There are some software licensing disputes that do not lend themselves to amicable resolutions. When there are millions of dollars in controversy and each party believes that it has acted within its legal rights, litigation may be unavoidable. Many times, even when litigation seems certain, the parties evaluate the various litigation considerations and conclude that they should try pre-litigation resolution strategies to see if they can, at the very least, narrow the issues.
Amount in Controversy
Until a client understands its potential exposure in a software dispute, choosing a strategy is almost impossible. The difficulty in software disputes is that a tremendous of amount of work and analysis is required to estimate the amount in controversy.
In trade association audits conducted by the BSA and the SIIA, the amount in controversy may be relatively easy to estimate because agencies typically employ mature alternative dispute resolution processes that permit accurate estimates of not only the amount in controversy but also the probable settlement range.
The amount in controversy is much more difficult to determine in other types of audit because the contractual audit provisions contained in software licenses frequently do not specify a formula for resolving any license compliance gaps following an audit. Regardless of the nature of the dispute, helping the client determine the amount in controversy is an important role for in-house and outside counsel.
Perhaps the most overlooked issue when developing a strategy for a software dispute is the costs to discontinue use of a publisher’s software and switch to a competitor’s product. High switching costs for enterprise products places the software publisher in a position of strength from a practical perspective. By contrast, low switching costs or changing business requirements places the negotiating strength in the hands of the client. For this reason, publishers who have a dominant market share, such as Autodesk, are generally more aggressive in their approach to audits and litigation than those publishers operating in highly competitive markets.
Switching costs are also critically important because most software licenses contain a termination provision that will almost certainly be invoked when litigation is commenced or just prior to litigation. Termination provisions give the publisher a great deal of leverage in litigation and if the publisher is able to demonstrate that it properly terminated a software license, can bolster the publisher’s copyright infringement claims in the litigation.
Before choosing a strategy, audit targets should work with experienced counsel to conduct a careful analysis of the licenses in question and a disciplined assessment of the alternatives to using the auditing publisher’s products.
Probability of Success on the Merits
The next step in the strategy development process is evaluating the strength of the claims
on the merits. While software license disputes are generally pled as copyright infringement claims, the license agreements define the nature of the copyright holder’s grant of authority to use its products. Most matters that proceed to litigation arise because of ambiguous language in the license agreements defining the scope of the license, and it is this ambiguity that will determine the probability of success on the merits.