Are Audit Clauses Fit for Purpose?

A Look at 63 Software Audit Clauses

Economic Consulting | Telecom, Media & Technology (TMT)

August 7, 2020

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Audit clauses provide a mechanism through which software publishers protect the use of billions of dollars of intellectual property and ensure that their customers comply with the terms on which software is licensed to them. They are surprisingly brief.

The software compliance business has grown enormously since the mid-1990s. Thousands of audits take place every year and roughly $10 billion is paid to publishers as a result. Those of us involved at the very beginning of this activity confidently expected that within a few years customers would be largely compliant with terms and audit activity would be a routine, non-controversial background activity. We could not have been more wrong.

The audit industry is now opposed by an audit-defence industry, tool providers have grown substantially, significant sums are spent on software asset management, technology has changed and software is increasingly delivered in ways that were not envisaged then – through the cloud or on a SaaS basis. But through this change auditing has continued and become more significant rather than less.

Despite this evolution, the contractual basis upon which auditing and software compliance takes place is largely unchanged. It may be argued over daily, but it is seldom challenged in court.

One often-cited case is the 118 Data Resources case.1 This was an interim application for specific performance. In the judgment the audit process was compared to a “search and seizure” process2 and to the provision of information on disclosure.

Footnotes:

1: 118 Data Resources Ltd v IDS Data Services Ltd [2014] EWHC 3629 (CH)

2: Ibid., paragraph 23


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