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Quick Guide to Second-Hand Software (Part 2 of 3)

Demystifying the Mist Surrounding Second-hand Software

This article has been contributed by Noel Unwin of Discount-Licensing.com

Part 2 of 3: Demystifying the Mist

Having taken a look at the dynamics of the second hand software industry in Part 1 of this story, we can start to see how this market can play an important role in tackling licence compliance, but it is by no means an open and shut case.

By addressing certain licence compliance scenarios that businesses face today and taking into account the business models adopted by the secondary software licence players, let’s attempt sieve through some of the myths and seek out the truths that underpin our use of this technology.

Licence Compliance

So your business has received a software licence audit notification from either a representative of Microsoft’s licence compliance team or perhaps a SAM auditor.

You may have received a set of guidelines or a verbal / written statement that ‘pre-owned’ software licences are not an appropriate way to rectify your licence shortfall. Although these statements may not be “legally enforceable”, the dominant software vendors and their representatives are not afraid to use intimidating as well as misleading language — and unfortunately this thread is sometimes perpetuated through the auditors or resellers who are all eager to meet their targets.

Language Analysis & Breakdown

Let’s look at some of the language currently being circulated by the software vendors and explore the rights and wrongs of each — (NB: *these are real extracts from software vendor’s emails written to companies either prior, during or after a licence compliance audit).

“A pre-owned software licence is not a suitable solution to rectify a non-compliant situation as it does not address historical usage”

Both ‘pre-owned’ and ‘new’ software licence purchases can only rectify a non-licence compliant position on an on-going basis (from the point of purchase) and this is normally the key requirement set out by the software vendor prior to audit. Software vendors may often be guilty of pushing the envelope with regards to their products, but they have yet to acquire the technology to travel back in time!

“Our (the software vendor’s) position is that ‘new’ licences need to be purchased because the software vendor will not have received a licence fee when pre-owned licences are purchased to rectify a non-compliant position”.

Admittedly, neither the software vendor, SAM auditor, nor the authorised reseller will receive revenue when pre-owned software licences are purchased and this is of course the main objective; however, a loss of revenue does not constitute a legal argument for a company to purchase ‘new’ rather than ‘pre-owned’ software licences. A ‘pre-owned’ software licence option would have also been available at the time of the original deployment and so the software vendor may not have suffered any additional financial loss.

“The ‘pre-owned’ software licences would have been simultaneously in use by another company”.

Whether it is a ‘new’ or ‘pre-owned’ software licence purchase, it is of utmost importance that the ‘new’ end user has complete transparency with regards to legal ownership and documentation relating to de-installation back to the original customer and supplier. As long as such a model provides this basic documentation, you will be able to prove that you have the right to install / use the software. Web portals provided by the vendors are useful when combined with licence history reports, but ultimately the portals / licence reports cannot confirm the legal ownership of the software licence asset in the same way that a sales contract does or proof of payment can.

Business Models & Processes

Generic editorial (whether it be among the IT trade press or provided by industry analysts) that fails to pay sufficient reference to the differences between the sub-markets will always stop short of providing a well informed picture of the second hand software industry — and so too will the negative software vendor statements (where they exist) aimed at misleading and sometimes intimidating potential clients.

However, under-researched editorial and the software vendors are not solely responsible for the mist that has formed over the second hand industry; indeed, scepticism is also fuelled by the actions of companies (or employees within) operating under dubious business models.

In the same way that a stolen or counterfeit piece of OEM / FPP software (pre-owned or ‘new’) can potentially be sold to an unsuspecting end user, questionable business models may be in operation that can ultimately tarnish the integrity of the software or hardware industries. However, as with any industry and its sub-markets, we are not about to see a mass exodus of customers from the market at the first sign of a rogue employee or dubious company business model.

A very recent example (The ITAM Review: Reseller Gone Bad) involved a number of rogue employees working for Bytes Software, Nettitude and Nisa Today; each linked to a fraudulent conspiracy worth £123,000 – but, despite this news, we are not all about to stop buying IT products or boycott each of these companies. If anything, it should make us more vigilant and cautious about our ongoing buying behaviour.

The secondary software licensing market is no different. Differing business models and processes exist across the second hand software sub-markets, which may not be deemed as being compliant with the software vendor’s terms or the local / regional governing laws.

Notoriety in Notaries

A well-known supplier within the second hand volume market that does not shy away from legal interludes is a German company called Usedsoft; and this company knows what the inside of a court room looks like as its business models appeared to conflict with the transfer provisions of Adobe and Oracle — plus, it’s business practices have also been called into question with regards to local and regional governing laws. Usedsoft’s model was unique in that it hired the services of a ‘Notary’, which cloaked the fact that the company was sourcing ‘new’ educational software licences at rock bottom prices.

The low cost educational licences were then resold to unsuspecting businesses who may have thought were purchasing commercial or government software licences (Heise Online – Frankfurt Court Prohibits Use of Notary). The Frankfurt court exposed Usedsoft’s business model, which suggested that the company was not entirely operating as the secondary software licence supplier that it marketed itself to be. Even with this lucrative business model, Usedsoft GmbH & AG (Germany and Switzerland) is facing bankruptcy proceedings and has gone into administration (Heise Online – Usedsoft Insolvent).

There are further examples of software vendors being successful in obtaining injunctions against secondary suppliers, as we have recently seen between Microsoft and the court’s ruling against German second hand OEM supplier, Softwarebilliger.de. The injunction against Softwarebillinger.de concerned a quantity of alleged counterfeit Microsoft OEM CDs and (whilst the ruling in the case is yet to be reached) Softwarebillinger.de has subsequently been successful in obtaining a ‘gagging order’ injunction against Microsoft who wrongly made claims that Softwarebillinger.de was continuing to sell counterfeit CD’s.

So errors may occur within both the conventional and the pre-owned markets but this should not tarnish the integrity of the rest of the industry’s sub-markets. In Part 3, we will take a closer look at a more widely publicised court case between Oracle v Usedsoft in an attempt to examine the legalities of the software vendors T&C’s and local / regional governing laws.

A Closing Thought…

It is worth mentioning that the secondary software industry does operate outside of the software vendor’s authorised channels and so secondary market players may not always have a formal relationship with the software vendor. This does not however prohibit direct support from the software vendor and whilst it is not a secret that the software vendors are not exactly advocates of the second hand markets, each is bound by the local governing laws that in some instances, take precedent over their own T&C’s.

It is also important to highlight that ‘new’ & ‘pre-owned’ software licensing models normally operate in a very similar way across all the sub-markets. For instance, the legal rights and title of the software licence may travel through various intermediaries before ending up on the desktop of a end customer but the software licences will, as in the case of volume licensing, should be transferred directly from the original customer to the ‘new’ end customer (the intermediaries will not of course be installing and using the software).

This article has been contributed by Noel Unwin of Discount-Licensing.com

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2 Comments

  1. Jake says:

    Great analysis and content.

  2. Jonathan Horley says:

    The judgement vs Oracle clarifies the market.

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