The concept of indirect access to SAP systems has been a thorn in the side of customers for years, and now a major court victory for SAP stands to bring the issue to a head. A judge in the UK's High Court has ruled that drinks distributor Diageo must compensate SAP—to to possible tune of nearly $68 million—in connection with two Salesforce-based systems that accessed data in its core SAP system.
Several years ago, Diageo developed two systems based on Salesforce software called Gen2 and Connect, according to the judge's ruling. The first helps sales and service representatives manage their affairs, while the second gives customers the ability to place orders on their own, rather than through a call center.
Diageo also licenses SAP Process Integration, which it has used to connect Gen2 and Connect with its core SAP system. Although the applications' end users don't directly interact with SAP, the company contended that it was also entitled to named user licenses for those end customers—all 5,800 of them.
SAP argued that its contract with Diageo did not entitle any non-named users to access its ERP system, and that while Exchange Infrastructure is a "conduit for messages between systems, it does it does not and cannot perform the roles of the systems between which it provides connectivity," according to the ruling. The contract also didn't have any language carving out an exception for PI, it adds.
In turn, Diageo argued that PI is a "gatekeeper license" for accessing SAP and that its usage of it with Gen2 and Connect was therefore covered under the agreement.
But Justice O'Farrell disagreed, writing in her decision:
I reject Diageo's submission that SAP PI is a "gatekeeper" licence for gaining access to the SAP suite of applications and database. The Exhibit contains a separate basis of pricing for the SAP PI software engine and adapters, which applies even where there is a Named User licence for mySAP ERP: "Usage of one or more of these software engines is not included as part of the standard mySAP Business Suite Named User licence and is subject to an additional charge in each case" (paragraph 2b) of the Exhibit). Therefore, it is clear that it is an addition, rather than an alternative, to authorisation under a Named User licence.
It also appears that Diageo's attempt to provide more convenience for its customers and sales representatives unwittingly influenced the judge's ruling.
Diageo relies on the fact that, prior to the introduction of Connect, customers were required to place orders through call centres. SAP has never contended that such customers should be Named Users. The Connect portal simply allows the customers to place orders directly into the system, rather than through an intermediary. However, that argument does not assist Diageo. When an order is placed through a call centre, there is no interaction between the customer and the mySAP ERP software. The individual submitting the order to the mySAP ERP system is the call centre operative. The call centre operatives are Named Users. It follows that if the individual submitting the order to the mySAP ERP system is the customer, that customer should be a Named User.
SAP had sought £54,503,578 ($67.8 million) in damages, but the actual amount Diageo will be ordered to pay won't be calculated until a later date. By way of contrast, Diageo paid SAP between £50 million and £61 million for regular maintenance fees and services through November 2015.
Analysis: A Wakeup Call for SAP Customers
While indirect access is far from a new issue for SAP customers, the UK court ruling should stand as a wakeup call for any who haven't done due diligence concerning their potential exposure to this issue.
SAP has long used license audits to pressure customers into making payments for what it determines is illegal indirect access of its software. Constellation sides with the generally accepted industry parameters of indirect access, which should include the ability to process batch data; aggregate information into a data warehouse or other data store; access data for use in another system via data integration; and to enter data from a third party system.
Based on that, it does not appear Diageo broke any written or unwritten rules. Diageo has the right to appeal the judge's decision—and one would expect they will. But for now, the ruling may embolden SAP to seek further litigation around indirect access not only in the UK but other territories as well.
Constellation believes that overreaching pursuit of additional money for indirect access fees is anti-customer, and at odds with the friendlier, easier-to-work-with image SAP has sought to project under the leadership of CEO Bill McDermott.
It's also counterproductive in the long run, as more viable options to move off SAP ERP emerge from competitors. And needless to say, it's horrible for a vendor's public relations and at odds with today's forward-thinking enterprise IT shops, which are looking to generate innovation and efficiencies through the combination of systems from multiple vendors—as Diageo did.
Of course, SAP is entitled to protect its intellectual property. And while Constellation has received a consistent uptick in client requests related to SAP indirect access claims, it's far from guaranteed the company will use the UK decision as a launching pad for a wave of new lawsuits.
But a number of things need to happen in the wake of this ruling. First and foremost, customers should examine their usage of SAP with third-party applications and compare that with contract terms to determine their potential exposure and figure out a proactive fix.
Second, user groups should engage in a dialogue with SAP in order to gain a clear-cut agreement on exactly what indirect access does and doesn't allow. Frankly, it's often pretty murky and malleable from customer to customer, and this has only led to no good. Constellation will be tracking this topic even more closely in the weeks and months ahead.
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