Legal & Government Affairs Update Issue 2 - 2017
Issue 2, 2017
The Cost of Piracy
The International Trademark Association ("INTA") recently commissioned research firm Frontier Economics to provide a report titled 'The Economic Impacts of Counterfeiting and Piracy". The report makes particularly worrying reading in respect of software piracy; it estimates that the commercial value of digital piracy software in 2015 was $24 billion. The other concerning points to come out of this report are as follows:
- The rate of unlicensed software installation (as a percentage of total software installation) in 2015 was as high as 39%.
- According to the IDC (2013) the chance of encountering malware when using counterfeit software is 1/3.
- The estimated commercial value of digital piracy in software by 2022 is expected to be between $42 – 95 billion.
- The estimated commercial value of all counterfeit and pirated goods by 2022 is expected to reach a staggering $1.90 – 2.81 trillion.
Case Law Updates
Software Licenses & Named Users
The High Court case of SAP UK Limited v Diageo Great Britain Limited  EWHC 189 (TCC) highlights the importance of good drafting when entering into a licensing and/or maintenance agreement to ensure your legal rights are contractually protected.
SAP are the creators and owners of mySAP ERP software which provides a master data store, capable of being internally coordinated to reflect new data entries and is capable of being re-used across a number of different business processes. SAP granted a license to Diageo for use of its software in return for payment of licenses and maintenance fees. Diageo used the software for management of its manufacturing, stock, supply chain, financial reporting and human resources.
The licenses fees payable by Diageo to SAP were calculated by reference to the number of 'named users' across a number of categories who each had individual login details and passwords. A 'named user' was defined in the agreement as "an individual representative of Diageo or a supply chain third party who is authorised to use or access the software directly or indirectly". The maintenance fee was paid annually and calculated as a percentage of the license fee.
SAP alleged that from around 2011/2012 Diageo began using 'Gen2' and 'Connect' software primarily to manage customer visits and calls or record information obtained. SAP alleged that 'Gen2' and 'Connect' systems directly or indirectly accessed mySAP ERP and therefore distorted the amount of licenses that Diageo should have purchased. The total alleged unpaid costs in terms of software and maintenance fees were calculated by SAP to be £54,503.578.
Diageo accepted that the new software did access mySAP ERP but denied it was in such away so as to give rise to the need for additional licenses. Mrs Justice O'Farrell considered that the "plain and obvious meaning of 'access in the context of the agreement is acquiring visibility of or connection to the mySAP ERP software" and the usage by Connect customers was not authorised under the agreement.
The case only dealt with liability and the issue of damages was left for a further hearing. Although, given the value in dispute it is likely that an out of court settlement will be agreed between the parties.
The Department for Exiting the European Union, (has a Government Department ever had a verb in its title before?) is co-ordinating plans for Brexit. I recently attended a meeting with officials from all other Dexeu and they made it clear they are requiring all other Whitehall departments to draw up plans for what happens when Britain is no longer a member of the EU. If you want to find out more about what they are doing, or to influence them as to what the future should look like, please do go onto their website and let the voice of our industry be heard. I know they are crying out for input and would be glad to know what your main concerns are. You can find out more information on their website.