment of two systems built using the Salesforce cloud platform interfaced with mySAP ERP via SAP PI (interface engine) giving Diageo sales reps and business customers the ability to carry out sales and ordering related business activities via a web platform as opposed to dealing directly through Diageo’s call centre.

SAP and Diageo signed the initial agreement back in 2004 and the Gen2 and Connect systems, i.e those under scrutiny were deployed around 2011/12. The agreement included a number of clauses which collectively made provision for SAP to charge named-user license fees for users of third-party systems connected to mySAP ERP. The judge decided in favour of SAP ruling that the interaction of these systems with the SAP system constituted indirect access as defined in the contract and that Diageo was therefore liable for additional named-user licensing fees.


The judge decided in favour of SAP ruling that the interaction of these systems with the SAP system constituted indirect access as defined in the contract and that Diageo was, therefore, liable for additional licensing fees.


Part of Diageo’s argument was that the shift from performing these operations through their call centre to the new systems was in principle no different. The judge didn’t disagree that call centre operatives performing these activities on behalf of sales staff and business customers would require named-user licenses, however, in providing these users access to the SAP system indirectly they now required a named-user license as per her reading of the software agreement.

The case is not yet over as the hearing was fixed to make a judgement on issues of liability only and not quantum. Meaning that an accounting exercise is required to determine what licensing is applicable at what price based on the number of users and activities performed by them.

In my opinion, questions could be asked what knowledge SAP had of Diageo’s plans to deploy these systems and what advice or warnings were given to Diageo about the licensing impact. SAP is after all diligent in keeping in touch with customer’s technology road-maps in order to understand customers business needs, sell their products and maximise revenues. If Diageo had known or been made aware of the implications and sought a licensing deal with SAP in advance it surely would have been more favourable. However, once in the position of non-compliance, especially when adjudged by the high court, the leverage to negotiate is diminished significantly.

Ultimately though it is the customer’s responsibility to act compliantly with their software agreement. SAP operates a trust model that makes it possible for customers to deploy new SAP solutions and functionality and add named-users as they grow. However, they must notify SAP of any such usage in advance or within a reasonable timeframe such that the appropriate licensing fees can be paid. SAP is most certainly entitled to pursue customers for unlicensed and unauthorised use of their software. In Diageo’s case, the judge decided that the contract made clear references to the licensing conditions for indirect usage via third-party applications so were the risks properly considered?


Ultimately though it is the customer’s responsibility to act compliantly with their software agreement. SAP is most certainly entitled to pursue customers for unlicensed and unauthorised use of their software.


There are arguments and counter-arguments galore. The bottom line is that customers are responsible for being compliant and need to understand the licensing implications of their SAP technology road-map plans particularly in the case of indirect usage via third-party applications. How many more high-profile cases like this is it going to take before SAP end-users really sit up take notice and take action.

To find out if your organisation could be at risk contact JNC and speak to us about our Indirect Access Risk Assessment, Enterprise Indirect Access Review and Licensing Impact Assessment services.

© JNC Consultancy


Credit to the source BAILII – SAP UK Ltd v Diageo Great Britain Ltd [2017] EWHC 189 (TCC) (16 February 2017).

You can visit the British and Irish Legal Information Institute website by clicking here.

 

James Cochlin on EmailJames Cochlin on Linkedin
James Cochlin
Principal Consultant - SAP Licensing and Compliancy at JNC Consultancy
James Cochlin is Principle Consultant and Head of Audit & Compliancy Services at JNC, A company which has been providing SAP License Management services since 2009. In total James possesses over 12 years’ experience in SAP License Management and Auditing with significant knowledge and experience in SAP security, Authorisations and GRC. In the past, James was an SAP License Auditor for Deloitte. As Global Technical Lead James audited clients around the world on behalf of SAP, and was involved in the development of SAP’s License Audit Methodology. Now James works with customers helping reduce their risk of non-compliance, identify cost savings and avoid the pit-falls of licensing SAP estates. Throughout his consulting career, James has worked at some of the largest clients of SAP helping them solve complex licensing problems whilst helping them regain control of SAP Licensing and Compliancy. James continues to train SAP Consultants on SAP licensing to the highest standards, he was the lead architect of a well know SAP Software Asset Management tool, and is held in high esteem internationally as a leading SME and authority on SAP License Management.
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