Buyer Beware: Risks of Purchasing Used Software

Ten years ago a lot of businesses didn't regard software licenses as assets. The legal and financial risks of under purchasing licenses were protected against by frivolous over purchasing. Times have changed. The value of software licenses is recognized by enterprise users and recently, due to the recession, software vendors have made this plainfully clear through rigorous auditing activity.

Software asset management tools have grown from “nice-to-haves” to strategic competitive advantages. Software licenses are expensive assets that must be skillfully managed to maximize savings, mitigate legal risks, and improve budget planning. The costs saved from license management can be invested in other projects and innovations. With up to 30% of the IT budget spent on software the potential savings can go as high as seven figures—and not just in the first year but ongoing.

Aspera (www.aspera.com) has customers whose cost avoidance through software license management is over 2 million Euros per annum. This realization has lead Fortune 500 companies to invest in global software asset management projects.

Software license management help companies reduce costs by lowering new license purchases and instead utilizing shelf-ware (idle licenses), transferring ownership of the unused licenses to cost centers
that have a need for the software. A good license management system will give managers enterprise-wide oversight of licenses owned by the organization, while also helping managers understand the product use rights in regards to license re-use and transfer restrictions (for example, the license may not be transferable from the United States to Europe or vice versa).

Since the recession the used software market has exploded. “Used software” or “second-hand software” are software licenses that have already been used once and after the first use are for sale again. Downsizing and bankruptcies have left companies with a surplus of shelf-ware they need to off-load and selling the licenses to a used software dealer can generate additional income. Restructurings and M&As have also contributed to the increase in used software. The licenses for software on retired desktops are still valuable assets, although they are no longer utilized by the company.

According to used software dealers the savings can be as much as 50% compared to purchasing new licenses. Beyond cost cutting, often companies invest in used software for applications that have been discontinued and can no longer be purchased new, such as Windows XP and Office 97. Second-hand software can also be more attractive than its newer counterpart if the license terms and conditions have been changed unfavorably for the buyer (for instance, changes in license metrics for certain server software has made the cost of licensing go up: concurrent --> CPU, processor --> core, unlimited --> X instances).

The problem is the seller is not the original licensor (software publisher), and often not even a qualified reseller.  However, there have been various court decisions throughout the United States and Europe in favor of selling used software. The US District Court for the Western District of Washington backed an eBay retailer who was selling legitimate but used copies of Autodesk software in his eBay store. The court cited the First Sale Doctrine, which ensures the right to re-sell used copies of copyrighted works. This principle is what allows libraries and used book stores to operate.

There are still risks involved in purchasing used software and continuing court cases in Europe on this subject oblige vigilance from multi-national organizations.

As a rule of thumb when purchasing any type of used software you should always require complete documentation of the license chain back to the publisher/vendor, demand the original data carrier and license certificate, and require complete documentation of deleting all installations by previous owners. Special precautions need to be taken when purchasing used site licenses and enterprise software (e.g. database applications). These licenses usually come with strict clauses regarding transferability and maintenance.

Used Site Licenses

These agreements grant a particular entity rights to use the software, which are usually unrestricted by number of users, regardless of the physical locations where the software may be used. There are rules and conditions that need to be taken into consideration when wholly or partially transferring these licenses. Check the transfer clauses in the agreement. It might be the case that the licensee is the only entity entitled to use the software, regardless of who owns the license agreement.

Proof of Valid Maintenance

Certain enterprise software solutions require a valid maintenance contract to operate the software. Dealers selling these applications should provide proof of maintenance. However, different publishers have different understanding of what constitutes “proof”. If complete proof of maintenance through-out the life of the software license is not documented the publisher may refuse to provide maintenance for the license. It’s imperative in cases like this to contact the publisher about accepted documentation. While you’re at it, ask the publisher about maintenance and support options—this can potentially lead to their seal of approval for your entire purchase.

Bottom line: purchasing used software will cut down on costs, but it won’t cut down on time. The same amount of due diligence should go into the purchase whether the software is used or brand new.