How to Protect Yourself from Software Compliance Penalties

Are you out of compliance on your software licenses?

Can you say with confidence that none of your software is over-deployed?

If questioned by a vendor, can you prove that you're not out of compliance by referencing the terms of your contract (without taking weeks to investigate)?

I'm not trying to scare you. But I am trying to warn you.

The truth is, software companies rake in millions every year in compliance penalties from unsuspecting companies just like yours.

I’ve seen companies get hit with crippling compliance penalties often for the slightest of technicalities — which makes it so much more frustrating.

What's worse is that software companies will often come after you whether or not you can afford to pay the penalty.

That's exactly what happened to this small startup in Hoboken, New Jersey. Check out the whole story in this week's video:

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Video Transcript

In the last video, we talked about the importance of being able to find your contracts.

Well, sometimes even being able to eventually find your contracts isn’t good enough when a software supplier shows up, claiming that you’re out of compliance. And they will show up, eventually.

The reality is, the software industry makes millions of dollars a year from customers who underbuy and over-deploy software. And many organizations simply do as the suppliers ask because they don’t understand their rights in their own contracts.

And if you think that only the big organizations that can afford a compliance penalty get hit by the software vendors, I have a little story to tell you.

Many moons ago, when I was still cutting my teeth as a brash young contracts negotiator in New York, one of our corporate attorneys told me a story about software compliance that absolutely blew me away.

Before joining our company, he worked for a New York law firm and one day, he got a panicked call from one of the tech startup clients in Hoboken, New Jersey.

This client had set up their operations in a brownstone townhouse in Hoboken. But being a small start-up, they really didn’t need a lot of space. So they found a unit that the landlord had split into two, and they rented one half.

They had a few offices, a kitchenette, a meeting room, and a large closet, where they kept their servers. A few years into the business, they got a call from one of their software suppliers who wanted to conduct an onsite audit.

The client didn’t have immediate access to their contract, but they knew they hadn’t done anything wrong, so they agreed to the audit.

And just so you know: like vampires, software companies can only come in to do an audit if you invite them in. I should know, I also have a software company.

When the supplier showed up, they noticed the address on the door was 23 West Elm Street. They informed this client that they had breached the terms of their site license by moving the software and they imposed a compliance penalty which this client eventually had to pay.

So how did they know that this client was out of compliance? By simply looking at the address.

Because when the client signed the contract for the site license, their address was 23 1/2 West Elm Street, Unit A, which was the naming convention for split brownstones in Hoboken, New Jersey at the time.

But as their business grew, they bought their unit and the other half of the brownstone and took down the dividing wall. The server hadn’t moved, but the address changed.

The real irony is, if they read their contract, they would’ve realized they had the right to move the server to a different site or different address, they just had to provide notice to the supplier.

More importantly, the supplier had to give them a 6-month notice before conducting an onsite audit. But they didn’t have an easy access to their contracts and the contracts didn’t have summaries.

Which meant somebody would’ve had to sit there and figure out their license grant and their audit provisions to see if they’re really offsides.

Unfortunately, This is the case for many organizations. The simple fix? Make sure that every software contract has a summary that clearly defines the license grant and the audit provision,

A simpler fix? Use a tool, like OneView, that does it for you.

Stay tuned for the next video, where we’ll talk about reducing the cost for annual renewals.

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Also, if you’d like free a contract management process review, where we’ll show you how to reduce the time you spend on contract management by up to 75%, head over to to claim your free session.

Thanks for watching.