Infor Battles Customers in Court Over License Fees
March 9, 2009 Alex Woodie
ERP software giant Infor is taking legal action against customers as it seeks to recoup license fees it claims it is owed. The company reached an out-of-court settlement last week with a BPCS customer, Vaughan & Bushnell, regarding a dispute over an AS/400 upgrade performed in the 1990s. While the parties avoided a trial, Infor is still pursuing similar lawsuits against two other customers for license fees it claims the companies avoided paying following server upgrades.
The terms of the settlement between Infor and Vaughan & Bushnell, a tool manufacturer based in Hebron, Illinois, that has used BPCS since 1987, are not public record. An attorney for the tool company, which sued Infor in this case, confirmed that his client paid Infor something. But it wasn’t the $1 million-plus in past due license fees that Infor’s license management group had been seeking from the company.
Some details of the dispute, however, are public record, and were included in the 25-page claim that Vaughan & Bushnell filed February 2 in U.S. District Court in Illinois.
A Disputed AS/400 Upgrade
Vaughan & Bushnell says it was contacted last summer by Infor’s audit coordinator. The manufacturer declined to participate in the audit, but that did not stop Infor from threatening to take legal action regarding the past due license fees it said it was owed as a result of server upgrades that Infor learned the manufacturer performed a decade ago.
The manufacturer says it moved its BPCS software twice since purchasing rights to the software and the source code from System Software Associates (SSA) for $87,000 in 1987. First it moved from a System/38 Model 5380 to an AS/400 in the early 1990s. Several years later, it upgraded from the AS/400 to an AS/400 Model 720.
According to Infor, those server upgrades violated the terms of the original license agreement. The list price for an upgrade to the AS/400 Model 720 should have cost the company $1,034,000, Infor told the company. That “constituted a violation of the license grant and breach of the software license agreement which must be cured” by February 13, Infor told Vaughan & Bushnell in a letter included in the lawsuit.
Vaughan & Bushnell maintained that they owed Infor nothing, and were acting within the rights granted to it through the original license agreement. That agreement, a copy of which the company included in its complaint, stated that Vaughan & Bushnell had the right ” . . . to use the software, only on the computer specified in schedule A or on any computer that is a direct and single replacement for it….” Because of the two other lawsuits involving Infor and its customers, Vaughan & Bushnell decided to preemptively sue Infor before the February 13 deadline.
However, Infor maintained that Vaughan & Bushnell were beholden to different terms, which were included in a subsequent license agreement that was drawn up by SSA sometime in the 1990s, according to the lawsuit. That agreement states that the company has the right “to use the software, only on the computer specified in schedule A or an identical computer that is a direct and single replacement for it. . . .” (Emphasis added.)
But Vaughan & Bushnell–which was not on maintenance and never paid SSA beyond the original license fee–did not sign and return that modified agreement that SSA mailed to them, it claims in the lawsuit. At one point during the 1990s, SSA had tried to collect additional license fees from Vaughan & Bushnell, but the company ignored the request, according to the suit.
In this case, it appears Vaughan & Bushnell got favorable terms in the original license agreement, and intended to keep them. But that’s not always the case.
Diff’rent Licensing Terms for Diff’rent Folks
Infor has two other active lawsuits that bear similarities to the Vaughan & Bushnell case, the least important of which is that all of the original license agreements were originally signed way back in 1987.
In the case against Hanover Foods, Infor maintains that the Pennsylvania food producer is improperly running its BPCS software on an iSeries Model 510. In that lawsuit, which Infor filed December 11 in U.S. District Court in Georgia, Infor is trying to enforce its customer’s responsibility to only run the ERP system on the original server “or an identical computer that is a direct and single replacement.” Hanover Foods, which has annual revenues estimated at about $290 million, is pursuing a defense of that lawsuit that, at least in early proceedings, appears to calls into question Infor’s actual ownership of SSA assets. (Infor acquired SSA in 2006 for $1.6 billion.)
In its case against ITT, which was filed May 16 in U.S. District Court in Georgia, Infor claims the $9 billion industrial giant violated the terms of its original license agreement by exceeding the original MIPS limitation on the IBM mainframe used to run its Cullinet ERP system (acquired by Infor via SSA’s 2002 deal with CA) and also by moving the mainframe from its original location in Illinois to Sweden. In its response to Infor’s claim, ITT denies that it violated any terms of the license agreement. The case is still pending.
Infor has been involved in several other lawsuits against customers recently, most of which have settled out of court:
‘New’ Revenue Streams or Honest Audit?
Every large software company is going to vigorously defend its intellectual property in court, so it’s not surprising to see Infor involved in litigation. “Infor, like most business software companies, has a team that is dedicated to maintaining license compliance,” an Infor spokesperson says in an e-mail response to questions from IT Jungle. “This team helps ensure that Infor’s intellectual property is protected and the software is used in a manner consistent with the licensing agreement.”
Infor enforces its IP rights by doing occasional audits, the spokesperson says. “Not all customers should expect to be audited within any given time period,” the spokesman continues. “Infor has a large customer base and uses certain selection criteria to identify audit candidates. Infor’s software has a strong legacy, and so it is not uncommon to audit customers who have used the software for many years.”
But questions have been raised about Infor’s motives, especially in light of the poor economy and reduced level of spending on big ERP projects. (Infor is privately held, so it’s difficult to judge how hard it’s been hit by the economic downturn.) A Vaughan & Bushnell attorney hinted that increased revenue flow–not protection of IP rights–is behind the recent round of litigation.
“I think any company, including Infor, is looking for additional streams of revenue,” the attorney, Richard Assmus, was quoted as saying in a NetworkWorld story (which you can read here). “Contacting old customers about allegedly overdue fees is one way of doing that.”
Infor denies any such claim. “Infor has not accelerated audits due to the economy,” Infor’s spokesperson says. “For the current fiscal year, Infor will have audited a very small percentage of its entire customer base. Of this percentage audited, the majority is found to be compliant. Of those found to be non-compliant, Infor works collaboratively to help bring them back into compliance.”