By Mark Grossman and Tate Stickles

Given the current state of the economy it should come as no surprise that software vendors are closely monitoring and auditing the usage of their software products. They're looking for both intentional and unintentional license violations, and finding such violations can be an easy source of revenue in these tough times. Finding revenue from existing customers is easier than finding new customers.

If you're intentionally violating the usage terms of your software licenses, then this article is not for you. Expect to hear from your software vendor soon, and expect to wind up paying fees, penalties, and even back software support.

There are many reasons a company might be using software licenses that they're not properly licensed to use. Let's face it, it's easy to lose track of software licenses if you aren't careful. Even well managed companies can be using unlicensed software through bookkeeping errors or simple mistakes. These mistakes are usually caused by a company mismanaging software assets, or employees misusing software without the proper licenses.

So be proactive and conduct your own software audits to ensure your compliance, and add your technology lawyer to your audit team. By auditing yourself you can save time and money, and wind up with significant negotiation power should your vendor claim you are out of compliance with your licenses.

The best way to protect yourself from audits is to heavily negotiate the terms of the original license agreement. Never sign any standard vendor form. Even though such forms are heavily slanted in your vendor's favor, they are nearly always negotiable. Negotiate with your vendor and bring the audit provisions back towards the middle.

The audit section is usually thrown in towards the end of the contract. Unless you're careful, it is easy to overlook this section and the audit rights you're giving to your vendor. Often the vendor's original audit section will broadly grant the vendor a right to audit you without any limitations.

Push hard in limiting your vendor' s right to audit by including specific limitations. The only rights the vendor has to audit your license usage are the rights granted in your software license, so negotiate these points aggressively.

You can negotiate a variety of audit terms in your favor. For example, you can:

• Specify the time, place, and manner of such audits, and ensure the vendor can only audit you at your headquarters or data center if you like.
• Limit the tools the vendor can use during the audit, and should eliminate any technologies that could impact your systems and normal operations.
• Require advance notice in order to eliminate surprise audits.
• Help ensure minimal disruption of your operations while the vendor conduct's its audits during or outside of normal business times.
• Place the costs of such audits solely on your vendor.
• Specifically exclude a right to access your data during the audits.
• Specify security requirements if the vendor will be auditing you remotely.
• Limit or eliminate the vendor's ability to use subcontractors or software industry organizations (such as the Business Software Alliance) to conduct audits.
• Limit or eliminate the vendor's ability to talk to your current and former employees.
• Allow you to correct and eliminate problems without being penalized.

These limitations are merely a starting point. There are many more you can incorporate into your audit sections of your contracts. If you are stuck with an existing contract and you vendor wants to conduct an audit, work with your technology attorney to develop a response to the audit request. Each audit is unique, as are the appropriate responses.

Mark Grossman is founder and partner of Grossman Law Group. He has practiced technology-related law for more than 20 years, specializing in negotiating technology outsourcing, telecommunications, licensing, and custom development deals.