Software licensing is vital part of merger due diligence

The reminder follows a recent announcement by FAST that it will be taking a tougher line against organisations misusing software. Until recently, FAST had always taken civil action against copyright infringers; but in January, FAST said it would be working with law enforcement to seek criminal prosecutions.

FAST perceives an increased risk of non-compliance as the Mergers and Acquisitions market is showing signs of recovery. According to the Economist, $145 billion worth of global M&A deals completed in January 2004 – the highest figures since October 2000.

John Lovelock, Manager of FAST and Legal Affairs explained:

"Software is an area which can get overlooked in the middle of a takeover deal. Lawyers need to ensure software licences are included on the asset register – often the total cost of software licences can be considerably more than hardware. If all parties involved are clear about what is being exchanged, the legalities of software licensing won't become an issue."

Company directors can be liable if their business software is found to be unlicensed if consent or connivance can be demonstrated. In 2002, changes by the Copyright & Trade Marks (Offences and Enforcement) Act increased the maximum penalty for software infringement from two to ten years' imprisonment.

Lovelock continued:

"When a company buys or merges with another business it needs to know what it is getting. This must include treating software licences as assets. In an ideal world, there would be time to gather any detail missing, but corporate transactions usually take place under enormous pressure. More often than not information on software compliance levels and existing licensing agreements is simply not to hand and available for scrutiny. This lack of information creates a host of liability issues and is therefore a high-risk strategy for any organisation."

He concluded: "The message is clear: don't wait until compliance is forced upon you. Make sure you're compliant today or face the consequences!"