IBM has begun a comprehensive program of compliance audits of its software clients. Scott & Scott’s clients have begun receiving letters from IBM Software Compliance demanding cooperation with a “routine assessment” of the client’s deployment of IBM software. According to the letter, IBM employs the services of Deloitte, LLP to conduct these audits and states that it is performing the audits to:

“confirm licensing requirements, determine actual deployment and usage, verify compliance with IBM applicable agreements and enhance IBM’s understandings of the challenges…in managing their IBM software deployments.”

According to IBM, these audits are part of a broad initiative to audit all of its clients. This is one of the most audacious compliance moves we have seen in the software industry. While most major publishers have compliance programs, we are not aware of any software company who plans to audit all of its customers. Here, however, IBM appears to be invoking its right to “conduct a routine assessment” under licensing provisions without prior suspicion of software licensing noncompliance.

These audits can entail significant financial exposure, and the software products at issue often form the lynch pins of whole lines of business. A company targeted by an audit of this type should seek experienced counsel to identify and defend its rights under the software license agreements. There may be significant rights pertaining to the audit contained within licensing agreements that could strengthen the target company’s position throughout the audit process.