SAP v Diageo and Limits on Licences

March 15, 2017

The High Court gave judgment in February in SAP UK Ltd v Diageo Great Britain Ltd
[2017] EWHC 189 (TCC)
. The judgment prompts some lessons on licensing and
its limits and the drafting of agreements.

Diageo had licensed mySAP Enterprise Resource Planning (ERP)
software from SAP since 2004, using its functionality to manage the
manufacturing, stock and supply chain, financial reporting and human resources
requirements of its business.

Through to November 2015, Diageo paid SAP between £50 million
and £61 million in licence and maintenance fees. Pursuant to the Software
Licence and Maintenance Agreement between Diageo and SAP (the Agreement), the
fees were priced by reference to the number of ‘Named Users’ of the software.
Named Users were defined in the Agreement as individuals who are ‘authorised to
access the Software directly or indirectly’, depending on their user category
as set out in a schedule to the Agreement. The Agreement also granted Diageo a
licence to use SAP Exchange Infrastructure (SAP PI), which distributed messages
between ERP and other SAP systems. Diageo paid an additional fee to use SAP PI
based on the monthly volume of messages processed.

From around 2011, Diageo developed and introduced two new
software systems, ‘Connect’ and ‘Gen2’, using a platform provided by
Salesforce. Connect enabled Diageo’s customers and distributors to place orders
for products directly using an online portal, rather than through Diageo
employees in a call centre. Gen2 was used to manage the operations of Diageo’s
sales and services representatives.

Diageo accepted that Gen2 and Connect interacted with the
ERP software via the SAP PI system, but disputed whether that interaction
constituted use and/or direct or indirect access to the ERP software so as to
give rise to the payment of additional fees. SAP claimed that Gen2 and Connect
used and/or accessed the ERP software directly or indirectly, without SAP being
appropriately compensated under the Named User pricing arrangement. As a
result, SAP claimed additional licence and maintenance fees of £54,503,578. The
court sided with SAP on liability but did not make a ruling on the amount of
compensation due to SAP.


The judgment may embolden SAP and other software providers
to pursue further litigation. With that in mind, customers should carefully
consider their software usage, or future plans for usage, to ensure that they
are not, or will not, be in breach of existing software licence agreements.
This is likely to be a particular issue where the customer’s software usage has
changed over the course of an agreement or is about to change (eg to make use
of new technologies). For example, with the Internet of Things now with us and
the increasingly prevalent customisation and integration of software, providers
should really focus on their licensing arrangements at the outset of new
technology projects to ensure they do not inadvertently create a scenario
analogous to this case.

When negotiating new contracts, customers should opt for a
pricing arrangement which best reflects their actual or intended use of
software, paying close attention to definitions like ‘Named User’ (which should
be limited if too broad). Customers should also check with their technology
teams to understand the likelihood of any ‘indirect’ access (although admittedly
in this case the contract was signed when few would have foreseen connecting
SaaS applications to on premise application provided by a third party). 

is a Senior Associate at RPC:

is a Trainee in the Commercial, Technology and Outsourcing Team
at RPC