News & Insights

The Importance of “Clear and Intelligible” Software Licensing Terms to Cloud Customers

By: Pam Fulmer of Tactical Law Group and Ryan Triplette of Coalition for Fair Software Licensing

Software is inherently technical, but its licensing terms do not have to be. On the contrary, it is a best practice for licensing agreements to be clearly written and easy for customers to understand. That is why the first principle of the Principles of Fair Software Licensing is that “Licensing Terms Should Be Clear and Intelligible.”

 Unclear Licensing Terms Leave Customers Confused and Vulnerable

When licensing terms are not clearly written, customers in the cloud and on-premises are left vulnerable to hidden clauses, stealth or soft audits, and other predatory behaviors.

Difficult to find or decipher licensing terms are more common than one might think. The Coalition for Fair Software Licensing has heard from customers experiencing issues with contract clauses that are not readily apparent or easy to understand. Customers who, despite doing the necessary due diligence prior to signing, are not aware of some of the most important clauses until a problem arises. Given the fact that the only recourse these customers have had to date has been either to purchase products that they do not need or manage litigation, we feel it is important to shine a light on some of these terms

For example, Oracle customers who finance their cloud purchases through Oracle Credit Corporation (“OCC”) may not be aware that the standard financing contract allows Oracle to assign the financing agreement to third-party banks. These customers – generally small and medium sized businesses, including retailers and franchisees – have been surprised to learn that the third-party banks expect to be paid in full on the loan “come hell or high water” even if Oracle itself has completely failed to deliver a working ERP solution. Recently, these banks have filed waves of lawsuits against Oracle customers involving such OCC assignments. Judge Leighton of the Western District of Washington presiding over one such lawsuit noted that the arrangement most likely failed for lack of consideration.

According to the court:

“[t]his clever arrangement seems designed to subdivide the payment and performance aspects of Oracle’s agreement with [its licensee] into different contracts, thus ensuring payment even if Oracle fails to deliver the promised services. The result is a disturbingly imbalanced transaction that preserves OCC’s ability to terminate [licensee’s] rights to the cloud services if it fails to pay but denies the [licensee] the same opportunity to avoid payment if Oracle breaches. Unfortunately for Oracle, such an arrangement would likely be illusory or lacking in consideration. See 1 WILLISTON ON CONTRACTS § 4:27 (4th ed.) (contracts are illusory where one party can decide for themselves the nature and extent of performance).” Key Equipment Finance v. Barrett Business Services, Inc., NO. 3:19-cv-05122-RBL, 2019 WL 2491893, (W.D of Washington June 14 2019).”

The Coalition has also heard from customers struggling to understand the terms and scope of use of the licenses purchased from legacy providers. This includes customers who are seeking to ensure that they are in compliance with their contractual terms, only to be surprised to learn just what that entails. World-renowned analyst Gartner reported that, “[t]here are also restrictions with the use of Microsoft licensing on Azure itself that are often not communicated to customers. For example, customers are not told about restrictive rules under Azure Hybrid Use Benefits in Azure multi-tenant environments.” The company’s most recent licensing changes have created new layers of complexity for providers and customers alike, with new – but unclear and uncertain – limitations. Many customers have also experienced unexpected costs and extended terms with their licensing terms. Even as customers struggle to understand what this most recent round of changes mean to them, another set potentially sit on the horizon.

While these are known and well documented issues that customers are experiencing with their contracts, it is worth noting a few others that have not received much coverage to date.

Such is the case of some SAP customers seeking to purchase additional product seats to account for new employees and ensure compliance with existing contracts. What they think will be a (relatively) simple process quickly becomes an opportunity for SAP to force them to re-up the entirety of the underlying contract for an extended term. These customers are finding themselves in a Catch-22 position: either remain in compliance but locked in to a longer term relationship with SAP, limiting their ability to choose alternative vendors that better meet their needs in the future, or risk repercussions for operating out of compliance with their contract.

What makes this so interesting – if not disconcerting – is that it is occurring just as many customers are having to navigate increased maintenance fees for their products at the very time they are being forced to evaluate their long term relationship with SAP. It is important to understand these issues as backdrop to recent calls by user groups for SAP, “to offer transparent, flexible and scalable cloud agreements with the corresponding metrics, as well as binding statements and roadmaps for product strategies for cloud and on-premise solutions.” 

One final issue that the Coalition has heard from a number of experts raise in recent weeks is another potential round of changes to Microsoft’s Licensing Mobility program that would preclude customers from any avenue of utilizing their licenses on Listed Providers. It is worth noting that the companies included as Listed Providers just happen to be Microsoft’s most significant competitors – but does not provide any clarity as to the reasoning for their inclusion or whether other providers will be included in the future.

That Microsoft includes itself as a Listed Provider does not level the playing field. Indeed, the Azure Hybrid Benefit essentially exempts Microsoft and its customers from any of the Listed Provider restrictions, as long as those customers use Azure. While it is hard to speak to contractual changes that are, at this point, purely conjectural in nature, the current and potential ramifications for customers already managing the impact of the changes made to the integral software’s licensing terms to date highlights the importance and need for clarity and predictability both for existing and future contracts.

Straightforward Licensing Terms Help to Support All Customers, Especially Small and Medium-Sized Businesses

Having clear and intelligible licensing terms empowers customers. This is especially true for smaller businesses that have limited budgets for digital transformation strategies and do not have the means to wage massive legal battles.

The threat of expensive and resource-consuming litigation with legacy software providers causes fear among even the most well-financed enterprise customers. Unfortunately, most customers capitulate to unreasonable demands from these providers and end up paying more money than what is owed. Many customers will even agree to purchase products that they do not need to avoid legal action.

Small businesses are particularly vulnerable due to reliance on software providers and often narrow budget margins. For example, Oracle uses its non-contractual partitioning policies during audits to gin up large “shock numbers” for alleged non-compliance involving the customer’s use of VMWare virtualization software, which findings it presents to its customer in final audit reports.  Then Oracle magnanimously agrees to waive the audit penalties based on a provision that is not even in the contract, provided that the customer agrees to enter into a new Unlimited License Agreement (“ULA”) with its pernicious total support stream obligation. The customer then pays more money for software that it doesn’t need or want with expensive continuing maintenance and support obligations, just to resolve an audit based upon inflated audit findings. Such predatory audit practices are detailed extensively in the First Amended Complaint in the Sunrise Firefighters securities class action lawsuit in the Northern District of California.

This is why the Coalition formed – to provide power in knowledge and numbers and advocate for commonsense best practices that put customers, including small businesses, first.

Software Providers Should Adopt the Principles of Fair Software Licensing

Ensuring that licensing terms are clear and intelligible is not just common sense, but imperative at a time when customers need maximum contractual clarity and cloud flexibility to manage the budgetary crunch of the recent economic downturn. However, they are not nearly as common as they should be. Customers should be able to easily access and understand their licensing terms upfront and be able to easily determine their licensing costs and obligations. They should not be forced to click through a series of hyperlinks to just understand simple obligations – let alone critical terms related to payment for non-service, compliance implications, and mobility. It is critical for software providers to stand with their customers and adopt the Principles of Fair Software Licensing, which will encourage other software providers to follow suit.

As a healthcare software provider, our ability to utilize the cloud provider of our choice impacts more than just our business – it affects the health and well-being of patients everywhere. Restrictive software licensing imposes real-world threats like pricing increases that directly influence how we are able to assist healthcare providers and the patients they serve. We support the Principles of Fair Software Licensing to protect both cloud customers and the communities they serve.

Healthcare Technology Company

Cloud computing has brought low-cost, on-demand IT services to every corner of the economy, raising productivity and innovation levels at enterprises of all sizes. And intense competition and innovation among cloud providers continues to drive costs down while adding new customer capabilities.

But some incumbent IT vendors are imposing restrictive software licenses to limit how customers can take advantage of competing cloud offerings.

NetChoice supports the Principles of Fair Software Licensing as a roadmap to drive innovation, serve customers, and promote competition in IT services.


Frustration, use limitations, threatened audits, and significant additional expenses. That has been our experience with unfair software licensing. Organizations need transparency from their software providers.

We support the work of the Coalition for Fair Software Licensing to protect customers and ensure IT spend is effective and free from surprises.

Global Building Materials Supplier

Unfair software licensing practices in the cloud are a global issue, and CISPE is pleased that the Coalition for Fair Software Licensing is taking the Principles to North America.

Originally launched and jointly conceived by customers and cloud providers in Europe, we encourage customers around the world confronted with unfair software licensing practices to consider the Principles as a powerful framework for positive change.


As start-ups, it is essential that we retain flexibility to use the cloud infrastructures that fit best our aspirations and those of our customers. The Principles of Fair Software Licensing help the next generation of software and service providers to avoid lock in and ensure a fair playing field for all. Seeing their adoption in North America adds weight to this important movement for innovators in Spain and worldwide.

Carlos Mateo Enseñat

President, Asociación Española de Startups (AES), and Promoter of the NUBES Initiative in Spain

Developed in Europe by CIOs and cloud providers, the Principles of Fair Software Licensing are supported by digital organizations in Italy such as Assintel. Assintel welcomes the Coalition for Fair Software Licensing’s embrace of the Principles in North America. Fair licensing of software in the cloud is a global issue for businesses of all sizes. In Italy, our government recognises this challenge and just updated its antitrust bill to put an end to unfair software licensing practices.

Businesses in North America can benefit just as well as those in Italy from a best practice framework for software licensing.

Paola Generali

President, Assintel

As a longtime advocate for open systems and open networks, CCIA supports the competitive ideals reflected in the Principles of Fair Software Licensing for Cloud Customers as the Coalition embarks upon its efforts in North America.

Matt Schruers

President, CCIA

Some legacy software providers are attempting to extend their current on-premise market dominance into the cloud market through aggressive and restrictive contracts, licensing terms, and software audits.

While many promote ‘cloud freedom,’ in actuality they are employing tactics designed to lock out competition and innovation while increasing profits for themselves at the expense of their customers. No longer can legacy software providers be allowed to disguise their predatory practices.

I am proud to align myself with the Coalition for Fair Software Licensing in shining a light on these issues and putting forth actionable solutions.

Craig Guarente

Founder and CEO, Palisade Compliance

Despite the current spotlight on antitrust issues in Washington, behemoth software providers continue to misuse their legacy status and market power to target business customers with predatory audits and trap those customers in restrictive licensing agreements.

Through our practice — dedicated to representing software licensees against these very tactics — we have seen first-hand the real world effects of such licensing practices. Both growing and established companies are routinely kneecapped by unexpected costs, forced to waste immeasurable resources in spurious audit defense, and stymied in their efforts to make the technology changes they believe are necessary for their business.

We support the Principles of Fair Software Licensing and believe they represent an excellent and necessary step towards much needed business consumer relief and will help open the market to smaller providers in the cloud ecosystem.

Arthur S. Beeman & Joel T. Muchmore

Founding Partners, Beeman & Muchmore, LLP

Consumers benefit from a competitive, dynamic information technology marketplace. Competition drives innovation and ensures that customers get the benefit of fair pricing.

Overly restrictive, abusive licensing agreements from IT companies with market power, on the other hand, impose costs on government and corporate customers of reduced innovation and long-term price increases. We support the Principles of Fair Software Licensing and policies that encourage innovation, competition, and licensing practices that give customers the freedom to mix and match solutions from a wide variety of vendors.

This is particularly critical in the market for cyber security solutions since hackers are innovating every day, leveraging new strategies, new tactics, and new technologies to support their illegal campaigns. The only way to defeat nation states and trans-national criminal organizations is for the government to ensure that the IT market for cyber security is as competitive as possible and customers have the freedom to choose.

Cybersecurity Provider

The Alliance for Digital Innovation supports the Coalition for Fair Software Licensing’s efforts to protect customer choice and advocate for access to modern, secure commercial solutions.

As advocates for public sector customers, we think that government mission owners and enterprise information technology and cybersecurity leaders should have access to as many modern commercial solutions as possible.

These solutions are critical components to driving digital innovation and security in the public sector, and ADI supports removing barriers that slow adoption of those solutions, including restrictive licensing practices.

Alliance for Digital Innovation

As an attorney, I have represented enterprise software customers for years and have routinely seen enterprise software companies deploy predatory business practices, including falsely inflating alleged non-compliance gaps, to increase profits and limit customers’ ability to go elsewhere.

These practices produce causal effects throughout the economy including increased prices, as businesses across various sectors are forced to spend resources dealing with these unforeseen issues. I support the work of the Coalition for Fair Software Licensing to help my clients and enhance an economy that provides opportunities to all.

Pam Fulmer

Founder and Partner, Tactical Law Group LLP

We believe licensees should be able to deploy licensed software in a way that best suits their business, including their choice of cloud provider at no additional cost. Having experienced licensing practices inconsistent with the Principles of Fair Software Licensing, we support the Principles and urge others to support both them and the Coalition for Fair Software Licensing.

Insurance Industry Business

Startups, often operating with limited resources, need the freedom to assemble the technology infrastructure that best suits their needs.

Cloud computing infrastructure is central to startup growth, and the Principles of Fair Software Licensing will help maintain accountability, mitigate unnecessary costs, and promote innovation in this environment.

Industry-wide adherence to these principles will level the playing field for startups.


Get Involved

Learn more about joining the Coalition or expressing support for its Principles