Installed (not used) or Purchased Licenses. Which One Does a Customer Owe You $ For?

July 15, 2010

While most customers may say they only want to pay for licenses they use (not all installed), a recently reported case involving the Los Angeles County Sheriff’s Office says they need to pay for all installed, even if they are never used. Without going into a lot of detail, the court ruled that the LA County Sheriff’s Office must pay the software vendor for the licenses installed (in the amount of $210,000), even if they were not used. Plus, the court awarded the software vendor more than twice the damages award in attorney’s fees and costs (nearly $560,000).

Q: So what is the right way to use a case like this? 
A: This is a great case to educate your customers about what to do if they are installing a lot of your software and saying they don’t have to pay for those copies as they are not being used. I am not saying hit them over the head with this case or rub their noses in it, but educating them on your perspective is a huge part of software negotiations.

The goal here is not to go to court. But, to me, if a customer’s license ends, then the customer should return or destroy all copies of the software (just as the license agreement states). In addition, well run IT departments should not leave unlicensed copies of software on computers (even if they are not using them). Any company looking at raising venture capital from a Boston Venture Capital firm should educate itself on these type of issues, and try to avoid going to court with a customer (if possible, of course). I frequently discuss issues like this with clients as part of their business growth strategies.

President and Shareholder

<strong>Jeremy Aber</strong> consults OpenView portfolio companies on legal and contract matters. Jeremy runs his own IT focused law firm, the <a href="">Aber Law Firm</a>, and has over 18 years experience in technology and corporate law.